Posted by Mark Mulligan on January 24, 2010
I’ve just finished presenting to delegates at the music conference Midem some of the findings of new Forrester report: The Music Industry Meltdown: Recasting the Mold. Here are a few highlights:
The 1990s were the recorded music industry’s high-water mark, with the CD at its height as a product. The CD now finds itself in terminal decline and with no heir apparent. Instead music fans have fallen out of love with the CD and struck up a whirlwind romance with free music. This is an affair that has changed forever how people perceive music as a product.
The contagion of free music infects everything. (But file sharing is just the symptom, not the cause.) We are in the midst of a painful period of transition from the distribution paradigm of selling units of music to the consumption era where music fans expect music to be on tap, unlimited and whenever and wherever they want it. It’s hard too fight free when it is riding on the wave of inevitable change. Instead it must be beaten at its own game: a big fat carrot needs to accompany the stick.
The music industry’s first digital decade raised as many questions as it answered. By the end of 2009, US and European recorded music revenues were just 42% of what they had been at the start of the decade — down from €25.6 billion to €10.8 billion. The music industry was slow to embrace digital and illegal services were the big winner. But towards the end of the decade we saw many innovative services licensed to (YouTube, Spotify, Comes With Music, TDC Play) hopefully setting the scene for the decade of product innovation that music business so sorely needs.
Digital music is still stuck in a niche. Most music fans still don’t listen to digital music. The car and the radio still dominate listening and most consumers conduct do any online music activity.
Value chains are shifting. The music industry will have to look more and more to new entrants as business partners. The good news is that brands and product strategists expect to invest more money in digital music in 2010 than they did in 2009 (see chart below) (We fielded an executive survey to 177 US and European digital music executives and the results are both in this report and a forthcoming follow up document). Such investment will bring much needed impetus to the music industry, but it will also continue the value chain changes that will ultimately reshape the balance of power and recast the mold of the music business.