Digital transformation in the music industry


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This is a presentation I made for my Digital Transformation course. The class was taught at Carnegie Mellon University by professor Michael D. Smith. In the presentation, I discuss how technology has transformed the role of record companies. I also discuss what record companies must do if they want to continue to add value.

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  • Value comes from physical product Sharing is discouraged - you need to give away the physical product, which means you need a new one If you like the record and played it a lot, it would wear out
  • Limited storage space means you need to pick and choose what to stock As a result, people stocked whatever had the highest probability of selling, which were the hits Job of record companies was to find the artists that could be marketed to a mass audience. They would push this music until it became a hit. Artists NEEDED these companies to distribute their music.
  • Means of supply go digital and get cheaper. This means both digital cataloguing (Amazon), as well as making music a digital product (iTunes) Means of music creation gets put into the hands of consumers - example is Garageband, Reason, and other programs Since transactions go digital, suppliers can collect data to create personalized recommendation systems
  • - Less costly means of supply and cataloguing means potential for supply - Cheaper means of production means more people filling in this higher potential for supply - Recommendation systems ensure that the demand is created to match this supply
  • Case studies on how to deal with the realities of he digital transformation in the music industry
  • - Radiohead Released Album ‘In Rainbows’ under this model - People can currently pay either $19.99 or 0. No one who doesn’t want to pay $19.99 will buy it anyway. People might want to pay more. Without ‘pay what you want’, you miss out on this whole chunk of demand!
  • - Physical CD doesn’t need to die, it just needs to be rebranded - Knowing that the CD is no longer a mass product (it’s for the real fans), record companies should ADD value to the CD - Radiohead is famous among their fans for interesting album art and packaging. - Should create special edition versions of albums with added value, sold at a premium price
  • - Serj Tankian creates a community around his website. Gets lost of engagement & eyeballs which he converts into sales. - Website acts as a ‘freemium’ product, where if you buy the CD you get a promotional code that gives you exclusive access to the website
  • - Grateful Dead were an improvisational band founded in 1964. They proved that you can be financially successful band without significant album sales. - They had hundreds of albums, but most were bootleg recordings by fans that were shared and given away for free. - They made the live experience something special. Songs were never played the same way twice. - PROOF THAT REVENUE FROM ‘ADDED VALUE’ (not CD) IS SUSTAINABLE REVENUE SOURCE
  • - Giving away the music used to be the end goal - Now anyone can get their hands on this music for free… We don’t NEED record companies to help us get the music. - At the same time, music can be spread more easily than ever! More music is being produced than ever! - Record companies can leverage this ecosystem by leveraging the music as a marketing tool, not a sale
  • Record companies need to deal with these realities: - Consumers pay what they want - Need to add value to the physical product, and seek sales from other venues Is this sustainable? YES, if the record companies are successful at implementing the two aforementioned strategies.
  • - Record companies will be successful if they are successful at Right now the successful artists who implement these strategies are doing it themselves. They should focus on their art not this. If a record label does a good job of this, the artist will stay with him/her. Record companies need to advertise themselves based on the value they add to the artist. They are no longer the only way for artists to sell their music.
  • - Record companies must nurture fans to gave them incentive them to pay more for an album
  • - Music is an easily digitized product - supplying is easily digitized, creation is digitized, and recommendations systems match supply and demand
  • Digital transformation in the music industry

    1. 1. How Digitization is Transforming the Music Industry Haris Krijestorac October 4, 2010 Twitter: @hariskr
    2. 2. The Early Music Industry: A ‘Perfect’ Business
    3. 3. Limited Storage Space  Market of Hits
    4. 4. Music goes Digital: Everything that made it the perfect business changes <ul><li>Supply </li></ul><ul><li>Creation </li></ul><ul><li>Discovery </li></ul>
    5. 5. From Niches to Riches… 70% of revenue comes from the long tail
    6. 6. Success Strategies for the Music Industry
    7. 7. Strategy #1: ‘Pay What You Want’ <ul><li>‘ You can’t stop piracy, you have to learn to compete with it ’ - Steve Jobs </li></ul><ul><li>Create an Efficient Market </li></ul><ul><ul><li>100% of demand is captured </li></ul></ul><ul><ul><li>Consumers pay their WTP </li></ul></ul>
    8. 8. Strategy #2: Add Value Add value to Physical Package
    9. 9. Strategy #2: Add Value Add value through Website and Social Media
    10. 10. Strategy #2: Add Value Add value through Concert Experience
    11. 11. <ul><li>Spreading the music used to be the SALE </li></ul><ul><li>… now it’s the MARKETING </li></ul>
    12. 12. The Challenge: Creating Sustainable Strategies
    13. 13. Sustaining ‘ Add Value ’ <ul><li>Record companies: </li></ul><ul><ul><li>design tailored digital marketing strategies </li></ul></ul><ul><li>Artists: </li></ul><ul><ul><li>Just create art </li></ul></ul>
    14. 14. Sustaining ‘ Pay What You Want’ <ul><li>Record companies must build cult followings around artists </li></ul><ul><li>Even more important for new artists , since the main goal is to spread their music </li></ul>
    15. 15. <ul><li>Music industry is still ‘The Perfect Business’ </li></ul><ul><li>… . And record companies can survive if they adopt new roles </li></ul>
    16. 16. <ul><li>4 Tips </li></ul><ul><li>for record companies of the future </li></ul>
    17. 17. Tip #1: Find Artists for Niches , not Masses
    18. 18. Tip #2: Help digitally spread music , don’t physically sell it
    19. 19. Tip #3: Deepen artists’ fan base , don’t broaden it
    20. 20. Tip #4: Tailor physical product to niche , not masses
    21. 21. Thank you
    22. 22. <ul><li>I like to share my opinions on marketing, </li></ul><ul><li>media, and technology on twitter </li></ul><ul><li>If you liked this presentation, follow me up! </li></ul><ul><li>www. twitter/com/hariskr </li></ul>
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