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A thesis that explores ways to monetize the music industry using social networking as key marketing tools. Received 90% for this research.
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Matt Powell – 0540421 April 2, 2010 MDST 4022 Senior Research Project
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Marketing music online: An analysis of social networking tools that
could revolutionize the ways music makes money on the Internet
A thesis Presented to The Faculty of Undergraduate Studies
Of The University of Guelph-Humber
In partial requirements for the degree of
Bachelors of Applied Arts – Media Studies March 2010
By: Matthew Powell Advisor: Prof. Twyla Gibson Student #: 0540421 Submission Date: March 29, 2010 Course Code: MDST 4022 – Senior Research Project Media Studies – Journalism
Number of Pages: 64 Number of words: 12,708
©Matthew Powell, March 2010
Matt Powell – 0540421 April 2, 2010 MDST 4022 Senior Research Project
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ABSTRACT Matthew Powell Advisor: University of Guelph-Humber 2010 Prof. Twyla Gibson Recorded music sales fell 16% in 2009. These sales have fallen annually
because of an increased consumer focus on online music practice – both legal
and illegal. Social networks have become the Internet‟s fastest growing brands.
This study will argue that the music industry must develop online revenue
streams through the use of social networking because of the massive growth that
industry has witnessed in recent years. Throughout, an analysis of social
networks and the music industry will explore strategies for the music industry to
develop social networks as key marketing tools necessary to generate new
revenue streams.
An understanding of the theories of Hjarvard‟s mediatization theory, its
inevitability within the music industry and its connection to globalization theory
will develop statistical relationships between qualitative and quantitative
research. It will also be integral to understand the ways the music industry can
adapt distribution methods to make music money without dependence on
physically recorded music releases.
This study will argue that the music industry must prove to ISPs that a
music tax is necessary to off-set costs relating to piracy. It will also explore the
“free” model and its importance to the future of online music practice, the need
for the music industry to charge advertising premiums to the social networks, and
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how artist development and maintenance is crucial to justifying social networks
as key marketing tools in today‟s increasingly volatile music industry.
Matt Powell – 0540421 April 2, 2010 MDST 4022 Senior Research Project
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ACKNOWLEDGMENTS I dedicate this paper to Diane Whiting. Thank you for giving me the best friend I could have ever asked for. Your fight with cancer has truly inspired me to push the limits of my abilities. I would like to thank the University of Guelph-Humber for giving me the opportunity to write a piece of this magnitude – it was truly an adventure. To Twyla – thank you for being a great help throughout this whole process. To my parents for constantly supporting me and for giving me the opportunity to get an education. To the rest of my family for believing in me, and to my friends for being extremely patient with me for the past seven months.
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TABLE OF CONTENTS
ABSTRACT ..................................................................................................................................... 2 ACKNOWLEDGMENTS ................................................................................................................. 4 TABLE OF CONTENTS .................................................................................................................. 5 1. 0 INTRODUCTION ...................................................................................................................... 6
1.1 AIMS AND PURPOSES ........................................................................................................ 9 1.2 NECESSARY STEPS TO COMPLETE STUDY ................................................................... 9
2.0 BACKGROUND INFORMATION ............................................................................................ 10 2.1 DEFINING SOCIAL NETWORKS ....................................................................................... 10 2.2 THE MUSIC INDUSTRY: PAST AND PRESENT ............................................................... 13 2.3 THE IMPACT OF PIRACY .................................................................................................. 17 2.4 THE ONLINE MUSIC INDUSTRY ....................................................................................... 17
3.0 REVIEW OF LITERATURE ..................................................................................................... 19 3.1 SOCIAL NETWORKS AND THE MUSIC INDUSTRY ........................................................ 19 3.1 ADAPTING TO A CONSTANTLY EVOLVING MARKET.................................................... 22 3.3 FACTORS IMPEDING GROWTH IN THE MUSIC INDUSTRY .......................................... 25 3.4 THE INEVITABILITY OF MUSIC MEDIATIZATION ........................................................... 28 3.5 UNDERSTANDING USES AND GRATIFICATIONS THEORY .......................................... 32
4.0 METHODOLOGY .................................................................................................................... 34 5.0 FINDINGS AND CONCLUSIONS ........................................................................................... 35
5.1 THE FUTURE OF SOCIAL NETWORKS ........................................................................... 35 5.2 THE MUSIC INDUSTRY NEEDS SOCIAL MEDIA ............................................................. 36
6.0 RECOMMENDATIONS AND OPPORTUNITIES .................................................................... 39 6.1 THE MUSIC TAX................................................................................................................. 39 6.2 DEVELOP THE “FREE” MODEL OF RECORDED MUSIC ................................................ 41 6.3 MUSIC INDUSTRY NEEDS TO JUMP ON AD PREMIUMS .............................................. 44 6.4 SOCIAL NETWORK SUCCESS DEPENDENT ON ARTIST INVOLVMENT ..................... 46
7.0 CONCLUSION......................................................................................................................... 48 8.0 REFERENCES ........................................................................................................................ 51 9.0 APPENDICES ......................................................................................................................... 53
9.1 APPENDIX 1 – NIELSEN SOUNDSCAN ONLINE MUSIC DESTINATION AUDIENCES . 53 9.2 APPENDIX 2 – TWITTER GROWTH BY TIME SPENT ON NETWORK ........................... 54 9.3 APPENDIX 3 – SOCIAL NETWORK STATISTICS 2009 ................................................... 55 9.4 APPENDIX 4 – VIDEO STREAMING COMMUNITY GROWTH ........................................ 56 9.5 APPENDIX 5 – MYSPACE UNIQUE AUDIENCE COMPOSITION .................................... 57 9.6 APPENDIX 6 – TOP ONLINE MEMBER COMMUNITIES ................................................. 58 9.7 APPENDIX 7 – TIME SPENT ON SOCIAL NETWORKS ................................................... 59 9.8 APPENDIX 8 – KEY TRENDS NOTED BY OMDC CANADIAN MUSIC INDUSTRY AUDIT ................................................................................................................................................... 60 9.9 APPENDIX 9 – OMDC – CHANGES IN THE MUSIC ECOSYSTEM ................................. 61 9.10 APPENDIX 10 – OMDC – EMERGING BUSINESS MODELS IN MUSIC ....................... 63
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1. 0 INTRODUCTION
“Today, it has become purely voluntary to pay for music.If I tell you to go listen to this
band, you could pay, or you might not. It’s pretty much up to you. So the music business
has become a big tip jar…"- Jim Griffin, Digital Music Strategist, 2008
The music industry desperately needs to understand and utilize the potential
marketing tools social networks possess to make an effort to off-set significant
financial losses in the recorded music sector. While piracy is not the only culprit
affecting these losses, it is rampant and continues to prove unbeatable.
Recorded music sale have fallen by 16% since 2008 (IFPI 2010). Industry
response has been increasingly focused on legal action against music pirates
instead of adapting to it, modern online models that would understand that the
Internet provides a great financial source for today‟s increasingly digital music
market.
The online music industry now represents more than a quarter of the
industry (IFPI 2010) through platform like iTunes, Rhapsody and the latest
version of Napster. But, developed approaches have been lackluster in
answering piracy issues; pirated music now represents 95% of all music
downloaded on the Internet and represents an overall 30% decline in industry
sales between 2004 and 2009 (Pfanner 2010). This fact only proves that a focus
on subscription and paid download services have generally failed, and that they
have failed to provide consumers with the attractions of illegal P2P downloading
(Freeman 18).
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It will be the purpose of this study to accurately analyze the current music
markets, and understand why current market practices must be adapted to
develop online marketing programs through social networks. It will be necessary
to analyze current music markets, understand how social media works and to
incorporate mediatization and globalization theories to accomplish this.
Social networks will be significant in determining adapted market
strategies for the industry as the social network and music industries are going in
severely opposite directions. For one, social networking has become one of the
greatest communication tools the Internet has ever offered, while traditional
marketing techniques in the music industry no longer work. Research will also
suggest that users of social networks seek to satisfy needs traditionally gratified
by traditional media like television and newspapers (Sheldon 12).
In the case of this study, we will analyze the way online social networks
like Facebook, Myspace, and Twitter continually influence growth in today‟s
increasingly digital music industry. Twitter, for instance, has 55 million unique
visitors monthly (Bruno 16). 144.3 million users viewed their Facebook profiles in
May 2009 (Nielsen Wire 2) (Appendix 3). By the end of 2006, Myspace had
overtaken Google as the most visited website on the internet (Thelwall1321).
Statistics relating to user growth and activity could be considered the basis of the
social media argument.
Social media is already making waves in developing strategies for the
music industry. It has come to understand that consumers want to experience
music, not just listen to it (Klassen, Lemonnier, 3). Using Myspace, Facebook,
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and Twitter, this study will demonstrate that the use of social media applications
can provide viable tools to return profitability to the music industry. It will also be
necessary to understand how Hjarvard‟s theory of mediatization was inevitable in
the music industry, and how the theory makes an argument for newer
globalization strategies through the use of online technologies.
For today‟s music industry, it has seemed that mediatization was
inevitable due to a constantly changing market, like its digitized inceptions when
peer-to-peer sharing programs were introduced, and now can be mediated by
regulated platforms institutionalized by media and technology corporations.
Today‟s music industry is, ultimately, controlled and regulated by online activities
that are no longer dependent upon traditional distribution platforms. Krestschmer
notes that networked computer technology can eliminate overhead and
traditional elements of the distribution chain, benefiting consumers with unlimited
music choices, and cheaper prices for online music products (Krestschmer 5).
The significance of this relates to the phenomenon social networks have
developed due to their massive popularity, and the scope of their uses in relation
to accessibility and convenience.
The music industry has to develop its use of social networking. Statistics
indicate the massive audience potential, and should the industry understand the
“free” model which will be proposed here, it can begin to develop cooperative
marketing partnerships with the networks and internet service providers. In an
online environment, music will become a loss-leader to promote more valuable
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alternatives like live music, merchandising and online advertising (Krestschmer
17).
1.1 AIMS AND PURPOSES
Aims and Goals Purpose
To identify new tools available to the music industry through social networking
By identifying these strategies, the industry can adapt to them and develop newer, profitable practices through the use of social networks to answer the constant threat of piracy.
To identify the current tools being used by the industry and understand why they are not working.
By identifying the problems of the industry, it will be easier to develop arguments and strategies necessary to develop new revenue streams.
To explain why social networking is a key tool in the success of a new music industry.
To develop the industry in a way that is profitable, convenient, and develops the importance of understanding how these tools are necessary.
1.2 NECESSARY STEPS TO COMPLETE STUDY
To successfully complete this study, it must understand the following:
1) What is a social network? 2) Why do people use social networks? 3) What tools do social networks offer the music industry? 4) What is the current state of the music industry? 5) What business models are being employed by current music industry
activities? 6) What has piracy done to the music industry? 7) What is the online music industry? 8) What impact has the online music industry had on music consumers? 9) Analyze trends in both American and Canadian music industry over the
past five years to limit the scope of the study and make it more legitimate through understanding through statistical information like CD sales, online music sales, tour revenues.
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2.0 BACKGROUND INFORMATION
2.1 DEFINING SOCIAL NETWORKS
The popularity of social networking is a relatively new phenomena, but its
prosperity is seemingly endless.
Of the big social networks (Twitter, Facebook, and Myspace) all three saw
significant growth throughout 2008 and 2009. Between April 2008 to April 2009,
users spent 699% more time on their Facebook profiles.Twitter grew an amazing
3712% in 2009, and Myspace‟s music portal company, Myspace Music, grew by
190% from August 2008 to June 2009, beating music giants like MTV, according
to Nielsen Soundscan (Nielsen par. 3) (See appendix 9.3 for further information).
For the purposes of this study, I will use Danah Boyd‟s definition of social
network:
A social network is a:
Web based services that allow individuals to (1) construct a public or semi-public profile within a
bounded system, (2) articulate a list of other users with whom they share a connection, and (3)
view and traverse their list of connection and those made by others within the system. (Boyd,
211)
Social networks are popular because they add to self-gratification (Boyd
241). Boyd describes that social networks have the ability to indulge the self-
absorbed. They keep us in tune with our own lives, those of our friends, family
members, even celebrities. Facebook, Twitter, and Myspace have grown to
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become the most popular. Especially because of inter-connectivity capabilities,
users are able to use the three major networks simultaneously should they
choose too through linking abilities.
These sites act as a networked public that allow people to use them for a
variety of reasons, because they are more accessible than physical publics
(Boyd, 213). The Internet, along with social networks, erases time and space,
allowing users to generate, view, and respond to content on an instantaneous
basis. Parks and Floyd found that user who developed more personal
relationships were those who posted often and more frequently. Research
suggests that conceptualizing and measuring gratifications in terms of both
gratifications sought (audiences reasons for using Facebook) and gratifications
obtained (those benefits audiences believe they receive from Facebook use or
from their frequency of using Facebook) from media use.
Social network users are simply web users who are interested developing
a community based on specific content, collaboration and communication
(Sheldon 4). The networks depend on its users to generate content on an
instantaneous basis, which means that the content on a social network is ever-
changing (Hoegg et al. 11). These tools develop a plethora of new information
and revenue generating abilities.
Table 1 – Minutes spent on social networks
Rank Site APR 08 MINS APR 09 MINS GROWTH
1 Facebook 1,735,698 13,872,640 699%
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2 Myspace 7,254,645 4,973,919 -31%
5 Twitter 7,865 299,836 3712%
*source: The Nielsen Company
One notable observation is that there is no true way to know the exact
number of people viewing content on a social network profile at specific times.
The numbers recorded by statistics corporations represent the least possible
number of people who have viewed that page – two or more people can look at
the same computer screen whenever they want. Boyd refers to these as
“invisible audiences”. Variables such as this only expand the scope of a social
network‟s reach. The Internet has become a driving force to connect people
anywhere in the world, and now social networks have developed enough to the
point that they represent the platforms the world needed to support the real-time
necessities the world seemed to want.
These new Web 2.0 technologies base themselves around the principle of
a “free economy” (Hoegg et al. 10). This results in the development of content
from internal and external sources that ultimately develop a community
integrating user‟s lives with a network of “friends”. Content development and
consumption on social networks is unique because its users develop content and
consume at the same time (Hoegg et al. 11).
“The fundament of Web 2.0…is the concept of maximizing the collective intelligence.
The interactive exchange of information and the continuous development and
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maintenance of a group opinion us described as the process of collective intelligence.” –
Hoegg et al. 13
For the most part, social networks generate revenue through advertising
sales. In a survey of 1,000 marketers, it was estimated that about 70% would
invest in the social-media sector (Morrisey 2010)). A web-marketer predicts that
advertising revenue on Facebook alone will reach $3.63 billion in 2010 worldwide
(Klassen 2007).
Facebook for example, uses a platform called “social ads”, where
advertisements are actually integrated into the network‟s “newsfeed” application
(Klassen 2007). The platform that was launched in 2007 gives advertisers their
own “profile” which is really a “fan” page users can join, and news-feed ads that
costs $150,00 for a three-month placement (Vara 2007).
Social networks may be the best example of the free-model in modern
cultural industry. As Anderson argues, “the winners made their stuff free first”,
and through the development of third-party markets, where a marketer is used to
focus advertising efforts, but daily activities on social networks are mediated by a
developing number of advertising potential.
2.2 THE MUSIC INDUSTRY: PAST AND PRESENT
The music industry has suffered significantly since the Internet introduced piracy
platforms that allowed users to illegally download music for free. In 2006, it was
estimated that about 30% of Internet users in Canada downloaded pirated music,
and that piracy accounts for $3.7 billion in lost revenue for the music industry
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(Ontario Media Development 6). The same study noted that 68% of the 15-20
Canadian demographic downloaded music illegally.
Table 2 – 2010 overall music industry statistics by IFPI
The International Federation of the Phonographic Industry (IFPI) has reported the
following music industry results for 2010:
- piracy has accounted for a 30% loss in overall music sales between 2004 and
2009
- CD sales have fallen by 16% over two years – from $17.5 billion to $15.8 billion
- Reports that the digital music business has massive growth potential
- The music industry has been too slow to adapt to new business models that would
attract consumers away from piracy sites.
- worldwide music sales fell by 10% in 2009
Current industry structure retains a heavy focus on major label distribution
and marketing of physical product, despite declining recorded music sales. The
following is a description of record label responsibilities as explained by
Kreschsmer:
“Major labels are responsible for: sourcing new talent, producing recordings,
manufacturing physical product, distribution and marketing of recordings, administering
royalty income to artists” - (Kreschsmer 15).
Wikstrom explains that in the past decade, the music industry has
experienced a process of consolidation. Market dominators grow by merging with
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or acquiring competitors. Consolidation is represented by a music industry that is
dominated by four majors (Universal, Sony, EMI, Warner). It is assumed that
almost 70% of all recorded music is recorded and distributed by one of these four
companies, or by a subsidiary owned by one of these four companies (Wikstrom
69).
Wikstrom concludes that:
1. When centralizing control of strategic artist development, diversity will fall
and eventually, demand, revenues and profitability will also fall.
2. This is a vicious circle that can be changed by breaking the structure of
the current system through changing current A & R policies.
These conclusions tell us that in today‟s online-dominated markets, networks
have the platforms and audiences necessary to handle an ongoing influx of
material and still find new ways to understand and market it. Because the
Internet can handle mass amounts of material, it represents a great opportunity
to continually diversify music content.
Piracy continues to play a significant role in the falling CD sales, which were
at one time a leading revenue generator. But, because the market is changing
towards an increasingly “free model”, it will be necessary for the music industry to
adapt and develop new revenue streams that does not include focus on the sale
of physical music releases, but instead on online revenue means, touring, and
merchandising.
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Traditional industry structure involving the mass production and distribution of
recorded music is no longer sustainable. The industry must adopt new means of
revenue generation. Mediatization with prove itself connected to globalization in
two ways: 1) globalization presumes the existence of the technical means to
extend communication over long distances and 2) it propels the process of
mediatization by institutionalizing mediated communication and interaction in
many new contexts (Hjarvard 113). Here, these globalization factors will be
represented by the fact that industry has recognized that there are the technical
means it needs to reconfigure distribution strategies. On the other hand, these
means have been developed enough to actually develop profitable programs the
industry should utilize to increase globalization via online distribution strategies.
Statistics demonstrate that mass producing recorded music is not profitable
because of an increased consumer focus on online distribution through legal and
illegal platforms. Globalization theory would suggest that the future of music
industry production is dependent on the platforms it provides its users to
consume it. Social networks provide a vastly developed platform for mass
consumption that has the ability to regulate production.
While there has been significant recognition that the future of the industry
lies in understanding online business models, there has been little action to
develop newer revenue streams that seem risky because they may not benefit
the record labels themselves (Freeman 3). The profit potential for bands could,
however, be at its peak since the inception of the “dreaded” P2P pirate programs.
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2.3 THE IMPACT OF PIRACY
There is little doubting that piracy has played a significant role in the crippling of
the recorded music industry. Sales of recorded music fell by 10% in 2009
(Pfanner 2010), and it has been suggested by IFPI that the figures used in a
study of the music industry last year act as justification that the record labels
need to understand focus a crackdown on digital piracy. In today‟s market
environment, however, these responses could include increased implementation
of a “free” business model that would focus on releasing music content for free,
and generating revenue in other forms in an increasingly online environment.
The IFPI estimates that 95% of downloaded music worldwide is pirated,
and has accounted for a 30% revenue loss in the music industry between 2004
and 2009 (Pfanner 2010). These numbers seem justified considering that
personal audio technologies depend on MP3 file-formats, meaning consumers
have a reason to download illegally because the platforms where they listen to
music is dependent on the file-formats that piracy programs provide.
2.4 THE ONLINE MUSIC INDUSTRY
Online, the music industry has thrived, mainly due to its download abilities, but
also because of convenience and ease-of-access. Other than live music, it is the
only industry sector that has seen growth in the past five years.
IFPI reports that in 2003, there was less than 50 legitimate download
services, generating about $20 million in revenue for the industry. In 2009, there
were 400, selling 11 million unique tracks that generated $4.2 billion, accounting
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for 27% of the industry‟s revenue. Digital music sales are expected to increase to
$14.8 billion worldwide by 2011 (Klassen and Lemonnier 3).
TABLE 3 – GROWTH OF ONLINE MUSIC SERVICES 2003-2009
Source: International Federation of the Phonographic Industry (IFPI) 2010
Although the industry represents more than a quarter of music‟s revenues,
paid and subscription services are still unable to compete with piracy, suggesting
that although legitimate download services are easily accessible in today‟s e-
markets, there is still limited recognition that paid-for music is increasingly
obsolete. IFPI argues that the demand for music is still there, but there is no
longer the paying customer the online paid services need to survive. This could
be due to the fact that subscription services have been unable to match P2P
attractions like mass duplication (Freeman 18).
The advantage the online market has, however, is that the Internet has
mass audiences, mass memory capabilities and revenue stream development
possibilities, like tapping into increased live music interests and social network
content.
2003 2009
Licensed download services
>50 400
Catalogues 1 million tracks 11 million tracks
Industry‟s digital revenues
$20 million $4.2 billion
% of industry revenue 27%
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3.0 REVIEW OF LITERATURE
3.1 SOCIAL NETWORKS AND THE MUSIC INDUSTRY
There is no doubt that social media platforms have significant effects on today‟s
popular culture, especially everyday peer-to-peer discourse. The advent of
networking sites like Facebook, Myspace, and Twitter has revolutionized the way
people communicate. This study will show how social media networks have the
ability to become significant marketing tools for musicians in a market
environment that is increasingly volatile and has been too slow to respond to
floundering sales and alleviate pressure placed on the eradication of pirated
music.
In 2009, 12,130,000 unique visitors viewed Myspace Music‟s homepage.
Since launching in September 2008, Myspace‟s music portal has grown by 190%
(Nielsen Wire 2009). Myspace has encouraged bands to invite “friends” to join
their music profile, which offers free music and video streams, a discussion
board, and news blog (Thelwall 1321). It acts as a platform to achieve significant
convergence between bands and fans (Belzman).
Thelwall explains that social networking through sites like Myspace and
Facebook is not only a newer form of communication, but an important one as
well. Teenage users often allow Myspace‟s influence on their lives to embed into
characteristics affecting self-esteem (Thelwall 1321).
The Nielsen Company shows that in 2009, Myspace users spent
4,973,919 minutes surfing profiles on the social network (Nielsen Wire 2009).
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Nielsen‟s statistics also show us that Myspace Music beat MTV Networks Music
by almost a million online hits (Nielsen Wire 2009). This is incredibly significant
considering that MTV is the most widely distributed TV network in the world
(Fung 72).
Table 4 - Unique Audience by Age-Group (Myspace Music):
Age Group Composition Index by unique audience
Unique Audience
12-17 235 2,334,000
18-24 219 2,403,000
35-49 89 3,105,000 *source: The Nielsen Company
Table 3 shows that the three major audiences on social networks
represent the three demographics with the most disposable income. In our case,
these statistics are especially important in demonstrating audience scope in
relation to newer revenue streams such as ticket sales and merchandising.
In 2009, Facebook was the highest rated global social networking
destination (Nielsen). The network had more than 75.4 million unique visitors - a
190% increase from May 2008. But, while Facebook leads in popoulatiry, it has
yet to make the impact on the music industry that Myspace has. This is partly
due to its failure to implement its planned music streaming application last year
(Arrington 2009). But, it‟s become quite clear that Facebook could have the tools
necessary to market artists independently without financial backing from major
labels (Online: Servicing Online Fan Communities 15). Facebook as a social
network has allowed artists to further develop fan-to-band interaction. It is also
assumed these days that bands that make an effort to increase social network
activity are more likely to be signed by record labels – this could crucial in the
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development of newer A & R strategies. Not only do record labels have a new
way of uncovering acts, bands now have a more sufficient way to market
themselves.
The same study reveals that Twitter is 2009‟s fastest growing web brand -
1448% increase from a year ago. Twitter grew from 1.2 million visitors in 2008, to
18.2 million in 2009. (McGiboney 2009) (See Appendix 9.2). Twitter is making a
significant impact because of its simplicity (Bruno 16). “Tweets” are being used
in increasing popularity to keep bands in touch with their fans via the network
website. Bands now have the ability to simply “tweet” the URL of a website or
social network profile where fans can listen to new songs or exclusive video
content (Bruno 16). According to Forrester Research, Twitter gets about 55
million visitors a month in the U.S. The average time unique visitors spend on
Twitter has also increased by 175%. Twitter could come to play an integral role in
communication strategies between artists and fans and its growth in popularity
shows the massive potential the network has for the music industry. It will give
musicians a louder voice in spreading new content over a number of networks,
starting with Twitter.
Myspace could be a viable music market, especially considering the
amount of recent growth in the digital music market. It is expected that by 2011,
the digital music market will be worth $14.8 billion (Klassen and Lemonnier 3) – a
questionable estimate considering increased consumer reluctance to succumb to
the subscription and paid download services that Freeman argues have failed but
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are still trying to force their way in. Also significant considering 95% of
downloaded music is pirated (Pfanner 2010).
By studying how these three social networks can affect the music industry,
a shift in business strategies becomes inevitably clear, and necessary. The
music industry is now a digitally driven business, and it has much to do with how
convenience and ease-of-access play a role. Social networks play a big role in
convenience and ease-of-access. Social media has become something of a
necessity in today‟s incredibly uncertain market (Seay 2008).
A close analysis of Facebook, Myspace, and Twitter should reveal
accurate details about the validity of social networks‟ ability to act as legitimate
marketing tools for the music market considering the industry‟s volatility. As
these tools continue to evolve, this study will assume that the global digital music
market should structure itself around using social networking as a brand platform
for the development of revenue streams different to traditional ones.
3.1 ADAPTING TO A CONSTANTLY EVOLVING MARKET
The music industry is a lifestyle business. These kinds of businesses depend on
the perception that business is not serious until it is successful (Stokes and
Wilson 223). The music industry was successful; now it is struggling. Recorded
music is no longer profitable, and the industry has been too slow in recognizing
that significant change is necessary.
Today‟s music industry is of particular high-risk. Stokes and Wilson would
argue that the industry‟s level of certainty is “compounded by short termism”.
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Market conditions are volatile, and the physical recording industry, is struggling
significantly. Constantly evolving technology may be adding to industry
confusion and lack of motivated action towards adaptation. Technology‟s
constant flow of new content could be playing a significant role in how the
industry has been slow in reacting to falling market conditions because it is clear
that it has yet to understand and adapt to these new technologies.
As consumers place a heavier reliance on pirated downloads, subscription
services, like iTunes, are no longer proving legitimate alternatives (Freeman 5). It
is estimated by IFPI that 95% of downloaded music is pirated. Despite the digital
music market‟s valuation at $4.8 billion, represent more than a quarter of the
overall music industry, legal download services have not made up for the losses
caused by piracy (Freeman 18). The Internet is giving smaller labels and
independent artists the power to give consumers more music choices by utilizing
download services and social networking (Cohn and Vaccaro 46). The success
of the industry will depend on a realization that constantly evolving technology is
an unavoidable variable.
Live music will become a significant money-maker as social networks
become increasingly important to market conditions. Although live music has yet
to digitally integrate into a structured format, bands are increasingly taking to
social networks to make users aware of live events (Carter 19). Video streaming
sites like YouTube have allowed bands to share live videos, and Twitter allows
updating services to keep concert-goers in tune with the artist activities. Live
music could be one of those revenue generators that would result in recorded
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music becoming a loss-leader to support other alternatives (Krestschmer 17). In
Canada, the live music sector accounted for $752.8 million in 2005 – about half
the country‟s over industry revenue (OMDC 22).
Digital technology has provided bands with a number of new tools for self-
promotion through live performance such as video-streaming supported by video
applications via social networks like YouTube and Myspace. The next wave of
digitally driven live-music products are expected to be social (Carter 19).The
common trend throughout this analysis is that the music market is now
dependent on electronic and social media, and that record labels and bands
must adapt to that to succeed (Seay 32). There is also evidence ticket agencies
in the United Kingdom have started using social networks to sell tickets to live
events (Carter 2009).
Another increasingly notable trend is that bands have started to give away
versions of new albums digitally instead of releasing physical versions (Seay 32).
In 2008, Radiohead released their new album digitally, using the precedent “pay
what you want” format. The band allowed fans to decide how much they thought
the music was worth. It was a risky move, one surrounded by uncertainly
commercial viability (Leeds 2008). Industry executives said the experiment was a
way of testing whether or not digital downloads would eat into CD sales (Leeds
2008). The band also refused to sell the album to iTunes because it wanted the
album to be sold in its entirety instead of individual tracks. A New York Times
article also notes that the band risked losing its mass market connections
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because of record label skepticism that the release would turn into a niche
market.
The Radiohead example makes two factors obvious – 1) artists can
release their own music without the help of a record label online; and 2) record
labels are skeptical about releasing music in this format because there is no
guaranteed pay-out (Seay 32). Most artists do not make money selling albums
(about 12% comes back to the artist). Albums are usually loss leaders that
instead turn to generate revenue through live performances, merchandising, etc.
Radiohead‟s experiment gives independent artists the chance that making
money on music is possible should they choose to take the chance (Seay 32).
3.3 FACTORS IMPEDING GROWTH IN THE MUSIC INDUSTRY
About 10% of annual recordings are profitable (Kravilovsky 7). There has been
significant focus on eradicating P2P illegal download services because of their
significant impact on industry finances. Physical sales have dropped by 16% over
the past two years (Pfanner 2010). It is estimated that 95% of downloaded music
is pirated (IFPI 2010). The industry has maintained a significant focus on
preventing piracy instead of generating new ways to adapt to it (Kravilovsky 10).
Adaptation is necessary to success because piracy has proven unbeatable.
The music industry suffers from a “culture gap” – a misunderstanding
between the creative industry and the financial industries that support it (Wilson
and Stokes 223). The problem exists for two reasons – 1) the industry and the
banks do not speak the same language (financers are uninterested in
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understanding why the industry is not profitable – they want to know how to make
it profitable; and 2) there is no cultural link between the two industries – they
operated on very different circumstances argue Wilson and Stokes.
A 2008 Consumer Profile by the Recording Industry of America shows that
sound recording sales have fallen heavily since its peak in 1999-2000, especially
in the younger demographics. Between 2000 and 2008, record sales fell 2% at
the 15-19 year old demographic (RIAA 2008). While 2% may not seem
significant, in the overall picture, decreases in that specific demographic can be
highly damaging because that demographic is known to have the highest level of
disposable income, especially in the U.S; the music industry‟s biggest market.
The same study noted that record sales in 1999 peaked at $14,323,000,000.
Eight years later, CD sales fell by almost $6 billion to $8,480,200,000 (RIAA
2008)
Music piracy is easily the most obvious factor that has inhibited growth
since the beginning of the internet and MP3 age. It is also the easiest variable for
record labels to blame because it is so rampant. The piracy argument, however,
is two-sided.
In terms of finances, piracy has proven to inhibit monetary growth on the
music industry because it impedes music purchases. It is estimated that piracy
has cost the music industry $3.7 billion (OMDC 22). On the other hand, artists
can reap significant rewards from piracy because it is a way to digitally distribute
music without the high costs of distribution and marketing. Modern rock acts like
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Modest Mouse and Beck have admitted that piracy is a good way to hear about
new music (Hadden 44)
Sandulli and Martin Barbero present three mechanisms that‟s influence
consumer willingness to pay for music online on P2P networks. They argue that
the music industry has made specific efforts to curb piracy through the following
defenses:
1. File pollution: the music industry deposits polluted files into P2P networks
like replacing parts of songs with “white noise” and cutting song durations
2. Value differentiation: online music stores try to develop consumer value by
providing better quality files, more compressed files to produce better
reproduction quality and faster downloading times
3. Behaviour correction: the industry has tried to show consumers the
damaging effects illegally downloading music has on the overall industry
Based on the 95% piracy rate still rampant in today‟s market, it is incredibly
obvious that these theories are not practical, or have not worked. To truly adapt
to today‟s market, the industry has to learn to understand that piracy could help
in the long run, and adapt new models to off-set financial losses associated with
it.
The music industry will continue to suffer until it can better understand its
consumers (Cohn and Vaccaro 55). The use of relationship marketing,
convergency and interactive marketing paradigms create a competitive
advantage for the music industry. Utilizing these strategies should succeed in the
developing legitimate music businesses (Cohn and Vaccaro 56). Social networks
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have the ability to develop relationship marketing tools because they can satisfy
user needs through connectedness and relationship management tools. Network
users like having the ability to “friend” other users with similar interests to develop
a sense of community and connectedness (Sheldon 4). Community development
represents a massive growth opportunity for bands wanting to get closer to their
fans, as not only do they have the ability to reach people already interested in the
group itself, but also the ability to reach users with similar interests to the fans
they have already connected with.
Understanding marketing and growth strategies should produce online
tools that are necessary for the music industry. Traditional industry marketing
techniques will no longer be sufficient in developing the market in today‟s e-
environment because they are no longer truly necessary. Massive audiences and
convenience can act as platforms to share new material, video content, and
develop fan-to-band interaction.
3.4 THE INEVITABILITY OF MUSIC MEDIATIZATION
It will be necessary to explore and understand the theory of mediatization
because it relates directly to psychological relationships between users and user
generated social network content. Mediatization is also relative to the
development of technology and its influence on the scope of social media‟s
distribution abilities. Nielsen Soundscan statistics have shown that millions of
people use social networks daily, and their use is becoming increasingly routine.
Hjarvard would describe mediatization‟s relationship with social media as the way
media is incorporated with social networks to distribute numerous forms of media
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through a single online platform. Here, mediatization will describe how artists
now have the ability to use social networks as platforms for the development of
new revenue streams by using music as a gateway to other material.
Mediatization is an ambiguous term referring to a cultural increase and
social significance (Hjarvard 107). Simply, it represents the way forms of media
evolve through time. This study will analyze how both social networks and the
music industry have inevitably evolved because of the mediatization
phenomenon.
Mediatization, according to Thompson, is inevitable for two reasons:
1) modern culture constantly evolves
2) it refers to the impact of social significance
Thompson‟s theory reveals that, on the internet, the sender (producer of
content) retains control of the message. But, there is very little control over how
the receiver uses it. Simply, the producer can decide what to put on a web-page,
or a profile, but must allow the user to decide how to use it. In the music industry,
this relates to an artist posting a song to a Myspace profile, allowing the page‟s
viewers to decide whether or not they want to listen to it. The question is: will the
receiver choose to listen to it?
Krotz reveals that mediazation is an on-going process where the media
change human relations and behaviour, therefore changing society and culture
(Hjarvard 109). This description plays a significant role in defining the changes
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that both the music industry and social networks have gone. The music industry
has suffered because of an intense influx of technology that has made recorded
music easier to get at. On the other hand, social networks have had significant
impacts on how people communicate. The reality is that the music industry has
significantly failed to recognize the opportunities social media opens for its
artists. Social networks provide a platform that has the potential to develop new
revenue streams that stray from traditional music industry models, but because
they may not benefit the record labels, they are reluctant to test the true benefits
of social media. Krotz‟s theory explains that social networks depend on a
constant flow of user-generated material. With the amount of new music that
continues to emerge despite volatile market conditions, social networks have the
ability to support music content should the industry realize the potential.
Society‟s growing interdependence on mediated and live performances
make it nearly impossible to distinguish the authenticity of any one format
because mediated forms of interaction are not any more or less real than non-
mediated interaction, according to Hjarvard. This theory explains that while
interaction will always occur through a variety of social networked platforms,
these platforms are the only way to distinguish specific forms of interaction
because they have become so similar in nature. In a sense, communication
through social networks is becoming more “real” than face-to-face conversation
because users have the ability to express things they may not in real-life (Boyd
213).
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Social networks also allow communication to influence users because
users are generally connected with users they already know, or are connected
with users that have similar interests (Sheldon 41).
Social interaction consists of both communication and action. This is
dependent on activity by the producer and receiver. Therefore, for social
networks to do their job, some sort of reaction between both parties has to exist.
In other words, a social network‟s significance to the music industry is dependent
on whether or not there a considerable audience exists that cares enough to
react to new material.
Social interaction is necessary to the music industry because of its
globalization abilities. Mediatization relates directly to globalization because
globalization presumes the existence of the technical means to extend
communication and interaction (Hjarvard 113).
Mediatization plays a role in regulating direct and non-direct
communication, and both play significant roles in interaction on social networks.
Direct communication makes visible how any social activity is substituted, or
transformed to a new mediated form where it is easy to establish a „before‟ and
„after‟, then examine the differences between them (Hjarvard 114).
The media tends to always play a significant role in direct communication.
A social network needs direct communication to incorporate different media
forms to have their messages influence the network‟s users. In this study, the
online music industry needs to utilize direct communication to incorporate other
media forms within its social networking uses to influence users to come to an
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artist‟s page, develop interest and generate new revenue streams. This will
involve an artist‟s understanding that control over online content and activity is
realized, breaking one-directional ties between artist and fan. The theories of
mediatization and social interaction indicate that it will be necessary for artists to
develop closer relationships with fans through social networks to truly reap the
benefits of a network‟s capabilities.
More recently, communications technologies have gone through another
transformation of mediatization. Now, cellular phones have internet capabilities.
The major social networks have developed mobile models that allow users to
update Twitter, Facebook, or Myspace pages on an instantaneous basis no
matter where they are; the need for a computer is no longer truly essential to
take advantage of services provided by social networks.
This fact alone represents a new and significant distribution model for
musicians as they now have the ability to reach users anywhere, any time. Again,
the scope of social networks has been expanded, opening distribution streams
unavailable in the past, representing another shift in the mediatization of social
networks and the music industry.
3.5 UNDERSTANDING USES AND GRATIFICATIONS THEORY
The uses and gratifications theory presents the idea that audiences differ in the
gratifications they seek from the mass media. The theory is grouped into four
categories:
1) diversion
2) personal relationship building
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3) personal identity
4) surveillance
The theory tells us that users of social media, or in this case, social networks,
use them to satisfy the latter four characteristics. Facebook users like the
opportunity to find others with similar interests, and by using the social network,
they feel a sense of community and connectedness (Boyd 211).
Morris and Ogan suggest that the Internet has the ability to satisfy
interpersonal and mediated needs. Except for interpersonal needs, Flaherty,
Pearce and Rubin have found that people use computers to satisfy the needs
that were traditionally satisfied by traditional media (Sheldon 41).
Flanagin and Metzger conclude that mass media needs are mediated by
interpersonal needs, like feeling less lonely, maintaining relationships, problem
solving and persuasion. Charney and Greensberg describe the eight gratification
factors on the Internet: to keep informed, diversion and entertainment, peer
identity, good feelings, communication, sights and sounds, career, and coolness.
These factors all relate to opportunities for the music industry. It is clear
that users of social network seek to connect on emotional and personal levels.
Music generally affects listeners in an emotional or personal way. By combining
these factors with the legitimate emotional connections through music, the music
industry could thrive in a social networked environment simply because of the
effect it could have on users.
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4.0 METHODOLOGY
It will be necessary for the purpose of this study to employ a mixed-method
research methodology, combining information gathered through quantitative and
qualitative methods through secondary sources. The study will employ a
quantitative method to develop statistical information relating to current variables
of the music industry like CD sales, online music sales provided by the Recording
Industry Association of American, and the Canadian Recording Industry
Association. In depth statistical analysis will be necessary to prove why the music
industry is such bad shape, but to also show how it can be turned around, by
noting trends relating to growth in online markets and social networks.
For the qualitative approach, the study will analyze behaviours relating to online
activities on social networks. For instance, we will use Boyd as a source of
understanding what social networks are and why we use them.
The theory of mediatization will also play a significant role in the research of this
study, and the study will therefore employ quantitative data relating to Hjarvard‟s
theory of mediatization and its relation to the use of social networks and their
connectivity with new music industry business models. The purpose of this
research will be used to understand behaviours used by individual network users
and social trends relating to online activities on social networks.
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5.0 FINDINGS AND CONCLUSIONS
5.1 THE FUTURE OF SOCIAL NETWORKS
The research in this study has shown that social networks have great potential in
generating revenue for a number of industries. They have massive audiences
that are constantly generating new content. This research has shown that a
dependency on user-generated content only makes social networks more
personal, and attractive to users seeking to stay connected with friends and
others of similar interests.
Theory shows that the social networks involved in this study contain
gratification abilities that research shows users seek. They become more
personal because they have the ability to link physical borders through
instantaneous online activities (Boyd 213).
A significant tool that the three social networks in this study possess is
their ability to actually link with each other, again on an instantaneous basis.
Twitter users can actually use the tool to update their Facebook status. Twitter is
also able to connect live-link system with Myspace, allowing users to link to a
profile page on Myspace in real time. This is of significant importance to how
bands can market themselves, as although these three networks are individually
owned and operated, they have been intelligently linked, developing new and
useful techniques for users to communicate with one another.
Naturally, it should be assumed that as these linking abilities become
more and more profound, the growth statistics I have mentioned will grow further.
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All these technologies are still rather new, especially their new and improved
tools, allowing new users to continually tap into this networked system.
For musicians, these systems will change how the fan and artist
relationship is developed, maintained and executed. Bands have a great growth
opportunity if they choose to pursue the use of social networking because they
will increasingly become routine in daily promotion activities. Not only do the
social networks mentioned here have great growth potential, they are also, for
the most part, free of charge, eliminating traditional costs like marketing,
distribution, and paying back capital lent by record labels.
5.2 THE MUSIC INDUSTRY NEEDS SOCIAL MEDIA
While there has been some steps towards utilizing social media in music
industry activities, the industry is still too slow in acting profitably (Pfanner 2010).
There is still a focus on maintaining a steady relationship with record labels. The
issue, however, is that record labels are generally uninterested in pursuing risky
revenue models because there may not be a pay out (Leeds 2008). There exists
a more significant risk to the artist in this model because the band does not get
paid until the record label does.
Physical releases will render obsolete. There is no longer a need to
maintain focus on physically releasing a CD because research has shown that
the physical market has proven unprofitable in the digital climate. This is
evidenced by significant declines in sales over the past five years, more recently
a 16% decline over the past two years (Pfanner 2010). On the other hand, online
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sales have continually grown, now represent more than a quarter of music
industry revenue (IFPI 2010). However, online sales have not been strong
enough to curb industry losses (IFPI 2010).
In today‟s climate, there is no significant market for physically released
music because online options are too attractive (Freeman 18). While the idea of
eliminating record labels as necessities to a band‟s success may eliminate
financial backing for artists, there exists the possibility to self-market themselves
through the use of social networks if they choose to maintain control and
development of them. Capital may be attractive to an artist, but the truth is that
they have to pay it back at some point. If the band is not profitable, debt looms,
and the risk of being dropped by the record label is a constant threat.
Until the industry can realize the true potential of social networks as key
marketing tools, it will continue to struggle. It will continue to waste money by
implementing business models that the research and statistics in this study have
proven inadequate. On the other hand, not only will social networks play
increased roles in digital music development, but there also exists opportunity for
the music industry to invest financially in these social networks as well.
Again, live music will play a leading role in generating income for the artist
while the music has to act as the backbone of the business. In Canada alone, the
live music accounted for almost 50% of industry revenue in 2005 (OMDC 22),
which means there is a market for paying consumers of live music. The study by
the Ontario Media Development Corporation reveals that Canadians are the
highest downloaders of pirated music per capita (1.3 billion illegal downloads to
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20 million legal ones). This is a clear indicator that the “free” model will persist as
a viable recorded music distribution model that can be used to support profit
generation in other areas, such as live music. Social networks have the
necessary tools and audiences to adapt to this kind of climate. Success,
however, will be dependent on how the industry chooses to utilize them.
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6.0 RECOMMENDATIONS AND OPPORTUNITIES
6.1 THE MUSIC TAX
While a significant amount of blogger attention has been paid to the idea of a
music tax, and how it could kill the industry, the research in this study suggests
that a music tax could be necessary to try and off-set the impact piracy has had
on industry revenues, specifically relating to the recorded music sector.
A 2008 article in Wired first brought the idea of the music tax to fruition, when a
digital strategist working with three of the four majors (Sony, EMI, Universal,
Warner) suggested that Internet service providers (ISP) should implement a $5
surcharge to its users that would go into the industry‟s pockets (Van Buskirk
2008).
While the idea has taken significant heat, it is plausible. Piracy has shown
to be unbeatable (95% of all downloaded music is pirated illegally) and the
industry continuously struggles to find ways to adapt to it (Freeman 18).
Implementing a music tax could play a significant role in stabilizing the music
industry.
While the argument first came to light before social networks had truly
taken off as a significant source of user-generated content and the mass
audiences it now obtains, both the music industry and the social networks would
benefit from this. Through responsible social networking, meaning constantly
updating and maintaining profile pages, artists have the ability to generate infinite
audiences to their pages. The Internet‟s mass memory abilities also mean there
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will be a way to track statistical information or, in the case of Facebook, to
“target” audiences based on personal interests (Vara 2007).
On social networks specifically, increased audiences generate more
advertisement revenue, which is necessary to fund the networks. By opening the
online industry‟s doors to free music, artists will be more open to generating
music content on their own profile pages available for download, which should
increase the number of people visit the sites instead of depending on P2P
platforms for their music.
The music tax, however, is not an entirely new strategy. In 1999, when
piracy started truly becoming an issue, the Canadian government implemented a
tax on blank CD‟s and tapes to try and feed money lost from piracy back into the
industry (Globe and Mail 2010). Consumers were charged a 24 cent tax on blank
tapes, and a 29 cent tax on blank CD‟s. In 2004, it is reported that the tax
generated about $39.4 million for the music industry (Globe and Mail 2010).
Consumer listening habits have changed again, however. Now, we
depend on iPods and MP3 players to listen to music which do not require the use
of blank CD‟s and tapes. For example, in 2008, that same tax only generated
$29.3 million (Globe and Mail 2010) – down more than $10 million.
The music tax is not a farfetched concept. If anything, it‟s a super-
discounted unlimited subscription services to any music file on the Internet for $5
a month. iTunes users would spend that same amount for 5 downloads.
The music tax would in no way impede the growth of the industry it needs
to make money from music. By opening the market to free music, it gives artists
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and labels the ability to actually digitally release music in social network platforms
for free-download, while still making a percentage of the ISP‟s $5 music tax.
Generating increased audiences on social network pages also opens up new
revenue streams for artists to make money through touring and merchandising
ventures, and with increased focus on digital music, the industry has significant
ability to decrease the costs of actually distributing music because physical
releases will no longer be necessary. This way the industry can instead focus on
adapting to new online models of making money instead of continually wasting
money on releasing, marketing and distributing physical releases in a market
climate that is increasingly volatile.
6.2 DEVELOP THE “FREE” MODEL OF RECORDED MUSIC
“The winners made their stuff free first” – Chris Anderson, Wired, 2008
By implementing the music tax by ISP‟s, the industry can have a more focused
ability to experiment with the free model. Major acts like Radiohead and Nine
Inch Nails have successfully released music using the free model. In his 2008
article for Wired, Chris Anderson argues that the free model is the future of
business, especially in online industries. Anderson argues that there is a huge
difference between free and cheap from a consumer‟s perspective, resulting in
which Josh Kopelman calls the “penny gap”. Anderson also says that the
difference between free and cheap is why micro-payment systems have failed.
Music subscription services are a good example of that “penny gap” because
they have significantly failed the close the gap that piracy has cost the music
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industry. Services like iTunes have been unable to make up for the amount of
money lost through decreased CD sales.
Anderson believes “freeconomics” are driven by the technologies that
power the Internet because it is all about scale. Today‟s market represents a
scale that can no longer be supported by paid-for downloading services. The
Internet offers these cultural industries a great opportunity to utilize technology
that has greater flexibility in how they can define their markets (Anderson 2008).
This flexibility results in the ability to actually target audiences through
understanding unique user information (Vara 2007).
Also, if the social networks place more of a focus on developing new
advertising systems (which they depend on for income), the music industry could
start to charge a tax of its own on the social networks. The social networks are
taking in huge revenues through advertisements because of their massive
audiences. The issue, however, is that the music industry could be making
money off its social network profiles because they are ultimately brining people
onto the networks and feeding advertising revenue.
A move towards an increasingly free model would also represent how
mediatization theory plays a significant role in predicting the inevitability of shifts
in cultural markets. Because the Internet is a constantly growing platform with a
massive communication scope, it lets users understand why these shifts occur.
In the music industry, this has been represented by music download platforms,
and has evolved into today‟s social network platforms where users can listen to
music, and view other content generated by the artists. In mediatization, social
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networks represent the next-wave of downloading services, with bonus features.
For that reason, developing the free model through social networks will represent
a legitimate revenue generator through advertising, merchandising and tour
sales.
The industry needs to develop a strategy that would earn them a piece of
the advertising pie on social networks. This, however, is dependent on the
amount of content that artists can generate to keep audiences coming. By
developing the free model further, the industry could keep increasing audiences
to unique artist pages which in the end, not only helps them generate revenue
through concert ticket sales and merchandising, it would also help the social
networks garner increased advertising revenue as marketers would be more
comfortable investing more ad money into the networks because of the massive
audiences they can bring in.
Anderson argues that Google is the perfect example of the free model
because it was able to implement a three-way market. The three-way market
consists of the online platform (such as Facebook, Twitter, or Myspace), its
users, and the companies that choose to advertise on it. By providing content to
its users for free, networks have the ability to open advertising markets which
ultimately generate the revenue it needs to not only survive, but flourish.
Anderson notes that the publishing business cannot sell their newspapers
and magazines at high enough prices to cover the costs of putting the content
together for consumer purchase, so they depend on advertising revenue to off-
set the costs they would otherwise lose. Social networks have developed this
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same model. Because the networks have a focused enough audience that
ultimately generates the content it needs to stay current, advertisers can take
advantage of the massive audiences the networks provide. The music industry
can significantly benefit from this by maintaining artist profiles that release
content for free, and reap the benefits of the networks ad-revenue business
model.
6.3 MUSIC INDUSTRY NEEDS TO JUMP ON AD PREMIUMS
The music industry should be charging the social networks a premium for
advertisements on unique artist pages. Both industries are culture specific and
generate audiences for each other; musicians bring users to social networks,
while social networks provide the platforms artists need to distribute content.
The networks would truly benefit from paying the music industry a
percentage of its ad revenues for ads placed on artist specific pages. Through
the free model, the development of artist generated content is truly infinite
because there will always be demand for it. Video streams, MP3 uploads, photo
updates, Twitter updating have proven to bring people to social networks, and
should the artists take it upon themselves to truly take advantage of the tools the
social networks offer them the abilities to generate content that can benefit them,
the social networks would generate income because marketers would be more
willing to purchase ads if there is proven to be audience growth.
For this reason, the music industry needs to work with the social networks
to develop a way that the industry is paid for the pages its artists maintain on the
social networks that ultimately pay the networks but not the industry at this time.
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Because the industry is so high-risk, there is no way to truly estimate how much
money the social networks could bring into the industry, implementing a “social
network tax” could help off-set that. The industry should take 3-5% of the ad
revenue generated by the social networks on profiles generated and maintained
by artists within the music industry. Much like the music tax suggested earlier,
the industry could develop ways of tracking who views what, where, and how
much to determine who gets paid, and how the artist would reap that benefit.
Considering the artist usually take about 12% of the revenue from a physical
release, one could argue that the industry can afford to pay its artists 1-2% of the
3-5%.
But, is there an advertising model that is sustainable enough to identify
unique interests posted on social network accounts that can target specific
users?
The answer, in today‟s market is yes. For example, computer giant, Dell,
has developed a framework that identifies value drivers for customers and
businesses through identifying qualities like connections, recognition and advice
to implement a social media marketing campaign that can attract and be useful to
users on social networks relating specifically to Dell (Morrisey 2010). Not only
does this mean marketers can identify unique user interests and target them, it
also shows that there is a market for these types of campaigns.
Facebook, specifically, generated a targeted advertising campaign in 2007
that was designed to provide marketers with the tools it needed to identify unique
users based on information the user supplied on his or her profile (Vara 2007).
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The system called “SocialAds” shows up interspersed in Facebook news-feeds.
The system develops “demand generation”, meaning it involves information
directly relating to users to increase interest because of a direct personal
connection to the advertisement (Vara 2007).
A focused model for advertising will be integral. With unique user
targeting abilities, the music industry can now focus advertising campaigns to
unique user pages listing artists on specific label rosters. A web-marketer
predicts that advertising revenue on Facebook alone will reach $3.63 billion in
2010 worldwide (Klassen 2007). Considering the mass growth rates on platforms
like Facebook, or even Twitter, which grew by 190% in 2009, advertising
revenues could be monstrous (see Appendix 9.3). Twitter does not have a formal
advertising system yet, which represents another ad market for marketers to tap.
Considering Twitter‟s growth over the past year, its advertising potential could be
significant.
6.4 SOCIAL NETWORK SUCCESS DEPENDENT ON ARTIST INVOLVMENT
For these opportunities to truly benefit the industry, the labels need to place an
increased emphasis that artist need to place more focus on constantly
maintaining social networks because of the potential the networks provide for the
industry as a whole.
Social networks have proven to be one of the fastest growing online
phenomenons in the history of the Internet, and it‟s time that the music industry,
another significant cultural industry player, reaps the rewards of its contributions
to network success.
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To do so, however, the industry needs to demonstrate their ability to
develop and maintain current and updated material. This also means that the
need for physical releases is no longer necessary because there are big enough
audiences on the networks to off-set the increasingly lower revenues the industry
is taking from CD sales. Should the industry develop a model that would require
artists to release new content on social networks for free, it would not only bring
more people to the sites, but would also help generate revenue for both the
networks and the industry through advertising income should the music industry
and social networks come to an understanding that the music industry needs to
be reimbursed by the networks for its ads on artist specific profiles. The benefits
for both parties are inevitable.
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7.0 CONCLUSION The music industry continues to face numerous challenges in adapting an online
market environment. The music market is increasingly dependent on illegal
downloading services which now represent 95% of the music on the Internet.
Subscription services have failed to compete with the attractions of illegal P2P
download platforms, and the recorded music sales have fallen significantly.
The Internet, however, offers a number of opportunities for the music
industry to utilize should it realize that recorded music has truly become a loss-
leader. Only then can the industry focus on the development of these online
technologies through social network practices that have been suggested
throughout this study.
The scope of the audiences social networks have reached is immense.
Millions of Internet users log-on to their social networks at some point of every
day. Hjarvard‟s theory of mediatization predicted the inevitability of these shifts in
industry structure, and now the Internet proposes new globalization strategies
relating to distribution practices. The Internet and social networks have allowed
the idea of “free” music to exist. There is significant opportunity for the music
industry, specifically its artists to take more money home through providing music
as a loss-leader and make money through other revenue generators.
This study has suggested that the future of music industry profitability is
dependent on the following factors:
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- Implementing a music tax, where ISPs charge a unique user $5 per month
tax that is flushed into the music industry to start cutting into the $3.7
billion cost of piracy
- To develop the “free” model of music distribution through Anderson‟s
“freeconomics” theory that would make recorded music a loss-leader for
the other revenue streams like live music and merchandising, where the
artists themselves actually turn more of a profit than they would on a
recorded CD
- The music industry needs to start charging the social networks a premium
for advertisements posted on artist pages. These pages bring people to
the social network, which makes money for the network. But, the music
industry does not take anything back. These industries can help each
other, and the music industry needs to jump on these ad premiums they
are currently missing out on
- Constant maintenance of social network profiles is integral, not only for
user content viewing but to also provide the social networks with
justification for paying the industry an advertising premium. These
networks provide a platform that is constantly available for updating and
maintenance – these factors need to taken advantage of.
The social networks represent a significant opportunity for the music industry, but
also for these two industries to form partnerships as they both have reasons to
depend on each other. The music industry can feed the networks with material
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while the networks provide platforms for that content to be received. There is
truly great potential between both parties for future revenue generation. The
future of the music industry is dependent on the development of legitimate online
music distribution methods where music is a loss-leader and the development of
music‟s relationship with social networks is a significant focus.
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8.0 REFERENCES “A Musical Divide”. Globe and Mail. March 19, 2010. http://www.theglobeandmail.com/news/opinions/editorials/a-musical-divide/article1505376/ “A Strategic Study for the Music Industry in Ontario”. Ontario Media Development Corporation. Sept. 12, 2008. “Growth in digital music still not enough to counter drop in sales”. New Media Age. 1 Mar. 2007: ABI/INFORM Global, ProQuest. 6 Oct. 2009. “IFPI Digital Music Report 2010”. International Federation of the Phonographic Industry. Feb. 2010. http://www.ifpi.org/content/library/DMR2010.pdf “MySpace Music' Debuts”. Wireless News. 29 Sep. 2008: 6 Oct. 2009. “Research and Markets: “The Online Digital Music Market Reached Some $1.1 Billion in the US”. Wireless News. 1 Jun 2007. 6 Oct. 2009. “Online: Servicing Online Fan Communities”. Music Week. Aug 8, 2009. pg. 15 “Research and Markets: The Online Digital Music Market Reached Some $1.1 billion in the U.S”. Wireless News. June 1, 2007. “Social Media Stats: Myspace Music Growing. Twitter‟s Big Move”. The Nielsen Company. July 17, 2009. http://blog.nielsen.com/nielsenwire/online_mobile/social-media-stats-myspace-music-growing-twitters-big-move/ “Social Networking and Blog Sites Capture More Internet Time and Advertising”. The Nielsen Company. September 24, 2009. http://blog.nielsen.com/nielsenwire/online_mobile/social-networking-and-blog-sites-capture-more-internet-time-and-advertisinga/ “Time Spent on Facebook up 700%, but Myspace Still Tops for Video”. The Nielsen Company. June 2, 2009. http://blog.nielsen.com/nielsenwire/online_mobile/time-spent-on-facebook-up-700-but-myspace-still-tops-for-video/ Arrington, Micheal. “How Warner Music Killed Facebook Music”. Q3 2009 TechCrunch Trends Report. January 15, 2009. Web. http://www.techcrunch.com/2009/01/15/how-warner-music-killed-facebook-music/ Belzman, Josh. Bands, fans sing new tune on Myspace. MSNBC. Feb 13, 2006. Berthon, J. “Music's manumission: Strategies for the music industry in a digital Era”. Management Dynamics 16.3 (2007): 18-23. 6 Oct. 2009. Bruno, Anthony. Twitter on the Highway. Billboard. March 7, 2009. Vol. 121. New York.
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Carter, Meg. Vertical Focus Live Music: Let’s Rock. New Media Age. June 25, 2009. London. Vaccaro, Valerie L., and Deborah Y. Cohn. “The Evolution of Business Models and Marketing Strategies in the Music Industry”. JMM: The International Journal on Media Management 6.1/2 (2004): 46-58. Fung, Anthony. “Think Globally, act locally: China‟s Rendezvous with MTV”. Global Media and Communication. 2006. Sage Publications. London. Hadden, David. “Digital Revives the Indie Pop Star”. In These Times. April 2007. p.43. Alt. Press Watch. Hjarvard, Stig. “The Mediatization of Society: A Theory of the Media as Agents of Social and Cultural Change”. Nordicom Review. 2008. 29: pp. 105-134 Klassen, Abbey and Jonathan Lemonnier. “Myspace milks music for monetization”. Advertising Age. Chicago. April 7, 2009. Klaassen, Abbey. "Facebook must spend to woo marketers." Advertising Age 78.43 (2007): 6. Communication & Mass Media Complete. 23 Mar. 2010. Kretschmer, Martin, and George Klimis and Michael Wallis. “Music in Electronic Markets: An Empirical Study”. New Media Society. 2001. 3:417-441 Morrissey, B. "Does Social Sell?” Mediaweek. 15 Feb. 2010: 14 Mar. 2010. Sandulli, Francesco D., and Samuel Martín-Barbero. "99 Cents per Song: A Fair Price for Digital Music? The Effects of Music Industry Strategies to Raise the Willingness to Pay by P2P Users." Journal of Website Promotion 2.3/4 (2006): 3-15. 14 Mar. 2010. Seay, J. "Music for nothing and your kicks for free: Giving Away Masters in the Digital Age”. Flagpole. 26 Mar. 2008: 13 Oct. 2009. Shields, Mike. "Facebook Growing Pains." MediaWeek 19.8 (2009): 10-12. 23 Mar. 2010. Shields, M. "MySpace's Social Dilemma.” Adweek. 22 Jun 2009: 6 Oct. 2009. Stokes, David., and Nicholas C Wilson. “Laments and Serenades: relationship marketing and legitimation strategies for the cultural entrepreneur”. Qualitative Market Research. 2004. pg. 218. Thelwall, Mike. “Social Networks, Gender, and Friending: An analysis of Myspace Member Profiles”. Journal of the American Society for Information Science and Technology. January 2, 2008.
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9.0 APPENDICES
9.1 APPENDIX 1 – NIELSEN SOUNDSCAN ONLINE MUSIC DESTINATION AUDIENCES
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9.2 APPENDIX 2 – TWITTER GROWTH BY TIME SPENT ON NETWORK
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9.3 APPENDIX 3 – SOCIAL NETWORK STATISTICS 2009
Facebook and Myspace Stats – The Nielsen Company
With 144.3 million unique visitors, Facebook was the No. 1 global social
networking destination in May 2009—the 7th month in a row that Facebook has
ranked No. 1
May 2009 also marked the 5th month in a row that Facebook has been the No. 1
social
networking site in the U.S., garnering 75.4 million unique visitors—a 190 percent
increase
over May 2008
Myspace.com continued as the top social networking site when ranked by total
video
streams in May, with 116.1 million video streams
Unique viewers of video content at Myspace.com increased 22.9 percent month-
over-month,
from 9.9 million in April 2009 to 12.2 million in May 2009.
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9.4 APPENDIX 4 – VIDEO STREAMING COMMUNITY GROWTH
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9.5 APPENDIX 5 – MYSPACE UNIQUE AUDIENCE COMPOSITION
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9.6 APPENDIX 6 – TOP ONLINE MEMBER COMMUNITIES
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9.7 APPENDIX 7 – TIME SPENT ON SOCIAL NETWORKS
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9.8 APPENDIX 8 – KEY TRENDS NOTED BY OMDC CANADIAN MUSIC INDUSTRY AUDIT
This report acknowledges some commonly held assumptions about the key trends in the music industry in Canada. These are:
Recorded music is selling less, but other revenue streams in the music industry are holding their own or are increasing;
Digital downloading continues to increase, but the legal revenue-producing component has not replaced the decline in physical sales, nor is likely to in the near term;
The Internet is making it easier for potential music customers to discover and audition new and developing artists;
Labels, artists, and other members of the ecosystem are looking to other revenue streams to fill the piracy gap.
The strategic question is how the Ontario music industry can respond to the challenges arising from these trends and find ways to grow its revenue base on a profitable basis. Each of these trends is outlined in more detail below.
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9.9 APPENDIX 9 – OMDC – CHANGES IN THE MUSIC ECOSYSTEM
Figure 3 - Changes in the Music Ecosystem
Ecosystem Part
Key Changes
Major Labels Main source of revenues (CD sales) declining Exploring new business models, expanding management and publishing arms Large reductions of workforce, including in Canada Less willing to take A&R risks (i.e. invest in artists) due to falling revenues But still important to Canadian music development as the chief distributor and financier/investor for Canadian indie labels
Independent Labels
Improvement in access to talent, owing to reduction in majors‟ A&R and a growing DIY attitude among artists Building on pioneers experienced in meshing traditional label roles with management and/or publishing (e.g. True North Records) Learning more about licensing and marketing in digital world and exports
Music Publishers
Now able to own (digital) masters Exploiting new revenue sources on new platforms Administration costs increasing due to increasingly complex royalty collection
Distributors Less physical distribution as more goes online Adding publicity and marketing services to their offerings to labels
Ecosystem Part Key Changes
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Artists Highly dependent on touring and merchandise, though often playing smaller venues More control over their own careers More options available for business models (e.g. DIY or 360 deals), although success accrues mainly to acts with strong brands Recording costs have decreased, making the market easier to access
Managers Increased competition from labels, as both parties take on each other‟s traditional roles Integrating marketing activities into management role, especially in artist-owned label scenarios Required to learn how to administer new revenue sources MMF Canada now active in developing management sector
Promoters Remains a small, but profitable business in Canada Large(st) promoters taking on some label roles (e.g. Madonna and promoter LiveNation) Smaller niche promoters developing new marketing techniques and sponsorship strategies
Agents Relying more on established heritage acts for revenue but expanding rosters of emerging acts Brokering increasingly complex deals
Retailers Big box stores sell music as a „loss leader‟ Mid-size chains (e.g. HMV) diversifying content with DVDs and games; disappearance of record retailers (e.g. Sam the Record Man, Music World) Online retail is small, but growing rapidly
Service Companies
Diversifying client base and services
Other Parties (corporate interests)
Some corporate interests moving away from music industry sponsorships (e.g. Molson), while other move in An increasingly active role, beyond sponsorship (e.g. Bacardi and Groove Armada) among new entrants
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9.10 APPENDIX 10 – OMDC – EMERGING BUSINESS MODELS IN MUSIC
Figure 4 - New and Emerging Business Models
Business Model
Description Example Parties Involved
“360” Deal Where labels share in all sources of revenue of an artist from CD/track sales through licensing, live performance and merchandising.
Live Nation‟s deals with Madonna, Jay-Z, Shakira and Nickelback
Label Manager/Artist
Brand Funding
Where non-music corporate interests fund and support the creation of music, beyond endorsements. Some brands (e.g. Jagermeister) also support artist development and promotion.
Groove Armada and Bacardi; KRS-One and Smirnoff
(Manager) Artist Corporate Sponsor
Advertising Sponsorship
The creation or licensing of music for a commercial advertising campaign (usually on TV)
Maynard‟s candies and Major Maker
Manager/Artist Licensor/Publisher Advertiser
Off deck mobile
Music content sourced online and „side-loaded‟ on to a mobile device Music is not acquired through the carrier-controlled Wireless Application Protocol (WAP) decks, which is the equivalent of a web page.
Nokia‟s “Comes with music”; TXTunes
Artist, Music Aggregator Mobile Carrier/handset maker
Crowd Sourcing
Where unsigned acts upload music to a website, fans vote on bands and invest their own money to support the emerging act
slicethepie sellaband.com
Artist Service Company
“Free” Music Where music is uploaded to a website or digital distributor for free
Nine Inch Nails, Radiohead, Coldplay
Artist
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(by the artist) and fans choose the rate at which they pay
Other Platforms
The delivery of music on or through other traditional creative „silos.‟ Such platforms include video games, online or traditional radio
Rock band and Judas Priest; Artwerk‟s partnership with Nettwerk are building exposure through games
Manager/Artist Music Licensor