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  • Music Business Models Patrik Wikström Jönköping International Business School
    • After the lecture, you will:
      • Know some basic business model concepts and terms.
      • Be familiar with a number of real-life Internet-centric music business models.
      • Be able to analyze a music firm’s business model.
      • Be able to design your own music business model (sort of).
  • <1>
    • What is a business model?
    • “ A business model is a framework for making money.”
    • “ A business model is a story that explains how enterprises work.”
    • “ A business model is a conceptual tool containing a set of objects, concepts and their relationships with the objective to express the business logic of a specific firm.”
    Magretta 2002; Osterwalder 2004
    • Is it a fad?
    E.g. Osterwalder 2004
  • E.g. Osterwalder 2004 A framework for making money Types of business models A business model of a specific firm
  • Business model building blocks Value Proposition How do we get and keep our customers? Who are our main partners, suppliers, alliances? What are our key capabilities and resources What do we offer? Who are our customers? How do we reach our customers? A visual description of how we operate, collaborate and create value. E.g. Osterwalder 2004 Partner Network Value Configuration Core Capabilities Channels Customer Relationships Target Customer
  • Value configuration (chain) Value Proposition Partner Network Value Configuration Core Capabilities Channels Customer Relationships Target Customer Production value chain Distribution value chain Content selection & processing Transformation of content into distributable form Distribution Marketing & promotion Content acquisition & creation
  • Value configuration (network) Value Proposition Partner Network Value Configuration Core Capabilities Channels Customer Relationships Target Customer audience approval risk willingness + oblivion - intellectual property development novelties ? + attractiveness of IP portfolio + + marketing effort licensing effort + + profit profit gap pressure required profit +/- +/- +/- + + + - + royalties + + + + + + media presence + + technology & regulation audience fragmentation marketing efficiency - + content demand + media outlets audience volatility media risk willingness playlist entry barriers + + + - + - + revenues audience reach marketing licensing audience action
  • Value configuration (what to include?)
    • Users & non-users
      • Members, users of different status and with different behaviour
    • Partners
      • Suppliers, alliances, etc
    • Flows
      • Information, goods, money, attention, …
    • Resources
      • Stocks, IPs, staff, equity, etc, …
    Value Proposition Partner Network Value Configuration Core Capabilities Channels Customer Relationships Target Customer
  • Business model building blocks Value Proposition What are our costs? What are our revenues? Our pricing? Is this a viable business? Partner Network Value Configuration Core Capabilities Channels Customer Relationships Target Customer Cost Structure Revenue Streams
  • In practical terms – what does “the thing” look like
    • The nine building blocks
      • Value propositions
      • Customers, channels, customer relationships
      • Partnerships, capabilities, value configuration
    • A financial model (Excel)
    • A visual representation of the value configuration
  • Business models vs. Strategy Business models ignore competition & implementation
  • Business models vs. Business process models (1) economic logic vs. implemented activities
  • Business models vs. Business process models (2) “ business modeling” ≠ designing business model
  • </1>
  • <2>
  •  
    • Value Proposition
    • ” We are not evil”
    • Flexible licenses (Creative Commons)
    • ” High” sound quality
    • User friendly interface
    • Value Proposition
    • ” We are not evil”
    • Flexible licenses (Creative Commons)
    • ” High” sound quality
    • User friendly interface
    • Cost Structure
    • Royalties, based on sales revenues (50/50 split)
    • Technology
    • Marketing
    • Admin + Salaries
    • Partner Network
    • Creatives
      • Non-exclusive
      • Creative Commons
      • 50/50 revenue split
    • Technology providers
    • Core Capabilities
    • Relationship Mgmt
    • Public Relations
    • Supply Chain Mgmt
    • Roster development
    • People
    • Web Usability + Tech
    • Channels (Comm & Distr)
    • Streaming, downloads, CDs
    • Mainstream media
    • Web site
    • E-mail
    • Revenue Streams
    • Royalty fees, donations, m erchandise
    • Download pricing: Flexible $5 - ?
    • License pricing: Depends (low)
    • CD pricing: $16.98
    • Customer Relationships
    • One-off purchases
    • No subscription, no customer database
    • Word-of-mouth
    • ” We are not evil”
    • Target Customer
    • People who listen to music in the background while they do other work.
    • Fans of music that gets little radio airplay or major record distribution.
    • Value Proposition
    • ” We are not evil”
    • Flexible licenses (Creative Commons)
    • ” High” sound quality
    • User friendly interface
    • Cost Structure
    • Royalties, based on sales revenues (50/50 split)
    • Technology
    • Marketing
    • Admin + Salaries
    • Partner Network
    • Creatives
      • Non-exclusive
      • Creative Commons
      • 50/50 revenue split
    • Technology providers
    • Core Capabilities
    • Relationship Mgmt
    • Public Relations
    • Supply Chain Mgmt
    • Roster development
    • People
    • Web Usability + Tech
    • Channels (Comm & Distr)
    • Streaming, downloads, CDs
    • Mainstream media
    • Web site
    • E-mail
    • Revenue Streams
    • Royalty fees, donations, m erchandise
    • Download pricing: Flexible $5 - ?
    • License pricing: Depends (low)
    • CD pricing: $16.98
    • Customer Relationships
    • One-off purchases
    • No subscription, no customer database
    • Word-of-mouth
    • ” We are not evil”
    • Value Proposition
    • ” We are not evil”
    • Flexible licenses (Creative Commons)
    • ” High” sound quality
    • User friendly interface
    • Cost Structure
    • Royalties, based on sales revenues (50/50 split)
    • Technology
    • Marketing
    • Admin + Salaries
    • Partner Network
    • Creatives
      • Non-exclusive
      • Creative Commons
      • 50/50 revenue split
    • Technology providers
    • Core Capabilities
    • Relationship Mgmt
    • Public Relations
    • Supply Chain Mgmt
    • Roster development
    • People
    • Web Usability + Tech
    • Channels (Comm & Distr)
    • Streaming, downloads, CDs
    • Mainstream media
    • Web site
    • E-mail
    • Value Proposition
    • ” We are not evil”
    • Flexible licenses (Creative Commons)
    • ” High” sound quality
    • User friendly interface
    • Cost Structure
    • Royalties, based on sales revenues (50/50 split)
    • Technology
    • Marketing
    • Admin + Salaries
    • Partner Network
    • Creatives
      • Non-exclusive
      • Creative Commons
      • 50/50 revenue split
    • Technology providers
    • Value Proposition
    • ” We are not evil”
    • Flexible licenses (Creative Commons)
    • ” High” sound quality
    • User friendly interface
    • Cost Structure
    • Royalties, based on sales revenues (50/50 split)
    • Technology
    • Marketing
    • Admin + Salaries
    • Partner Network
    • Creatives
      • Non-exclusive
      • Creative Commons
      • 50/50 revenue split
    • Technology providers
    • Core Capabilities
    • Relationship Mgmt
    • Public Relations
    • Supply Chain Mgmt
    • Roster development
    • People
    • Web Usability + Tech
    • Value Proposition
    • ” We are not evil”
    • Flexible licenses (Creative Commons)
    • ” High” sound quality
    • User friendly interface
    • Cost Structure
    • Royalties, based on sales revenues (50/50 split)
    • Technology
    • Marketing
    • Admin + Salaries
    • Partner Network
    • Creatives
      • Non-exclusive
      • Creative Commons
      • 50/50 revenue split
    • Technology providers
    • Core Capabilities
    • Relationship Mgmt
    • Public Relations
    • Supply Chain Mgmt
    • Roster development
    • People
    • Web Usability + Tech
    • Channels (Comm & Distr)
    • Streaming, downloads, CDs
    • Mainstream media
    • Web site
    • E-mail
    • Revenue Streams
    • Royalty fees, donations, m erchandise
    • Download pricing: Flexible $5 - ?
    • License pricing: Depends (low)
    • CD pricing: $16.98
    • Customer Relationships
    • One-off purchases
    • No subscription, no customer database
    • Word-of-mouth
    • ” We are not evil”
    • Target Customer
    • People who listen to music in the background while they do other work.
    • Fans of music that gets little radio airplay or major record distribution.
    Value Configuration audience approval risk willingness + oblivion - intellectual property development novelties ? + attractiveness of IP portfolio + + marketing effort licensing effort + + profit profit gap pressure required profit +/- +/- +/- + + + - + royalties + + + + + + media presence + + technology & regulation audience fragmentation marketing efficiency - + content demand + media outlets audience volatility media risk willingness playlist entry barriers + + + - + - + revenues audience reach marketing licensing audience action
    • Value Proposition
    • ” We are not evil”
    • Flexible licenses (Creative Commons)
    • ” High” sound quality
    • User friendly interface
    • Cost Structure
    • Royalties, based on sales revenues (50/50 split)
    • Technology
    • Marketing
    • Admin + Salaries
    • Partner Network
    • Creatives
      • Non-exclusive
      • Creative Commons
      • 50/50 revenue split
    • Technology providers
    • Core Capabilities
    • Relationship Mgmt
    • Public Relations
    • Supply Chain Mgmt
    • Roster development
    • People
    • Web Usability + Tech
    • Channels (Comm & Distr)
    • Streaming, downloads, CDs
    • Mainstream media
    • Web site
    • E-mail
    • Revenue Streams
    • Royalty fees, donations, m erchandise
    • Download pricing: Flexible $5 - ?
    • License pricing: Depends (low)
    • CD pricing: $16.98
    • Value Proposition
    • ” We are not evil”
    • Flexible licenses (Creative Commons)
    • ” High” sound quality
    • User friendly interface
    • Cost Structure
    • Royalties, based on sales revenues (50/50 split)
    • Technology
    • Marketing
    • Admin + Salaries
  • </2>
  • <3>
  • Value Proposition Partner Network Value Configuration Core Capabilities Channels Customer Relationships Target Customer Cost Structure Revenue Streams
  • Value Proposition Partner Network Value Configuration Core Capabilities Channels Customer Relationships Target Customer Cost Structure Revenue Streams
  • Value Proposition
  • I. Music-to-Users vs. Users-to-Advertisers
    • iTunes; last.fm
  • User control: Playlists (formatted or personalized); On-demand
    • BBC; last.fm; YouTube
  • On-Service vs. Off-Service
    • YouTube; iTunes
  • Digital Rights Management: Locked or Unlocked
    • iTunes; eMusic
  • Sound: Quality; codec; compression
    • iTunes: AAC 128kbps/Lossless; Amazon: MP3
  • License: Temporary; permanent; creative commons
  • Bundling: None, pure, mixed...
    • Most Mobile Operators, e.g. Vodafone, Three, Telenor
  • Value Proposition (summary)
  • Customer Relationships
  • One-off
    • YouTube
  • Membership
    • Amazon
  • Subscription
    • eMusic
  • Vendor lock-in
    • iPod + iTunes
  • Customer Relationship (summary)
  • Revenue Streams
  • Advertising revenues
  • User payments
  • Price levels (user payments)
  • Compulsory licenses
    • E.g. Noank Media
  • Revenue Streams (summary)
    • Advertising
      • Per Action, Per Impression, Per Time,…
    • User payments
      • Based on access to a service [€/month]
        • All-you-can-eat; blanket license
        • A limited usage per month [e.g. X downloads]
      • Triggered by a specific action [€/album]
    • Price levels
      • Uniform (incl. free), Tiered, “Freemium”
      • Dynamic pricing schemes: E.g.: Demand based, Tip jar
      • Loss leader
    • Compulsory licenses
  • Cost Structure
  • Royalties
  • Alternative compensation to rights holders
  • And all the other costs of course…
    • Bandwidth, infrastructure
    • Marketing
    • Admin, salaries, overhead
    • Etc, etc…
  • Cost Structure (summary)
    • Royalties
      • Fixed amount per play or download.
      • Pool of money
        • Percentage of advertising revenues, subscription fees, etc.
        • Distributed to rights holders based on downloads or plays.
      • Blanket license
    • Less common: Barters, Advances, Stock
    • Everything else…
  • </3>
  • <4>
  • Three cases
    • Value Proposition
    • Users-to-Advertisers
    • On-demand
    • Off-Service (sort of)
    • DRM: WMA
    • Sound quality: 128kbit/s
    • License: Temporary
    • Bundling: None
    • Value Proposition
    • Users-to-Advertisers
    • On-demand
    • Off-Service (sort of)
    • DRM: WMA
    • Sound quality: 128kbit/s
    • License: Temporary
    • Bundling: None
    • Cost Structure
    • Publishing royalties
      • 8% of gross revenues
    • Sound recording license
      • 50% of gross receipts (ad sales)
    • Bandwidth & technology
      • Assume: €100/TB
    • Advances…
    • Revenue Streams
    • Advertising
      • Premium CPM: $10-20?
      • Google Ads: $1.50-3?
    • Customer Relationships
    • Memberships
    • Users must visit the SpiralFrog service once a month to renew their license.
    • Value Proposition
    • Users-to-Advertisers
    • On-demand
    • Off-Service (sort of)
    • DRM: WMA
    • Sound quality: 128kbit/s
    • License: Temporary
    • Bundling: None
    • Cost Structure
    • Publishing royalties
      • 8% of gross revenues
    • Sound recording license
      • 50% of gross receipts (ad sales)
    • Bandwidth & technology
      • Assume: €100/TB
    • Advances…
    • Revenue Streams
    • Advertising
      • Premium CPM: $10-20?
      • Google Ads: $1.50-3?
    • Value Proposition
    • Users-to-Advertisers
    • On-demand
    • Off-Service (sort of)
    • DRM: WMA
    • Sound quality: 128kbit/s
    • License: Temporary
    • Bundling: None
    • Cost Structure
    • Publishing royalties
      • 8% of gross revenues
    • Sound recording license
      • 50% of gross receipts (ad sales)
    • Bandwidth & technology
      • Assume: €100/TB
    • Advances…
    • Value Proposition
    • Music-to-Users & Users-to-Advertisers
    • Personalized (adaptive) playlists as well as On-demand
    • On-Service only
    • DRM: N/A (Streaming)
    • Sound quality:, MP3 128kbps
    • License: N/A (Streaming)
    • Bundling: None
    • Other
      • Share, discover, listen, express yourself
    • Value Proposition
    • Music-to-Users & Users-to-Advertisers
    • Personalized (adaptive) playlists as well as On-demand
    • On-Service only
    • DRM: N/A (Streaming)
    • Sound quality:, MP3 128kbps
    • License: N/A (Streaming)
    • Bundling: None
    • Other
      • Share, discover, listen, express yourself
    • Cost Structure
    • Publishing royalties
      • 8% of gross revenues, minimum 0.1c per musical work streamed
    • Sound recording license
      • Radio svc: 10% of net rev.
      • On-demand svc: 30% of net rev.
    • Bandwidth & technology
      • Assume: €100/TB
    • Fixed costs
      • Staff: 60 people
      • Office in East London
      • Strong expansion
    • Revenue Streams
    • Advertising
      • Premium CPM: €10-20?
      • Google Ads: €1.50-3?
    • Subscription fees (basic) €2.50/month
    • Music Store Commission: 5%
    • Powerplay: £11.5 / 100 plays
    • Customer Relationships
    • Brings the customer closer and closer…
    • From One-off via memberships, and subscriptions, and eventually lock-in (heavy user investments).
    • Value Proposition
    • Music-to-Users & Users-to-Advertisers
    • Personalized (adaptive) playlists as well as On-demand
    • On-Service only
    • DRM: N/A (Streaming)
    • Sound quality:, MP3 128kbps
    • License: N/A (Streaming)
    • Bundling: None
    • Other
      • Share, discover, listen, express yourself
    • Cost Structure
    • Publishing royalties
      • 8% of gross revenues, minimum 0.1c per musical work streamed
    • Sound recording license
      • Radio svc: 10% of net rev.
      • On-demand svc: 30% of net rev.
    • Bandwidth & technology
      • Assume: €100/TB
    • Fixed costs
      • Staff: 60 people
      • Office in East London
      • Strong expansion
    • Revenue Streams
    • Advertising
      • Premium CPM: €10-20?
      • Google Ads: €1.50-3?
    • Subscription fees (basic) €2.50/month
    • Music Store Commission: 5%
    • Powerplay: £11.5 / 100 plays
    • Value Proposition
    • Music-to-Users & Users-to-Advertisers
    • Personalized (adaptive) playlists as well as On-demand
    • On-Service only
    • DRM: N/A (Streaming)
    • Sound quality:, MP3 128kbps
    • License: N/A (Streaming)
    • Bundling: None
    • Other
      • Share, discover, listen, express yourself
    • Cost Structure
    • Publishing royalties
      • 8% of gross revenues, minimum 0.1c per musical work streamed
    • Sound recording license
      • Radio svc: 10% of net rev.
      • On-demand svc: 30% of net rev.
    • Bandwidth & technology
      • Assume: €100/TB
    • Fixed costs
      • Staff: 60 people
      • Office in East London
      • Strong expansion
  •  
  •  
    • Value Proposition
    • Music-to-Users (OTA downloads)
    • On-demand
    • Semi-off-service
    • Sound quality: AAC+?
    • MusicStation
      • DRM: Locked OMA DRM 1.0 from Musiwave
      • License: Temporary
      • Bundling: Telephony Service
    • MusicStation Max
      • Microsoft PlayReady
      • License: “Almost permanent”
      • Bundling: Device
    • Value Proposition
    • Music-to-Users & Users-to-Advertisers
    • Personalized (adaptive) playlists as well as On-demand
    • On-Service only
    • DRM: N/A (Streaming)
    • Sound quality:, MP3 128kbps
    • License: N/A (Streaming)
    • Bundling: None
    • Other
      • Share, discover, listen, express yourself
    • Cost Structure
    • Publishing royalties
      • 8% of gross revenues, minimum 0.1c per musical work streamed
    • Sound recording license
      • Radio svc: 10% of net rev.
      • On-demand svc: 30% of net rev.
    • Bandwidth & technology
      • Assume: €100/TB
    • Fixed costs
      • Staff: 60 people
      • Office in East London
      • Strong expansion
    • Revenue Streams
    • Advertising
      • Premium CPM: €10-20?
      • Google Ads: €1.50-3?
    • Subscription fees (basic) €2.50/month
    • Music Store Commission: 5%
    • Powerplay: £11.5 / 100 plays
    • Customer Relationships
    • Brings the customer closer and closer…
    • From One-off via memberships, and subscriptions, and eventually lock-in (heavy user investments).
    • Value Proposition
    • Music-to-Users & Users-to-Advertisers
    • Personalized (adaptive) playlists as well as On-demand
    • On-Service only
    • DRM: N/A (Streaming)
    • Sound quality:, MP3 128kbps
    • License: N/A (Streaming)
    • Bundling: None
    • Other
      • Share, discover, listen, express yourself
    • Cost Structure
    • Publishing royalties
      • 8% of gross revenues, minimum 0.1c per musical work streamed
    • Sound recording license
      • Radio svc: 10% of net rev.
      • On-demand svc: 30% of net rev.
    • Bandwidth & technology
      • Assume: €100/TB
    • Fixed costs
      • Staff: 60 people
      • Office in East London
      • Strong expansion
    • Revenue Streams
    • Advertising
      • Premium CPM: €10-20?
      • Google Ads: €1.50-3?
    • Subscription fees (basic) €2.50/month
    • Music Store Commission: 5%
    • Powerplay: £11.5 / 100 plays
    • Value Proposition
    • Music-to-Users & Users-to-Advertisers
    • Personalized (adaptive) playlists as well as On-demand
    • On-Service only
    • DRM: N/A (Streaming)
    • Sound quality:, MP3 128kbps
    • License: N/A (Streaming)
    • Bundling: None
    • Other
      • Share, discover, listen, express yourself
    • Cost Structure
    • Publishing royalties
      • 8% of gross revenues, minimum 0.1c per musical work streamed
    • Sound recording license
      • Radio svc: 10% of net rev.
      • On-demand svc: 30% of net rev.
    • Bandwidth & technology
      • Assume: €100/TB
    • Fixed costs
      • Staff: 60 people
      • Office in East London
      • Strong expansion
  • </4>
  • Patrik Wikström Media Management and Transformation Centre Jönköping International Business School Jönköping, Sweden [email_address]