Wednesday, October 19, 2011
I recently had the pleasure of giving a lecture at the Hochschule für Musik Franz Liszt in Weimar, Germany, at the Musikwirtschaft 2.0 - neue Perspektiven für die Musik conference on the subject of the current state of, and challenges faced by the British music industry. This blog post consists of a narrative that I have written to accompany my presentation, which is available on Slideshare here.
The origins of music
Music has been around for as long as the earth has existed. Sounds created by nature such as howling wind, animal cry, and rustling grasses all make a sound, and whilst the sound they make is not composed, organised and arranged with intended structure and rhythm, natural sounds are nature's music. Man's first attempt at music began with either basic percussion from objects that were beaten or by orally produced sounds, before of course a language was developed. The onset of language lead to chanting, dance, storytelling and celebration, all of which may have involved man-made music. We only need look at traditional tribal societies that exist in the world today, whose lives have barely been impacted upon by industrialisation, to see how our ancestors may have once lived, and incorporated music into their everyday lives.
Jump forward several thousand years, and those talented enough to make music and song were much in demand as entertainers, many of whom were employed by the wealthy as their own personal entertainers, or who worked for themselves earning small amounts for impromptu public performances. At some point in the 17th Century the first promoters appeared, who would find talented musicians, and then give them a stage on which to perform. The audiences that were attracted would pay a fee to watch the musicians, which was divided between promoter, artist and sometimes the owner of the stage or venue. The word 'entrepreneur' was first used to describe these promoters.
Up until the late 19th Century the only music that could be heard was live music, then in 1877 Thomas Edison developed the technology that would eventually spawn the recorded music industry. Edison developed the 'flat disc' recording device that would eventually become the record.
The modern day music industry was not formally recognised until the first half of the twentieth century, when companies emerged that had the finances to be able to record, promote and distribute records by popular musicians. At the beginning of the twentieth-century the music genres that existed were largely classical in nature, or were derivatives of religious music, and traditional 'folk song'. In the USA, Broadway shows helped to spawn new emergent genres such as 'Broadway' and 'Ragtime'.
Throughout the twentieth-century more genres emerged, as musical influences from immigration and other cultures blended with existing genres and helped to spawn newly recognised forms of music including blues, calypso, jazz, scat and swing. Blues influences, along with folk and religious music helped to spawn country and western, and eventually from that rock and roll emerged in the 1950s along with the first emergent youth cultures - young people who wanted to listen to modern music, and not dress like their parents. This generation of young people strived to carve out a 'modern' identity for themselves, and music was a common ground that helped them achieve this.
In Britain, the 'Teddy Boys' became a dominant cultural movement as rock and roll and the rebelliousness that it ensconced were seen by the 'establishment' as perverting the nation's youth. Since the 1950s, various youth cultures and with them associated music genres have emerged, some have lasted the duration and others haven't. The hippies and the mods were prevalent in the 1960s and the 1970s, yet today are rarely seen, although from them, new fashions and youth cultures emerged including heavy metal, punk, post-punk indie, the goth scene and and Brit-pop.
Some music genres of the twentieth century. Source: Moss and Henderson (2009)
In terms of musically creatives decades, the period from the early 1960s until the late 1980s spawned hundreds of popular music genres, with the 1980s being by far the most musically creative decade in the world's history. The creativeness of the 1980s was helped by the proliferation of technology that could be used to make electronic music, as well as the creation of hip hop in the late 1970s and from this a plethora of hip hop sub-genres emerged in the 1980s, including electro funk, hardcore hip hop and gangsta rap.
Economist Joseph Schumpeter coined the phrase 'creative destruction' to describe the phenomenon of new technologies that make old ones obsolete, this is something that we have seen throughout the music industry, as new musical media formats have lead to the decline of older formats. The most typical examples include records, cassette tapes, compact discs and now MP3s (there are numerous unmentioned formats that emerged between these formats - does anyone remember the MiniDisc? - which itself was creatively destroyed by the CD-R).
Creative destruction of music media formats. Source: Henderson (2009)
The rise of media-less digital formats
Now in the second decade of the twenty-first century, the loss of physical music media in favour of media-less digital format the MP3 is more than apparent, particularly to music labels (who used to be known as record labels). The relative ease of copying, distributing, transferring and playing good quality MP3s has left the labels in a position whereby not only are they losing money through various forms of music piracy, which is not only organised 'criminal' piracy such as counterfeiting, but increasingly the more 'innocent' home piracy including file sharing, and converting YouTube videos to MP3s, which is the modern day equivalent of recording a song from the radio onto a cassette tape. Although the difference between recording something onto a cassette tape and converting a YouTube video into an MP3 is that the quality of the converted MP3 is often as good as one that could be legally purchased - from a consumer's perspective the question is often: Why bother paying for something that I can get exactly the same for free?
This type of music piracy is having a profound impact upon the British music industry particularly. The UK has long been established as a music 'power-house' globally, according to the British Phonographic Institute (BPI) (2010a) the UK is the second largest producer of music in the world after the USA, and in 2007, 2008 and 2009 the biggest selling albums in the world were by British artists. However, in 2011 the UK was demoted into 4th place behind Germany as a music market. This has been largely blamed upon a drop in music spend as British consumers downloaded an estimated 1.2 billion tracks in 2010 (BPI, 2010b). In 2010 spend on music in Britain fell by 8%, single sales rose by 6%, album sales fell by 7% and overall music spend was at it's lowest rate since 1997 (Mintel, 2011). In terms of legal downloads, the value of downloaded albums in the UK is still only 17.5% of the overall total value of album sales, but for singles a staggering 98.7% of sales are achieved through downloads (ibid). By September 2010, 500 million singles had been legally downloaded in the UK since legal downloading began, however in 2010 alone 1.2 billion singles worth £984 million were illegally downloaded in the UK (BPI, 2010b). The average price of a single download track in the UK is 82p, and there are 13 million available tracks to download from 67 legal download services, which is more than any other country (ibid).
The Digital Economy Act (2010)
Tackling illegal downloads in a meaningful and effective way is proving to be problematic for the British government, who are keen to make suggestions and recommendations to a variety of those bodies with stakeholder involvement in the 'illegal download chain' including search engines, Internet service providers (ISPs), advertisers and credit card companies (BBC, 2011b). But so far the British government have really only 'talked up' what should happen, and there has been little in terms of legal enforcement, this is despite the passing into law of the Digital Economy Act (2010), which puts an onus on ISPs to take action against their customers who are suspected of illegally downloading and uploading copyright material. The Digital Economy Act (2010) aims to primarily 'increase the ease of tracking down and suing persistent copyright infringers, and after a minimum of one year permit the introduction of "technical measures" to reduce the quality of, or potentially terminate, those infringers' Internet connections' (Wikipedia, 2011).
British ISPs are currently in the process of mounting a legal challenge against the British government over the Digital Economy Act, as they do not see themselves as being responsible for the actions of their customers. To use various analogies: from the drinks industry, pubs and supermarkets are not punished if one of their customers gets drunk and then commits a crime; manufacturers of spray paint are not punished if a customer uses their product to write graffiti; and car manufacturers are not punished if one of their customers drives faster than the speed limit. Therefore British ISPs do not feel that it is fair that they should be treat differently, although the major difference is in this case, that theft is not an issue in any of the aforementioned analogies like it is with Internet piracy.
The case of ACS:Law
In terms of civil lawsuits against illegal downloaders, the case of ACS:Law in Great Britain attracted a great deal of negative publicity against those trying to bring private prosecutions against downloaders on behalf of music labels. ACS:Law would send letters to suspected peer-to-peer file sharers demanding a fee for the copyright they had infringed, those who did not pay were threatened with being taken to court. ACS:Law were accused in the media of targeting innocents and people who did not know what they were doing along with genuine Internet pirates. The tactic adopted by ACS:Law caused a flood of complaints against the firm to the Solicitors Regulation Authority, and a denial of service attack on their website by the hacking division of the group Anonymous. During the denial of service attack a 350mb back-up of the site was downloaded and later released online as a torrent. The file contained the names and addresses of thousands of suspected downloaders, including those who were suspected of downloading pornography. ACS:Law was fined by the Information Commissioner for its lax online security and not encrypting the file. The company has since ceased to exist.
Before physical media formats were lost, and before we had numerous music television channels and the Internet, buying music would present the listener / fan with an opportunity to not only see pictures of the artist, that may not be available elsewhere, but also to read the song lyrics, to read about the artist, to read the words of the artist, and to get to 'know' them in a way that listening to the music alone does not allow. Does anyone remember innovations such as: gatefold sleeves; poster sleeves; free sew on clothing patches; picture discs; and box sets? The internet now means that we have all the information we need right at our fingertips, so lyrics, images and artist 'stories' are all only a few clicks away. Of course the downside to all of these innovative 'freebies' that came with physical media formats was the issue of how to keep them pristine, and the problem of where to store them all? Going physical media format-less helped to de-clutter our bedrooms, garages, lofts and lives, but it also reduced the fan experience to that of listener only - at the point of artist engagement, this is the 'problem' with MP3s, and it is something that the music labels have been very slow to react to (considering the MP3 has been around for over a decade).
The music labels
The music labels have suffered, many have ceased to exist and the major labels have consolidated through takeover and merger into 'the big four': EMI; Sony Music; Universal Music Group; and Warner Music Group. None of these are British owned, and all of them have well documented cases of making losses in recent years. In addition to the big four, there are also numerous independent labels that are not affiliated to the big four, that are generally regarded as being more 'artist centered'. Many independents have been set up by genuine fans of music genres or by artists themselves. The British independent music labels are still heavily reliant on the major labels for the storage and distribution of their physical products, and this has recently highlighted how fragile to forces in the external environment that independent labels have become. The 2010 London riots saw an arson attack on a storage warehouse owned by Sony, which contained CDs and vinyl from a number of independent labels. The entire physical stock for some labels was lost in that one fire, and for some independents the cost of replacing the stock was too great a financial burden to bare. Thus that one fire alone has transformed the business models of some British independent labels forever from physical media to online formats only (BBC, 2011a).
Online music downloads and consumption can also bring disadvantages to the listener experience. Many albums are compiled by artists in much the same way that a curator puts together an exhibition. Tracks on albums are often designed to be played in a particular order, for the album to have the impact upon the listener that the artist intended. 'Cherry picking' MP3s and using 'shuffle' functions on MP3 players has changed for many listeners the true album experience. As a prime example Public Enemy's award-winning second album 'It Takes A Nation Of Millions To Hold Us Back' provides an introduction, a main body and an ending and is a prime example of an album that takes the listener on a journey through music, culture, politics and knowledge. The impact of this album would not be so if the tracks were played in any other order than what they had been intended. The same can be said for EVERY 'mix' album where one tracks fades or mixes into the next, putting a mix album on random is almost pointless, yet it is something that we with MP3 players do.
The changing music supply chain
The change in the way we buy music has impacted upon the music supply chain, which once only had physical media to contend with, which required physical storage, distribution and retail outlets. The reduction in physical media has meant a reduction in required goods and services all along the traditional music supply chain. First to go were the retailers. In the 1980s when home stereos first became truly affordable and when the boom in home entertainment devices was truly felt, it would have been virtually impossible to imagine that in 20 or 30 years time that record shops would barely exist on our high streets any more. But a stark reality of going media-less is that physical shops are no longer necessary to retail music, and with fewer shops, there are fewer distributors.
The traditional music supply chain. Source: Moss and Henderson (2009).
In my hometown of Barnsley in South Yorkshire, UK, we had at least seven busy independent record shops that did not belong to major chains (Andy's Records, EGS, Scene and Heard, Michaels, Neals, Bradley's and Casa Disco) as well as major 'chain' record shops Our Price and MVC, along with WH Smiths, Boots, Woolworths, GT News and several music stalls on the market, all of which sold, records, tapes and eventually CDs. Being a music fan in 1980s Barnsley was a treat. For a small town, the wide choice that consumers' had, meant that competition was fierce, offers were plentiful and it was easy to shop around to get the best deals. In terms of offers, EGS used to sell packs of ten seven inch singles, or five twelve inch singles for £1. They were always wrapped up, so you only ever knew what was on the front and back of the pack. The rest was down to luck, more often that not the other singles would be nothing the buyer particularly wanted, but I personally would always give them a go. I did happen upon the odd gem, including several singles that are now worth over £50 each, (so I'm glad I kept them). Although happy memories of my youth have caused me to digress slightly, the point in this story and the inclusion of Barnsley as an 'example town' is to highlight how the British high street has forever changed. First to disappear were the independents, Our Price has survived after being taken over by HMV. Record shops became less profitable as record and cassette sales declined, as did eventually CD sales, particularly when the first CD-Rs appeared in the late 1990s, and when supermarkets began to retail music, although supermarkets tend to only sell 'popular' titles. Survival meant that dedicated music shops needed to expand their product portfolio, many simply couldn't afford to do this and instead closed.
I moved away from Barnsley in the mid 1990s, but I'll never forget that awful, empty, sick feeling in my stomach as I returned in 2003 and walked back through Peel Square towards the partially white-washed windows of Casa Disco, with a 'Closed' sign on the door, and ripped posters hanging from the walls behind. Memories of speedily flicking through nearly a metre of 12 inch singles are almost all that is now left of that 'golden' era of music retail, as well of course as the titles that I've held onto. But even I, an ardent music fan wasn't blameless in the demise of High Street music retail. I had bought a PC, I was running Windows 2000 (or whatever it was then), my PC was connected to my amplifier and I had a CD-R...along with a growing collection of home-made discs, mostly made from illegally downloaded MP3s. MP3 technology was still very young to most people then, but for many who still lurked on the peripheries outside of the mainstream, it was quickly becoming the norm, and it wouldn't take long before our 'geeky' musical discovery would soon become accepted by the general public. This was down to a variety of factors, including more affordable home computers, FRIACO, the onset of broadband Internet, Napster, then numerous imitators such as iMesh, cheap and free software that played MP3s such as Music Match Jukebox and the first MP3 player made by Rio, before Apple Inc. jumped on the bandwagon, took the MP3 music format, and made it their own (well almost).
The late Steve Jobs was a visionary, and his dream of a music supply chain that would be wholly electronic, and wholly online was realised when the iPod and iTunes came to fruition. With these tools Apple would (in theory) be able to maintain control of distribution and supply of music to consumers. The reality I suspect, is that the majority of iPod owners still have a majority of illegally obtained tracks upon their iPods, although slowly this is changing, and other online retailers of music are increasingly eroding Apple's dominant position, as more people choose to buy rather than illegally download. Britain's current loss of music revenue to illegal downloaders will in history become regarded as an 'era of piracy' rather than the future norm, as industry pressure combined with a decrease in tolerance towards piracy from the recession-hit public (themselves possibly at risk of job loss due to piracy) will eventually persuade the government to Police illegal downloading in the same way that both Germany and France have done. When this finally happens, Britain will surely return to it's position as the world's third largest music market.
The legal download music supply chain. Source: Moss and Henderson (2009)
The legal download music supply chain is one that includes aggregators, these are specialist service providers who assign each individual music track a UPC (the equivalent of a bar code) and upload tracks for retail onto the major music retail websites such as iTunes and Amazon. The continued growth in download sales is likely to lead to growth in the number of retailers and aggregators, in the same way that it has lead to decline in physical shops and distributors.
Advances in music producing software and the proliferation of the Internet into the music supply chain means that in future there is likely to be continued growth in the number of independent labels and the artists that are signed to them. This will not only give the artists more control over their output, it should also lead to greater financial reward per sold track.
Live music in the UK
Live music consumption in the UK has continued to grow and looks set to continue to grow, particularly with the proposed scrapping of entertainment licenses for venues that have a capacity of under 5,000. Larger-scale live music across all the UK attracts at least 7.7m attendances by domestic and overseas (5%) music tourists, who contribute £864m per year to the UK economy (equivalent to 19,700 full-time jobs) (UK Music, 2011).
The picture is slightly different for the UK music festival market which has been dominated by the major festivals, including Glastonbury, Reading / Leeds, T in the Park and the Download festival. Where there are innovators, there are imitators, and this is also true of the UK music festival scene, which has in recent years seen vast growth in the number of 'local' festivals in towns and cities around the UK. In 2010 festival income was up 20% on 2009, but ticket sales were much slower in 2011, with 31 music festivals being cancelled, and 40 major festivals selling tickets at less than face value. It is predicted that their will be a 'culling' of local festivals in 2012 (BBC Newsbeat, 2011).
Another factor impacting upon the UK music festival scene is the rise of foreign (predominantly European) festivals, which combined with budget airline prices can offer cash-strapped festival goers both a music festival and a holiday in the sun. Example European festivals of this nature that are proving increasingly popular to the British market include Benicassim in Spain, and Outlook, Soundwave and Hideout all of which are in Croatia.
So what is the future for digital media-less formats? The MP3 as a stand alone entity, will be around for sometime yet, but creative destruction will occur, and eventually something 'better' will come along. As to exactly what that will be, it is difficult to say, although maybe Icelandic artist Björk has offered us an insight into how things might possibly go. Her latest album offers more than just a listener experience alone, yet it is wholly digital and format-less. Her album 'Biophilia' is available to download as a deluxe edition for the iPad / iPhone, and for the fan it provides an interactive multimedia experience, including song, narration, graphics, videos, and even guest appearances by naturalist David Attenborough. In effect Biophilia has become the world's first 'app' based album, with 'updates' scheduled to be released in future. Using the app model, could be advantageous for fans, as it has the potential to offer updates that include additional material, that did not come packaged with the original album, including new exclusive remixes, artwork, photographs, videos, and even Christmas / Birthday cards (iTunes does have your date of birth, right?). From a commercial perspective, updates could also include exclusive tour news, links to merchandise, and links to new songs / albums...and if you allow the artist or band's app to send push notifications, then you could even get 'you heard it here first' type news and messages.
Apple's dominant position as the leading supplier of media-less music will not last in Britain, Amazon have made steady inroads by both undercutting Apple on retail price and also providing unprotected downloads that can be played and copied onto any device. Amazon's market share will continue to increase in Britain as slowly illegal downloaders convert to paying customers, but seek a bargain price and the freedom to do as they please with their purchases.
An as yet unrealised media-less music retailing 'beast' is likely to take the shape and name of the all-powerful Google. It must surely be only a matter of time before Google take advantage of their all-seeing internet eye, and instead of sending those searching for music to iTunes, send customers to their own download store. There will of course be legal issues raised, relating to the fairness of competition, but eventually things will work out and Google will not only take advantage of the millions of mobile phones running on an Android operating system, but also those billions of daily Google and YouTube searches for artists, bands, songs and music videos. Instead of directing customers to iTunes, surely these would serve Google better pointing to 'Google Music' or whatever they will eventually call it. When this happens the MP3 price wars will truly begin, and the major labels will once again be left shaking their heads as they agree to sell their music to retailers for even lower amounts. If and when this does happen, it's almost a guaranteed certainty that YouTube will develop technologies to hinder those trying to convert the audio on videos into MP3s, although something will circumvent that eventually and the 'cat and mouse' game will continue between supplier and those after a 'freebie'.
The intelligent marketing machine that is Facebook knows our 'likes', it knows what we discuss online and it is doing an increasingly more efficient job of targeting us with tailored advertising. It seems like only a matter of time before Facebook also steps into music retail proper, either through its own music retail division, or through further strategic linkages with Microsoft, who are as yet unmentioned, but surely too must be considering their own online music store presence to rival iTunes. Facebook have already formed a strategic alliance with Spotify and alternative business models could become less about ownership and more about access. Going one step beyond Spotify, rather than paying a subscription based service, a listener may pay for permanent access to an MP3 that is stored on a server elsewhere rather than on the listener's device. Of course this will only be truly viable once Internet connectivity is truly global at truly broadband speed, and at a price that is affordable to the majority of consumers. Access to music rather than ownership of it could be offered at a reduced pricing level to make it more attractive to the consumer.
Subscription based business models may seem like an option to major labels with gargantuan back catalogues of tracks, as it allows them to 'sweat' these assets, but for the artist they give very little, and for new and upcoming artists, the prospect of earning around a third of a penny per track play, or less than £30 for 1,000 album plays is hardly an attractive proposition. Unless Spotify re-evaluates it's distribution of wealth it is likely to become an online vault of back catalogue tracks only, as new artists quite rightly demand a fair price for their creations, and invoke contract clauses with major labels keeping them away from Spotify, or sign to independent labels (including their own labels) that do not have a relationship with Spotify.
The MP3 has been heralded as the 'killer' of the modern day music label, but this is a narrow perspective, taken by those who are not visionary enough to adapt and explore the possibilities of what could occur with media-less formats. The pattern of creative destruction will almost certainly continue, but with the increase of 'gadgetisation' into our everyday lives, and the proliferation of devices that can offer a full multi-media experience as well as web connectivity, will an audio experience alone be enough to entertain audiences of the future? Will we want a choice as to how we engage or interact with our music? Or will we be happy to maintain the status quo? (not the band!). Will we want to own the tracks that we listen to, or will we be satisfied with just being able to access them when we want to? Will we want to de-clutter our gadgets of digital music in the same way that gadgets have allowed to us to de-clutter our homes of media based music? Whatever the future is for the 21st Century music industry, the one thing that seems a certainty is that the MP3 is the beginning rather than the end of the shape that it will take.
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