Disintermediation in music industry


Recently,  I read some very  interesting articles and researches about the impact of information technology on the business structure of music industries. These readings focused on the impact of new ways to distribute music online on the profitability and business structure of record labels like Warner Brothers and Sony. The amount of options to listen to music online for free (or a low price) have increased substantially over the last years. Both the possibilities to stream music via applications like Spotify and Napster and to download music via piracy have an impact on the traditional business structure. (Clemons et al., 2002)

Large record labels have to deal with a loss in revenues due to these online options. The new opportunities to distribute and promote music, enable artists to record their own music more easily and to share it with the world. The traditional activities and investments of record labels (recording, promoting, etc.) declined in value. This can be seen as a form of disintermediation: the less expensive ways of producing and promoting music make artists and small record labels independent from the large players in the field. (Waldfogel, 2012)
Large record labels responded to the new situation in different ways; some labels sued the online companies, while others tried to cooperate with them. (Clemons et al., 2002)

Figure 1. 'How it was for a very long time'
Figure 1. ‘How it was for a very long time’

Despite the decline of album releases from large record labels, there has been an overall increase in music releases from 2000 onwards. This can be explained by the possibilities of producing and promoting music in a cheap and easy way, creating opportunities for small record labels and artists themselves. Since music reaches the audience more easily, consumers get the chance to explore more types of music. (Waldfogel, 2012)

In his article ‘Strategy and the Internet’, Porter stated that the traditional activities remain highly important and internet could expand the opportunities for them. (Porter, 2002)
What do you think? Will the large record labels find a way to make profit from the new situation? If so, how should they do that? I am very curious to read your ideas on this topic.

Sources:

Clemons, E.K., Gu, B., Reiner Lang, K. (2003) Newly Vulnerable Markets in an Age of Pure Information Products: An Analysis of Online Music and Online News. Journal of Management Information Systems. 19 (3), 17-41.

Figure 1. Oatmeal [Cartoon] At: http://www.noisemademedoit.com/2012/08/page/11/ (Accessed on 14.09.15)

Porter, M.E. (2001) Strategy and the Internet. Harvard Business Review: 1-20.

Waldfogel, J. (2012) And the Bands Played On: Digital Disintermediation and the Quality of New Recorded Music. University of Minnesota and NBER.

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2 responses to “Disintermediation in music industry”

  1. jorianhe says :

    The music industry is a very interesting and alive market, we can see that the development has not stagnated yet. Yes we have seen transitions from LP to cassette to cd to mp3 to online and I actually wonder what the new version of it will be. Lately I was on kickstarter (very inspiring) and read an idea about: “the world’s first interactive music platform”. The guy who established the idea explains that spotify and other music tools lack the community aspect of music media. He therefore ops to create a platform including a personal wall were music from your friends and the artists you follow appears. Additionally, you pay a monthly fee and that provides you with a monthly budget to support artists. Hence, you like the music of John Mayer, now with this new platform you can personally reward him with money. In fact you decide upon who gets rewarded and who doesn’t. I personally think the music market has a long way to go and that artists business models will continue to evolve. What is the opinion of you guys on this?

    Link to kickstarter article: https://www.kickstarter.com/projects/whitestonemusic/this-is-what-music-will-look-like-in-the-future?ref=category_location

  2. matthewvancooten says :

    The (upcoming) innovations in the music industry are certainly a very interesting topic to discuss about. To me, however, the niche market of the music industry is more interesting. Recently, I read an article that compared vinyl record sales with revenues out of ad-supported streaming. It said that vinyl record sales generated almost $60 million more than ad-supported streaming services during the first half of 2015. Also, the growth in sales between the two channels differ tremendously: 52% versus 27% (Cox, 2015). Since the year of 2006, a renewed interest and increased sales of vinyl records is taking place, also referred to as the “vinyl revival” (Hasted, 2012). This grow in the sales of vinyl records has also lead to a renewed interest in record shops, with Record Store Day and Black Friday as an example.
    To me, one of the advantages of listening to an album using streaming services like Spotify relative to buying the album on vinyl is the fact that I can listen to it on all places, at all times. As a counteract to this advantage of “location independency”, in most vinyl records, a download code of the complete album is included with the vinyl record, which gives the consumer the possibility to download the album and listen it on his/her smartphone too.
    Obviously, the vinyl record sales will never even come close to streaming revenue overall, but it is still in interesting situation that is arising.

    Sources:
    Cox, J. (2015) “Vinyl sales are more valuable than ad-supported streaming in 2015” [online] Available at: http://www.theverge.com/2015/9/28/9408233/vinyl-sales-ad-supported-streaming-riaa-2015-report [Accessed at: 18-10-2015]

    Hasted, N. (2012) “The rapacity of the record revival” [online] Available at: http://www.independent.co.uk/arts-entertainment/music/features/the-rapacity-of-the-record-revival-8026756.html [Accessed at: 18-10-2015]

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