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Posted by Mark Mulligan on December 30, 2009
In a couple of days’ time the doors will close on a decadum horribilis for the music industry. Although recorded music revenues actually grew in 2001, the seeds of the forthcoming whirlwind were already well and truly sown. In fact one single event can be identified as the trigger: the launch of Napster in 1999. Of course other seeds had also taken root in the late nineties, including the launches of MP3.com, the PMP300 and the MPMan. But according so much importance to Napster is more than a useful construct for the historical narrative: Napster was more than just a metaphor for the transition from the distribution era to the consumption paradigm, it was the crucible of the music industry’s 20th century meltdown.
At the start of the decade the recorded music industry was an elegantly simple business built almost entirely upon sales of little shiny discs. Revenues were buoyant (due to the dominance of paid music), the construct of the multi million dollar selling artist was still common currency and - most pertinent of all - digital didn’t feature in the equation. By the close of 2009 the physical business is in terminal decline, the contagion of free is epidemic and the momentum lies with digital (even if the business models haven’t yet caught up with consumer behaviour).
The major record labels (which account for approximately 80% of revenue) have played a deciding role in Music’s Digital Decade, both as a consequence of their response to P2P and (most importantly) their changing licensing strategies (see chart below).
The story of Music’s Digital Decade maps cleanly to the four stages of the music industry’s digital strategy:
Stage 1: Denial
As the walls of music industry’s apogee began to crumble the record labels had already gone a long way to casting the die for the first half of the noughties: they had failed to see the true importance of what Napster represented and they had refused to license digital catalogue to services such as MP3.com, Listen.com and Cductive. Instead of nipping P2P in the bud by meeting demand with legitimate supply, the labels instead focused energies on fighting P2P rather than licensing to compelling alternatives. Digital was perceived as a temporary irritation that would soon disappear. Though there was a growing body of thinking within the majors that was beginning to think differently, their voices weren’t yet loud enough.
Stage 2: Confusion
By 2002 the digital voices within the majors had become loud enough to result in the licensing of services such as Rhapsody and the ill advised launch of two major label distribution platforms: MusicNet and Duet (later pressplay), by which the labels hoped to control digital music distribution. It was also by now clear that P2P was much bigger than Napster alone and the RIAA commenced high profile legal action against individual file sharers. Despite the rise of MP3 downloads on P2P networks, the legal music services were shackled by restrictive licenses whereby purchased digital music was tethered to the PC. For some strange reason digital music fans continued to opt for P2P alternatives…
Stage 3: Acceptance
The impact of Apple on digital music can not be overstated. Steve Jobs’ masterstroke in persuading the labels to license for portable downloads in the beta lab of the Mac platform single-handedly transformed the legitimate digital music market. The massive success of the test soon resulted in the licenses being extended to the PC platform and so began the rise of the paid download market, which Apple continues to dominate. Of course the reason for the success of the iTunes Store was the iPod: it wasn’t the first MP3 player but it was by far the best, and pulled millions of consumers into the digital music arena. It looked like the foundations for rebuilding had been laid but as the final quarter of Music’s Digital Decade began it was clear that the paid download market wasn’t the knight in shining armour: it wasn’t coming close to offsetting the impact of declining CDs and P2P was in rude health. It was time for Plan B.
Stage 4: Rebuilding
Whereas the major record labels bore the brunt of much deserved criticism in the first half of the decade, in the second half they began a process of reinvention. Much like an oil tanker that needs a mile to steer out of the way of the iceberg, the majors took time to change but are now key innovative forces. Flicking the switch on Plan B saw them license to the sorts of services which they had veered away from before, such as Spotify, Comes With Music, Spiral Frog, Virgin Media, imeem, MySpace Music. Not all of them have succeeded, and others will fail. But somewhere in these services will be part of the answer. Throwing everything at the wall to see what sticks could be interpreted as desperation, but I view it as a bold recognition that no one yet knows the answer. Indeed there will not be one, but many answers to the question which Napster first posed back in 1999.