MIS_446_Music - Music
Business
Model
Disrup0on
...

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Unformatted text preview: Music
Business
Model
Disrup0on
 MIS
446
 Some
History
 •  •  •  •  •  •  •  •  1880‐1915:
Edison
cylinders
 1910s‐present:
78
45

33
1/3
records
 1920s:
Radio
 1950s:
Mul0‐track
tape
recording

 1965‐2000:
Compact
casseJe
 1981:
CD
and
MTV
 1991:
MP3
standard
finalized
 Late
1990s:
DVD
 Implica0ons
of
Recording
 •  Pre‐1880,
only
way
to
hear
music
was
live
 –  Community
bands
 •  Ability
to
hear
any
music,
any
0me,
is
new
 •  Evolu0on
of
recording
from
capture
of
reality
 to
art
form
in
itself
 –  Mul0‐track
produc0on
remix
 •  Exis0ng
music
as
resource
for
jazz
 •  Exis0ng
recordings
as
resource
for
sampling
 Music
Business
Model:
Pre‐2000
 •  New
product
development:
A&R
people
find
 new
ar0sts
 •  Profitability:
Exploit
ar0sts
with
contracts
 •  Informa0on
goods
 –  Sampling:
Radio
 –  Pricing:
Bundle
 •  Technology
evolu0on:
Resell
consumers
music
 they
already
own
 –  LPCDDVD
(SACD)
 Music
Business
Model:
Pre‐2000
 •  Look
for
blockbuster
 –  Thriller
#1
all
0me:
~110
million
worldwide
 –  6
of
top
7
all
0me
date
from
1973‐82
 •  Layer
on
overhead
 Source:
Wired
12/07
 Contract
Details
1
 •  •  •  •  •  •  •  •  •  •  Hypothe0cal
band
signs
“good”
contract:
15%
and
debut
album
goes
Gold
 Gross=
500,000
CDs
@
$16.98
=
$8,490,000
 Royalty
‐‐
15%
of
retail
‐‐
=$1,273,500
 “Packaging
deduc0ons”
of
25%;
gross
drops
to
$6,367,500
 “Free
goods”
charge
(promo
copies
to
radio,
etc.)
=15%;
gross
drops
again,
 to
$5,094,000
 Royalty
now
is
$764,100.
(Record
company
keeps
the
packaging
and
“free
 goods”
funds)

 500,000
@
$9.99
wholesale
price
to
record
co:
$829,900
 $3,500,000
balance
goes
to
retailers,
assuming
they
sell
the
record
@list

 Band
advance
=
$300,000;
spent
$200,000
recording
the
album
(includes
 $50,000
advance
to
the
producer)
 Band
keeps
the
remaining
$100,000
 Contract
Details
2
 •  The
label
spent
$100,000
making
one
video
(gets
played
on
MTV2)
 •  Band
owes
all
advance
money
back
to
the
label;
royalty
drops
to
 $364,100
 •  Band’s
producer
also
earned
a
4%
royalty
of
$203,760
($50,000
 already
paid)
 •  Band
owes
producer
$153,760,
reducing
their
royalty
to
$210,340
 •  Band
makes
$310,340
(which
includes
$100,000
of
the
advance)
 •  Band
owes
manager
15%:
$46,551
 •  Band
owes
2%
of
the
total
deal,
or
$101,880,
to
lawyer
 •  Band
net:
$161,909
 •  Split
four
ways
=
$40,477.25
each
 •  (About
the
same
as
a
city
sanita0on
worker
with
two
years’
 experience,
without
health
benefits,
vaca0on
and
re0rement
fund)
 1990s
Industry
Earthquakes
 •  1991:
Soundscan
POS
data
used
for
Hot
100
 –  Country
(Garth
Brooks)
previously
 underrepresented
 –  Increase
retailer
power
 •  •  •  •  1989‐94:
Unsustainable
back
catalog
sales
 1993:
Big
boxes
squeeze
out
record
stores
 PCs
make
CD
copying
easy
+
piracy
at
scale

 Clear
Channel
consolidates
radio
 1990s
Industry
Earthquakes
 •  MTV
retreats
from
music
 •  Clear
Channel
consolidates
concert
booking
 •  Ar0sts
win
contract
protec0on
in
congress
and
 courts
 •  “Share
of
ear”
to
cell
phones
 •  “Share
of
eye”
to
video
games
 •  DVD
becomes
fastest
format
launch
ever
 2000s
Industry
Earthquakes
 •  Napster
 •  Satellite
radio
 •  Lifestyle
retailers
sell
lots
of
music
 –  Starbucks
 –  Victoria’s
Secret
 –  W
hotels
 –  PoJery
Barn
 2000s
Industry
Earthquakes
 •  Ar0sts
drop
labels
 –  Back
catalog
rights
 •  Recording
studios
move
to
basements
 –  Pro
Tools
on
PC
 •  Pop
Idol,
American
Idol
 2000s
Industry
Earthquakes
 •  Rock
Band/Guitar
Hero
revenue
stream
 •  Madden,
other
game
exposure
 •  Vinyl
resurgence
 –  2008
sales
(1.9
million)
up
89%
on
‘07
 •  Mega‐tours
 –  Rolling
Stones
‘05‐07:
$558
million
 –  U2
Ver0go:
$389
million
 –  Police
‘07‐08:
$358
million
 Apple
and
Ar0sts
 Source:
Wired
12/07
 Apple
and
Listening
 •  Listening
becomes
private
 •  Shuffle
vs.
intent
 •  Metadata
and
music
 –  Gracenote
 Other
Ventures
 •  Rhapsody:
Music
business
losing
money
 •  Total
Music:
Universal,
Sony
pull
plug
2/09
 •  Ruckus:
Pulled
plug
2/09
 –  Could
not
give
away
“free”
music
 –  Plarorm
lock‐in
issues
 Radiohead
Experiment
 •  •  •  •  “Name
your
price”
downloads
October
10
 Physical
CD
released
January
1
 LP
in
box
set
and
standalone
 Cri0cs:
“Nobody
will
pay”
 The
Cri0cs
Were
Wrong
 •  3
million
copies
sold
worldwide
 •  Physical
CD
has
sold
1.75
million
to
date
 –  Through
a
label;
boxes,
downloads
via
band
 •  •  •  •  100,000
boxsets
@
$80
 17
million
plays
on
last.fm
 1.2
million
fans
will
see
the
tour
 #1
LP
seller
2008
 •  And
more
Torrents
than
legal
free
downloads
 Business
Model
Lessons
 •  Music
as
commodity
(product)
vs.
experience/ service
 •  Word
of
mouth:
MySpace
Music
 •  Variable
pricing
 •  Bundling
doesn’t
always
work
 •  Video
(YouTube,
Hulu,
Boxee)
now
on‐demand
 just
as
music,
movies
became
over
the
20th
 century:
 –  How
will
industry
adjust?
 ...
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This note was uploaded on 04/06/2010 for the course MIS 446 at Pennsylvania State University, University Park.

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