What’s Hit the Hits?

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This study will show the effects of the decline in CD album sales, which artists, record labels, retail stores, and CD manufacturing companies depend on as their main source of income. This is due to online downloads from both online music stores and P2P file sharing programs, which are known as bootlegged music.

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What’s Hit the Hits?

  1. 1. What’s Hit the Hits? In APA Style Derek Peacock Strayer University 2009
  2. 2. Contents Chapter One: Introduction……………..…………..…………..…………..…………. 3 Problem Statement……………..…………..…………..……………………………... 4 The Purpose Statement……………..…………..…………..………………………… 4 Chapter Two: Literature Review…..………….……………..…………..…………… 5 Chapter Three: Methodology…..…………….……………..…………..…………… 13 Chapter Four:.……………..………………….……………..…………..…………... 14 Chapter Five:…..………….……………..…………..……………………………… 21 Chapter Six: …..………….……………..…………..……………………………… 26 Conclusion…..………….……………..…………..……………………………….. 30 References…..………….……………..…………..………………………………… 31
  3. 3. Chapter 1 Introduction This study will show the effects of the decline in CD album sales, which artists, record labels, retail stores, and CD manufacturing companies depend on as their main source of income. This is due to online downloads from both online music stores and P2P file sharing programs, which are known as bootlegged music. Because of online stores and P2P file sharing programs, the music and entertainment industries are being revolutionized calling into question the way music is disseminated and the way profits are shared. The online stores are great for albums sales due to low costs and overhead. This is not good for the CD manufacturing industry, which is losing grounds in the market and jobs. Now, online stores, P2P application, and bootlegging are causing a shift in the entertainment industry and the industry needs to adapt fast in order to keep the lost revenue down. However, the world is changing due to technology. Every time a new technology is introduced, another industry is killed. The entertainment industry is shifting their marketing tools. There are three factors that influence the sale of music by an artist: the entertainment
  4. 4. industry will adapt to marketing tools that use both a printed means and online means such as USB and download cards; fans will only buy an album if the artist is truly great and will flock to the record stores to back the CD album; and artists will shift from major record labels to independent record labels, or the record labels will die off and only entertainment companies will remain. This will force in new ideas, better music from the artist and labels, and in time, the end of manufacturing CDs in general. This shift is beginning to be seen with the new Apple’s Macbook Air computer that wasn’t designed with a CD-Rom. Problem Statement The problem this study addresses is that CD album sales are down due to the Internet, which affects the music industry’s economy for the artist, record label, retail stores, and CD manufactures. Purpose Statement The purpose of this study is to explore how The recording industry can adapt its sales practices and business models in order to increase its sales and decrease the negative effect of the downloading of music.
  5. 5. Chapter 2 Literature Review Album CD sales are down in retail stores because of online music store downloads and bootlegging from P2P file sharing application. Federal copyright laws protect music that is licensed. Up until about five years ago, record labels, distributors, and music artists enjoyed high profits from selling full CD albums which fueled the music industry’s economy. Today, single records such as ring tones, and download sales from online stores such as itunes, Napster, Amazon MP3, eMusic, GroupieTunes, Rhapsody, Lala, Shockhound, and online music streaming websites is what the music industry is banking on for profit today. All music that on stock at retail stores or downloaded from online
  6. 6. music stores are tracked by SoundScan, which rates Billboard Charts. To protect music industry copyrights, in 1976, The United States (U.S.) Congress passed the Copyright Act, which stated, “Copyright protection subsists in original works of authorship in any tangible medium of expression.” The document outlined the concept of fair use, which permits the reproduction or display of a work when use does not affect the market for the copyrighted work. Thereafter, the Copyright Act had to be amended so that it could adapt to each new developing technology; from CD players to DVD players, to digital hand-held devices (Brown, 2005). Once again, Congress had to upgrade the redefined Copyright Act that was expand the definition of fair use even further. The Home Audio Recording Act (HARA), enacted in 1992, allowed fair use for musical recordings that permitted consumers to duplicate previously purchased audio works. This meant a consumer could record a cassette copy of an LP, provided the copy was intended for personal use only. Then again, technology once more surpassed the Home Audio Recording Act with CD burners. HARA then enacted the ability to create, or “burn,” a CD. Furthermore, bootlegging technology adapted with CD towers that can burn up to 100 CDs at one time (Brown, 2005). What started the beginning of what is known as “casualties on the frontlines” soon turned out to a full-scale assault on the music industry. The CD album sales started dropping due to the advent of the Internet. Home computers where installed with CD-R burners that made it easy for people to copy music CDs. Next, the computers started what
  7. 7. is known as ‘file sharing’ with each other, (using digitized recordings in compact, electronic format). Napster started the MP3 file transfer which gave users the ability to download songs between computers and then gave them the ability to burn up to 70mins on a CD-R, causing even more lost revenue. The music industry was not prepared for both the MP3s and “P2P” file sharing websites that made the networking of computers fast and easy. Congress then had to develop The Digital Millennium Copyright Act (DMCA) that was passed in 1998, which attempted to stop Internet distribution of pirated material (Marshall, 2003). The computer impacted bootlegging because, each MP3 music file, once downloaded, can be duplicated onto a CD and duplicated thousands of times over to produce pirated CD sales with little or no loss of sound quality. Most people will never hear the difference in sound quality, which does not affect the music, such as before. Music that is downloaded from these sites are “bootlegged” onto CD then sold for around $5 to $10; with absolutely no profits going back to benefit the artist, retail store, or record label, but to the bootlegger spent about $0.15 pre CD (Brophy, 2003). Why is it bad for the music industry? The decline of CD album sales over MP3 downloading has and is impacting recording artists, record labels, record stores, and manufacturing in many negative ways. Recording artists are having to fight back by finding new avenues to sell CD albums. Record labels are adjusting recording contracts to incorporate a new deal what is now
  8. 8. known as a “360 deal” to make up for losses in CD album sales. Record stores are also adjusting for lower sale volume by finding new sources of income. CD manufacturers are all also adjusting, which is why we are seeing a decrease in employment (Grassi, 2007). Artists are turning to selling CD albums at venues, which can’t be tracked by SoundScan information. This will cost artists money in sponsorship, radio plays, awards, and shows. Artists are also now including bonus material with their albums in order to boost sales, such as free music downloads, video, and added bonus tracks to help with generating CD album sells. New technology, such as download cards, may fix this problem once single downloads are tracked in the near future. These download cards can be tracked once the cards are accessed. Each of these cards must be sold for the same price as the CD album and online album (Schroeder, 2007). Record labels are also trying news way to defeat illegal music and make up the difference in loss of revenue from CD album sales by offering more services, products, and distribution methods. By providing comprehensive, innovative, and fairly priced legal services to customers, downloads can be offered as cheaply as $0.60. Record labels are also offering a “name-your- own-price” album or download to fans, giving the artist more flexibility in material sold. Recently, bands such as RadioHead came up with this idea when they released their first album online and sold over 3million records (Bricklin, 2002). The effects of low CD album sales, due to the Internet and bootlegging on music stores, are slowing down the pace of business. This is forcing many businesses to adjust
  9. 9. for the increase of music downloading by raising the cost of CD albums. The increase in retail store prices causes many customers to not come into the stores. These same stores, however, are seeing an increase in sales of works by independent artists, music memorabilia, and lifestyle merchandise to attract more customers and fans to their operations. Some music stores are selling used media to stay in business (Bricklin, 2002). The major companies that produce and distribute roughly 85 percent of all music are located in the United States. They control the CD manufacturing, and are known as the “Big Five”. Warner Music, EMI Group, Universal Music Group (UMG), Bertelsmann Music Group (BMG), and Sony (Oligopoly 2) are the “Big Five” major music distribution companies that rely on the CD albums of their artists and record labels to sell. Each one of these groups holds the biggest share of the U.S- recorded-music market year-to-date. Universal Music Group tops out the group with 29.4 percent in market sharing, the rest going to “Big Five” music companies as follows: 16.6% Warner, 16.3% BMG, 13% Sony, 9.8% EMI, 14.9% all others. This information is collected from the data source Nielsen Soundscan (Kirkpatick, 2006). Recently, (AOL) Time Warner Inc. sold its DVD and CD manufacturing, printing, packaging, physical distribution, and merchandising businesses to Cinram. This major buyout is for approximately $1.05 billion in cash and includes rights to replication and distribution of DVDs and high-definition discs including Blue Ray. This is significant progress that Time Warner made in order to fulfill its commitment to reducing debt, Free
  10. 10. Cash Flow, and to get out of a dying industry of CD manufacturing. However, David D. Kirkpatrick asserts that the sale will affect the job market because of the company’s greater control over the CD manufacturing market share, in which Cinram still believes there is money to be made. This is very true for the time being, but only for a limited time. Some estimated that the CD itself only has 12 years left, before the disc becomes obsolete. CD manufacturing careers which includes technicians, sales reps, graphic designers, marketers, managers, and other personnel, decreased by 61 percent in 2007. (Hu, 2003). What is the problem: definition and description and history The Internet’s online music market from online sales and P2P file sharing application of music started in 2001. Napster started the MP3 P2P file sharing applications. Online music downloading has increased year by year at a fast rate ever sense. By 2004, music downloads tracked by SoundScan exceeded more than 100 million. In 2005, music downloads were tracked with sales that reached $353 million, which is 150 percent higher than in 2004. By 2006, SoundScan tracked sales of single-downloaded music as being up by more than 67 percent over the same period in 2005. This accounted for more than 525 million digital downloads, but not bootleg MP3s (Schroeder, 2007). It isn’t just single songs that are being downloaded. Entire albums are being downloaded to iPods, cell phones and MP3 players as well. Album downloads were tracked at over 29.7 million downloads in 2006. In 2005, album downloads were tracked at 14.5 million. However, only eleven major artists’ albums that were downloaded sold
  11. 11. more than 100,000 units. This is compared to only three for the entire year in 2005, and none in 2004 ("Nielsen SoundScan Announces Dramatic Increases in U.S. Digital Download Sales", 2006). Today, students between the age range of fourteen and twenty-four who are downloading music illegally from free online P2P file-sharing services, conduct most the bootlegging to MP3 players, cell phones, and ipods. This has increased over the past few years because of Web download applications, such as Kazaa, LimeWire, and Morpheus that are free open source download applications. These applications are compatible to match computer operating systems such as Microsoft, Mac OX, and Linux. However, these P2P applications do sell types of advance services, but leave no revenue to go back to the artist or record label (Melton, 2000). The P2P file share applications are designed to allow users to download music files, visual images, video clips, and offer a broadband connection for free. Each one of these programs allows media files to be accessed and pirated all over the world quick, fast, and easily. The average download time for MP3 is around one to three minutes; images can be downloaded in a few seconds; and software in just a few hours. Each of the applications runs from a user’s computer that is linked together in a “shared files” folder. This then allows the application to scan the folder or folders and permit any type of media file to link together for to be downloaded (Fisher, 2007).
  12. 12. The history of the CD in the market place started in the late 70s. It became popularized during the 1980s due to its increased audio performance over the sound quality of magnetic recording tape. The market started out by selling approximately 30,000 CD players and 800,000 discs in the early ‘80s, which created a new market and also made bootlegging easier. By the 90s, the number had grown to more than 9.2 million players in the U. S., and 1 billion discs worldwide. Then, in 2004, worldwide sales of CDs—audio, CD-ROM, and CD-R—reached 30 billion. Today, Sony DADC is the leader in the industry and ships as many as 6.4 million discs daily worldwide (Oberholzer, 2004). Bootlegging started once someone figured out that all one has to do is record someone else’s material and then sell it. The first instance of bootlegging music occurred, actually, in the early 1900s with an incident involving a man named Lionel Mapleson, who re-created a recording that he duplicated from a phonograph record. However, the sound quality was lost and record companies really didn’t see bootlegging as a problem. Since that first act of piracy, many have benefited from the ease and anonymity with which an artist’s hard-won work and creative inspiration may be stolen, and then sold without any profits going back to the artist or label. Most bootleg records are presented as unauthorized recordings of live performances, radio shows, and television broadcasts that where sold in low volume. Some bootlegged music came from stolen tapes from unreleased studio sessions that usually had good sound quality. Melton, (2000) shows how, in the 1980s bootlegging made it possible for tracks to be released; even preceding the official releases.
  13. 13. Over the years, Melton also shows, the bootlegging of music has had to change with technology (Melton, 2000). In the long run, how will the music consumer be affected by these activities? Music is moving onto our personal computers, MP3 players, and cell phones. Today more of these items can access the Internet and connect to online music stores, music stream websites, and P2P file sharing application. Many music lovers are logging onto websites such as last.fm, Pandora, Yahoo Music, iTunes Music Service and Rhapsody. These websites are the vehicles that provide new ways of music streaming and downloading music. This new online music service is a fully legal all-file-sharing application. Each of these websites has a monthly service charge for their users and visitors. The service lets listeners hear whatever songs they want to, and then download it for a limited time, without paying per track. However, artists and record labels receive less revenue from this type of service. Now, cell phone companies are finding that monthly fees for ringtones are a great new source of revenue. Profits however will be spilt and are not going to the artist or record labels. Also, USB flash drives and music download cards are gaining grounds for new music distribution means (Fisher, 2007).
  14. 14. Chapter 3 Methodology The purpose of this study is to explore how the recording industry can adapt its sales practices and business model in order to increase its sales and decrease the negative effects of the downloading of music. In order to address this purpose, the research will be guided by the following research questions and sub-questions: Research Question How can the recording industry adapt its sales practices and business model in order to increase its sales and decrease the negative effects of the downloading of music? Sub-questions How has the music industry already adapted to address the decrease in CD album sales? What other changes can the industry make to increase their revenue? How can the music industry change their business model in order decrease the negative effects of the downloading of music?
  15. 15. The researcher will do a meta-analysis of published information to answer the above research questions. In order to determine what adaptations the music industry has already made in response to the decrease in CD album sales, the researcher will analyze articles in music album sales and online music downloads sales on Music business websites. In order to address additional steps the music industry can take to increase their revenue, the researcher will analyze articles from music business websites and blogs on what changes can be done within the music industry. The researcher will also review and analyze articles from websites and blogs about the future of music distribution order to find ways that the industry can change its traditional business model. Chapter 4 How is the music industry already adapting to address the decrease in CD album sales? The music industry is already adapting to address the decrease in CD album sales by reducing overall cost. Most music industry companies are now adding extra costs to artist, selling music through online stores, using music download cards, and generating revenue from licensed media. However, the music industry still depends on CD album sales for 80 percent of their overall income (McDonald, 2007). The added cost to help make up for the loss to recording artists is the 360
  16. 16. Deal. The 360 deals, which are designed for new recording artist, are just simple contracts that allow the record label to receive a percentage of all the earnings from a band's activities. Under the new record label deal, the 360 deal is also known as "multiple rights deals". The record labels will get a percentage of everything that was previously off limits to them, such as: Concert revenue, Merchandise sales, Endorsement deals, and Ringtone sales from cell phone companies (McDonald, 2007). For their bigger exchange of all revenue generated from the artists they represent, the record labels will commit to promoting the artist for a longer period of time. The record label will actively try and develop new opportunities for each of their artists as well. The new 360 Deals will make the record label function as the artist’s pseudo-manager too; which means that the record labels look after the artist's entire recording career and not just focus on selling albums and records. (McDonald, 2007). The 360 Deals allow royalties from satellite and Internet radio to be shared, along with concert ticket and merchandise sales. The record labels also get a percentage of sales from video games such as "Rock Band" and "Guitar Hero", as well as movies that also generate licensing fees. However, Nielsen SoundScan doesn't track those alternative revenue streams. (McDonald, 2007). The 360 Deals are controversial to some artists for a lot of reasons. Some
  17. 17. say that the 360 Deals are often seen as cynical money grabs by record labels. Other artist object to the whole "band branding" notion that makes 360 deals so potentially profitable. However, the labels are facing dwindling sales and higher overhead because of the online stores and bootlegging. A great example is the record labels success of The Pussycat Dolls when branded (McDonald, 2007). Better known artists such as Jay-Z and Madonna are signing deals with Live Nation. Live Nation is a concert promotion company that handles recording, publishing, touring, merchandising, and web sites for artists. Live Nation just has significantly more funds available for future acquisitions and expansion to the artist. Live Nation will give obscene amounts of money to artists with numerous people paying to see and hear them. (Shawn, 2008). However, the labels are facing dwindling sales and higher overhead because of the online stores and bootlegging. Most artists know that record labels have survived a long time without The 360 Deals. In today’s online music downloading economy, record labels are adapting to manage their businesses for online distribution. Record labels are also reacting to the changing industry appropriately just by asking the bands to split the bill, which seems fair to the record labels (McDonald, 2007). Selling music from online stores The music industry is also adapting to decrease in CD album sales by
  18. 18. selling music online, and with social networks. Companies such as tunecore.com, rawrip.com, and sellaband.com offer opportunities for artists to get music and their name to every online music store on the web. Social Networks such as MySpace.com and Facebook.com are also allowing the music industry to sell music with online blogs that target a global audience (Kusik, 2005). Online music stores such as Itunes are increasing to make this essential step both simple and cost effective. Online music stores’ sales are a small piece of the total music sold in the world, but sales are growing at a fast rate. Apple's iTunes Music Store saw early success, specifically in less than four days after launching the Windows version iTunes in October 2003. Apple announced that they sold more than 1 million songs during the windows launch. CEO Steve Jobs said, “Apple’s goal is to sell 100 million downloads during the first year of iTunes operation” (Sandoval, 2008). Other companies such as Rhapsody.com and eMusic.com rushed to launch their own stores, determined to get a piece of the digital pie. It's an ever-changing space when it comes to online music stores. Each time a new store pops up, another one such as Sony Connect and Yahoo Music Unlimited, die out. It might seem late in the game for new entries, especially given the death of some of the larger competitors, but the space continues to grow. Each site offers specialty content and community features that the others soon adapt also. Extremely choosy, music
  19. 19. buyers consider the many options available before settling on one, or several of these new online stores (Sandoval, 2008). The music industry is adapting for CD album sales with online social networks such as MySpace. Three major record labels, Sony BMG, Universal Music Group, and Warner Music Group, got together and form MySpace Music; allowing users to listen to any song from the catalogs of the music giants for free. MySpace users will be able to create playlists and purchase tracks from their own page. To generate revenue from the playlists users will encounter advertisements after every three songs or more (Sandoval, 2008). For the record labels involved, social networks offer the chance to establish a greater online presence and earn advertising income as they challenge the effects of P2P file-sharing, bootlegging, and the proliferation of online music promotion web sites. Music experts belie that the record labels and the wider music industry have a strong future, but will not have a not have a massive impact on increasing music sales (Sandoval, 2008). Music has completely overlooked online stores and social networks as a very powerful tool. The music industry is adapting to online stores and social network music blogs. Today, the online stores are changing and adapting by switching to all DRM-free MP3 catalogs music. This is because some online stores solely want to sell music in a format that is only compatible with a particular player.
  20. 20. For example, music that is purchased from iTunes can only be played via iPod. Thus, some music will only be sold at select online stores, but will be able to be heard on social networks then purchased from a online store, which will allow for low cost paid advertisements (Sandoval, 2008). Music download cards The music industry is also adapting to cheaper marketing tools to address the decrease in CD album sales. Music Download Cards offer the bridge between digital and physical music, which is currently used as a promotional tool. Most music industry leading professionals are seeing that this new media tool will move CD albums to Music download cards, which in time will provide a new solution for full retail album distribution (Alaz, 2007). Music Download Cards are plastic credit size cards that direct fans to a website. Each card is printed with a unique redemption code on the back for secured access. Artists upload songs to the hosted database that fans access the website. Once the card is accessed, the fan can listen, download, or even purchase songs and the artist's media. These cards are designed to be collectible items (Alaz, 2007). Music Download Cards are an inexpensive promotional tool that artists can use to design their own artwork, and often make cards in limited runs, which adds to the appeal. Currently the Music Download Cards are either sold or being given away as fun promotional items. The cards are used to build a database to connect with fans, keep fans
  21. 21. current with artist, and inform the fan of new CD album releases (Alaz, 2007). The pricing for a Music Download Card starts at around $0.40 each for 1000 which includes web hosting, bandwidth, and database storage. Most retail CD albums start at $1.50 for 1000 or more just depending on the manufacturer. This makes the Music Download Card cheaper to manufacture, ship, and distribute, than retail-ready CD albums because of the size. Music Download Cards also provide a user-friendly download avenue for bands that haven't yet made it to the front page of the iTunes Music Store (Alaz, 2007). Right now all Music Download Cards websites are still currently in beta set-up, but are starting to gain grounds in the music industry as new technology. Most of these websites currently only support MP3 audio files, Flash video files, jpg files and PDF files of artwork that fans are able to download. Currently, Sony has MuiscPass that let thirty- seven artists have cards. Consumers are able to find MusicPass Music Download Cards in all major retail stores shelves. (Alaz, 2007) Generating revenue from license media The music industry has already adapting to address the decrease in CD album sales by generating revenue from licensed media. Most licensed media is paid in the form of royalties for the use of a licensed song from entertainment alternatives; such as movies, TV, and video games. The music industry today found a gold mine with licensing music to video game companies, which is generating greater amounts of revenue for music than the cinema box (Howe, 2007).
  22. 22. In the U.S. today, the video gaming business, is growing at 9.7% and will gain up to 11 percent over the next five-years. The video game industry generated over $12.5 billion in sales from 2007 to 2008. The music industry is now starting to capitalize on the full market to license music to video game companies. In 2007 video games earned more retail revenue than music for the very first time ever (Howe, 2007). Time Warner record company, licensed music to the very popular video games, Guitar Hero and Rock Band; earning over $2.3 billion in sales. Both Guitar Hero and Rock Band had a low budget design with tiny poor graphics, plastic guitars, and epic hooks, but was a huge hit with play-along songs from the past. Guitar Hero and Rock Band became a huge success, which is good news for the music business. Aerosmith reportedly earned more from Guitar Hero, than from any single album in the band's history (Howe, 2007). Most music industry professionals see that the future of licensed media is more profitable in video games then in other media, such as TV and movies. This is because of the significant distribution outlet with games being available to purchase in retail stores and online download stores. For this reason, by 2011 the worldwide gaming market will be worth $48.9 billion at a growth rate of 12.1% for the next five-years (Howe, 2007). The key growths for licensed music with video games are in online games, wireless games, new-generation consoles, and the burgeoning in-game advertising business. This is because games are growing at a fast rate and there are more new gamers every year. The main impact of the video games is to provide exposure and income for the music industry
  23. 23. (Howe, 2007). Chapter 5 What other changes can the industry make to increase their revenue? The music industry can increase overall revenue by making changes in the way the record labels license media to market and distribute it to the fans with paid advertisements. This is done by fully utilizing social networks and online music streaming website stores, which sell paid advertisements for their site. The music industry will need to integrate licensed media with paid and social network media on their music players and ad banners. These changes are designed to increase revenue by giving fans new information about new music and their favorite artists quickly, with the use of a database. The key of the entire operation to making money with online downloaded music is the database (Sandoval, 2008) Digital music and social networking are two of the web's most dynamic trends today. The music industry will utilize them both by building a database with social network web sites such as Myspace.com and Facebook.com. Both of these sites are free to users and rely on paid advertisements for revenue. The music industry is capitalizing on these social networks to introduce new artists and music for lower costs than print and promotional CDs. The music industry is finding more and more ways to integrate the social networks by using the consumer’s technology to benefit sales of music. Social networking is a critical organization providing a community and exposure for music industry media (Sandoval, 2008)
  24. 24. Today Myspace.com and Facebook.com are the most popular social network in the world, changing the way people preview purchases and find new music industry product. Both of these websites have great eye appeal because the music industry is seeing over 250 million potential customers for music downloads (Sandoval, 2008) Both independent and major and record labels are using these social networks to maximize exposure by using the music players, dashboards, widgets, to links websites together and sell music media and merchandise. The music industry will need to utilize this growing trend by increasing the use of additional profiles, controlling comments, messaging friends, requesting friends, scheduling event invitations, and posting blogs that in turn, will drive fans to websites and online stores to purchase products. Outsourcing the labor to use these social networks is starting to generate a new market of opportunity. Some companies are working on artists’ social network pages for as little as $400 a month. (Sandoval, 2008). The most successful social networking sites have a wide and varied audience with the demography that the music industry wants to target. Targeting potential fans is easier and cheaper to do with a local event on both MySpace.com and Facebook.com. Their population is more or less the general buying public and music lovers. Young teenagers to middle aged working class individuals are always logging in, checking others profiles, and listening to music to find out what is new (Sandoval, 2008) Social networks for the music industry are now directly challenging to Apple’s
  25. 25. iTunes and other online stores as well. MySpace and Facebook are now selling songs from over 3 million unsigned bands off of the social network web pages. However, each of these songs is sold as unprotected MP3s and is not SoundScan tracks. Therefore independent artists will be able to afford the music distribution service provide by Snocap.com, a music widgets which is what is put into the HTML template of a blog or website that plays music (Sandoval, 2008). The music industry is using social networks, such as Myspace.com and Facebook.com to target potential fans. The music industry is adapting to the Internet and becoming very successful to a varied of audience with the use of social networks to generate income. They are changing the way people are exposed to new music by selling music media and merchandise through social networks (Sandoval, 2008). Online music streaming website The music industry will need to increase licensed music advertisements because users are paying for digital music streaming. Last year a report by Mi2N showed that purchases of online digital music downloads increased by 29 percent and downloaded music now accounts for 33 percent of all music tracks purchased in the U.S. At the same time, according to The NPD Group, the leader in market research for the entertainment industry, the number of Internet downloads jumped from just over 8 million in 2008 to 36 million Internet users (Cheng, 2007). The report found that licensed music being listened to by online music streams is
  26. 26. increasing awareness and usage of Pandora, a leading online radio station, doubling year over year to 18 percent of Internet users. The percentage of consumers claiming to listen to music on social networks sources like MySpace Music and Last.fm climbed from 15 percent in the fourth quarter of 2007 to 19 percent in the fourth quarter of 2008 (Cheng, 2007). Nearly half of U.S. teens are engaging with music on social networks, which is an increase from 37 percent a year ago; among college- age Internet users, the percentage increased from 30 percent in 2007 to 41 percent in 2008. In summary, the report notes that the music industry now has to redouble efforts to intercept and engage these listeners, so they can create revenue through up selling music, videos, concert tickets, and related merchandise from these sites (Cheng, 2007). Chapter 6 How can the music industry change their business model in order decrease the negative effects of the downloading of music? The music industry will change their business model in order to keep up with the negative effects of the downloading of music by moving from CD albums to all digital means of marketing tools that will unitize the Internet. Music Download Cards will help with one aspect of the business model to help with the supply of media for one time music download, used as a promotional item, and drive fans to a database. Social networks for more information can help in driving fans back to retail stores and online stores for new
  27. 27. music media and merchandise (Kusel, 2009). Cell phones are another aspect that the music industry is continuously using, upgrading, and integrating with the Internet. Today’s cell phones are using camera phone technology and Internet together. Quick Response (QR) code is the next stage that the music industry will use. This new matrix code is a two-dimensional bar that is intended to allow its contents to be decoded and downloaded as information at high rates of speed using the camera phone and the Internet (Butch, 2009). The new business model will focus the music industry to cut costs, save money on print marketing tools, and do away with expensive CDs that the consumer is no longer using; replaced by the use of MP3 for MP3 players and bipods. Most music industry professionals do not utilize the MP3 to the fullest of its capabilities. MP3 can hold images such as graphic art and text information that can be used as paid advertisement. This information can be displayed in MP3 players and Bipods for marketing purposes, which will help generate extra income with paid advertisements (Butch, 2009). The music industry will be able to use the Internet for music sales and exposure. Independent entertainment record labels will continue to grow, however the major record labels may sit back and only supply budgets in The 360 Deal to provide for major marketing campaigns as investors (Butch, 2009). Music Download Cards The Music Download Card is going to save the sale of full digital albums for the
  28. 28. music industry by providing a new eCommerce solution that will allow artists, record labels, and music promoters to service both retail and online distribution. The Music Download Card companies must approach the use of web and phone technology to market and distribute legal digital music with physical solutions such as the rewards card. This will allow the music industry to generate new streams of income by selling or giving away cards that direct customers in retail stores, venues, online websites, and street promotions; utilizing both guerilla and viral styles of marketing directly to consumers from a website. Once on the Music Download Card website, users can experience what music, video, games, graphics, links, and extras directly from the artist. If users input their email address and cell phone number, each one can be localized to receive email blasts or text messages about events, new ringtones, and other cell phone media. The Music Download Cards have the potential to expose every angle of technology that artist’s fans use (Alaz, 2007). Music Download Cards will cut, manufacture, storage, and distribution costs for the record labels and artists. Most Music Download Cards only cost around $0.40 to manufacture in large numbers of 1000 or more, unlike a retail ready CD album costing around $1.50 to manufacture. Storage costs for Music Download Cards run at $50 for every three months of space if no cards are reordered. Storage also includes the most important feature, which is a database that the music industry will be able to sell over and over again. Whereas CD Albums must be stored in a warehouse with shelf space that adds extra cost, the Music Downloads are smaller in size and need much less space, which
  29. 29. lowers cost over all. Distribution costs are lower due to size as well (Hefflinger, 2009). For the Music Download Card to be utilized property, the record label must integrate a marketing plan of guerilla and viral styles of marketing from the combination of retail stores, online stores, and social networking in order to get the word out inexpensively (Hefflinger, 2009). Retail stores have more options due to the Music Download Card because once an artist’s card is made available for sale to the public, each store may want to think of a promotional type of extra that would make a fans come in and buy. Since this is a new concept there is no data on this subject, meaning more research and case studies would need to be done for actual facts. Some would suggest an added rewards type of program with the card for discounts off other items that the artist or store endorses exclusively to one store. This would be great for marketing research because every user of the Music Download Card would be tracked due to the database, once redeemed (Hefflinger, 2009). Online music download stores can do one of three things. One allows a single song to be downloaded from the site. Secondly, it allows a full album to be purchased for download with or without special extras, or for artists to send a Music Download Card in the mail as special collectors’ item. This idea would give the online download stores an extra additive sale. The extra media should not be available for individual sale of media or broken up from the online store for added profit. This should give more eye appeal to the consumer who wants the extra that their artist gives from buying an artist’s Music
  30. 30. Download Card at full price (Hefflinger, 2009). Social networks are used to make consumers aware of an artist’s Music Download Card and where to purchase it. Using the social networks, moods, bulletins, comments, events, classifieds, and blogs will allow friends to be aware of new media, updates and new postings from the artist. Also, the record label should allow visitors the ability to access a small amount of demo media. Online video games would be a great, inexpensive choice due to the ability to generate music license fees from publishing companies (Butch, 2009). Once the public has adapted to the Music Download Card vs. the retail ready CD as the standard album the music industry will be able to utilize the artist fans base. The fan base will be tracked by the use of email address, cell phone numbers, and the UPC barcode from the cards. All of this personal information that fans give to the artist from their website will allow the music industry to access an added stream of income by selling advertisement and endorsement space off of the Music Download Card album (Butch, 2009). Music Download Cards link street and online music distribution together which appears to be acting in two ways: the first, as a technology company developing digital retail and marketing solutions such as embeddable storefront applications; and, the second, as a broker for commercial print requirement. Music Download Cards are being sold or given away to the fans at the live venue and later redeemed online as digital tracks through a customer online store. This is an excellent example of digital commerce converging with
  31. 31. physical commerce music distribution (Alaz, 2007). Through the computer industries will be able to store all the MP3 information that fans will want to back. If a Music Download Card album has 12 songs that could have over 12 extra images, new quantitative methods would be used for major commercial sale (Alaz, 2007). The next stage of Music Download Card Evolution Music Download Cards will adapt to the cell phone/smart phone within the next three to five years. Once new technology of G3 and Next G wireless broadband ability is made affordable to the general public. New users will be able to download media faster off the cell phone network (Butch, 2007). The new barcode, a QR code is intended to allow its contents to decode and download information at high rates of speed by a taking a picture of the barcode with a camera phone. This is great for advertisements with which companies could easily market new products just by tracking every download. Overall this will give users access to media even faster, which Music Download Cards plan to capitalize on in the future (Butch, 2007). Music Download Cards will use QR code technology by generating a new type of database by allowing new music industry products to be marketed right through the cell phone. Ninety percent of people check their cell phone messages and the music industries will be able to capitalize on this. Music Download Cards will also be huge for the licensed music content in which everything in a message is tracked, received, and played (Butch,
  32. 32. 2007). QR codes can even send out email alerts for new music, ringtones, and work with companies for demo tryouts. This will allow the music industry to gain new grounds in marketing and in media. When consumers receive email alerts and extras from their Music Download Card they will share the information with their family or friends, who then will want access to the artists’ extras on their phones or computers. This will only be available by QR codes, which the onlookers will now want to download. This cuts down marketing costs simply by consumer referrals (Butch, 2007).
  33. 33. Conclusion The music industry is starting to integrate by using technology to address the decrease in CD album sales by reducing overall costs. The 360 Deals record labels receive help with extra income from royalties, which are to be shared along with the artist. Online music stores such as itunes, Rhapsody.com and eMusic.com are causing the shift from retail ready CDs to downloading digital music that the music industry is adapting to at a much lower cost. The music industry is also adapting to cheaper marketing tools to address the decrease in CD album sales, such as Music Download Cards, which offer a new avenue of marketing tools. Social networks are helping the music industry by selling music online, but this method is competing with online music stores. Cell phone technology using the QR code will help in the future with music industry marketing, which will increase revenue from paid advertising and marketing database members.
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