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Case Study: Quantum Innovation in Music


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This case study from XPotential looks at industry-wide quantum innovation in Music, and the lessons that other sectors can learn from the evolution of the Music Industry.

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Case Study: Quantum Innovation in Music

  1. 1. Quantum Innovation in the Music Industry
  2. 2. How to Harmonise with a Change of Tune A Case Study of Quantum Innovation in the Music Industry Katie Mason
  3. 3. Introduction It sounds like a nightmare; almost over night someone comes along with a new way of doing business that threatens to change the way your industry works and put a significant dent in your profits, but this has been the scenario faced by the world of music over the past 10 years. This presentation takes a look at how the industry has adapted to meet its new challenges and what can be learned by others facing quantum innovation. Contents 4 Keeping Up with Consumers 8 Turning Challenges into Opportunities 11 Building Brands with the New Tools 13 Don’t Lose Sight of Who You Are 15 Open to Change 17 The Light at the End of the Tunnel 19 Summary of What We Can Learn ©XPotential 2013 3
  4. 4. Keeping Up with Consumers In an industry facing big changes, it is vital not to forget the source of business; the consumers. All activities should be based on understanding of your consumers. You may not be able to restrain their shifts in behaviour, but you can join them!  We all know that the media environment is in rapid change mode, which has an especially big impact on the music industry.  There are established platforms that are now widely adopted (Facebook, YouTube, Twitter…) and those emerging ones which are still more unfamiliar (e.g. Snapchat…). For companies, an easy trap to fall into would be going into panic mode and quickly trying to learn and get on to each new platform as it appeared on the radar, but this would be pointless without consumer understanding as the driving force.  Young people are often the first to adopt innovations. In music, artists with a younger fan profile tend to have a higher proportion of digital activity. For music that appeals to an older demographic (e.g. classical, Bob Dylan…), digital is less important right now as the preference and adoption is shifting more slowly, although for most artists it still plays at least a small role. ©XPotential 2013 4
  5. 5. Keeping Up with Consumers  Very young fans (teenagers) are already migrating from facebook as they view it as something old which their parents have and which is saturated with marketing, leading them towards more instantaneous media like Snapchat and Twitter.  This use of more short-life media reflects a general shift being dubbed “transumerism”, a shift towards consumption rather than ownership; which would also explain the success of music streaming sites (like Spotify) where users can listen to whatever they like but don’t actually own it. ©XPotential 2013 5
  6. 6. Keeping Up with Consumers  YouTube quickly became the most impactful element of digital media for music, and is likely to benefit further from the shift towards using mobiles and tablets for internet access – where storage space for music downloads is limited.  Anybody can upload a video to YouTube, making it harder to track views of any one song (possibly uploaded many times). To try to combat this, Sony and Universal use Vevo, a video sharing platform that they part own, which they have uploading control over, but the key to Vevo working was to have it fully integrated into YouTube, so it matched how consumers behave.  As YouTube became a major music consumption platform, some artists fought the shift, e.g. Prince, whose music could not be found on YouTube without the sound having been removed for legal copyright reasons. This initial reluctance to meet the changing needs of fans was clearly detrimental; hoards of angry comments were left by frustrated fans.  Ticketmaster also received annoyance from its customers due to its slowness in adapting to meet their needs. Although the site has had great success, for years customers were dissatisfied until Ticketmaster finally integrated their service with Facebook to allow fans to sit near their friends at gigs when paying separately for tickets. This immediately led to an increase in customer satisfaction; Ticketmaster’s highest scores since 2006. (Fast Company) ©XPotential 2013 6
  7. 7. Keeping Up with Consumers  Personally using the same media as consumers can be the biggest help when it comes to connecting with them effectively; you need to understand the usage and nuances of new platforms to meet the needs of users. Having people on board who are passionate about new technologies helps.  Without really seeing new media through consumers’ eyes, it can be easy to make mistakes. There are many examples of wrong new media use, e.g. Twitter is about immediacy, 50% of people will read a tweet in the first 3 hours, so repetition of messages is allowed but for example announcing ticket sales for the following day would not fit – the message would be lost or forgotten.  Big media technology changes can even effect language, e.g. hashtag jokes (where the hashtag is the punch line), which savvy brands can integrate into their communications.  Adoption of innovation needs to reflect the behaviours and attitudes of consumers. To connect, it is important to use whatever the audience is using – so consider how internet connection / logistics play a role; e.g. more rural consumers may not have such fast internet which would impact how they used the different platforms. ©XPotential 2013 7
  8. 8. Turning Challenges into Opportunities When facing major change, fear is an initial response; new threats seem to appear everywhere! However, with the right attitude, new challenges can be developed into new opportunities, you just need to keep your ear to the ground to find them…  Everyone is listening to music online for free! How will we ever get them to part with cash again?! – Radiohead: We could make our music available to download and allow users to choose how much they pay – our hard core fans will pay more, if we don’t get much from other users it’s no loss as they would’ve downloaded illegally for free anyway! Plus it generates publicity.  People are buying music virtually, so our profits are way down from when they were buying CD’s… – Frank Ocean (2012): If most of my fans don’t bother with physical music anyway, why don’t we avoid the cost of CD production and only release the album in soft copy?  Spotify is giving away our music for free and their pay-outs to us are low (and now Google is launching music streaming too!): – Digital Label, X5 Music: We can package songs into compilations and playlists, which increases our average streaming from 7k a week to 247k – up 3,400%! ( ©XPotential 2013 8
  9. 9. Turning Challenges into Opportunities Now YouTube is one of the major channels for music consumption, but to us it looks like a Wild West of copies and covers which doesn’t make money: – We can create official channels (and make sure they are search optimised so users can find them) where we can track performance, control content and sell advertising space (YouTube advertising is now a big revenue stream). – Any YouTube user can upload videos, so when we want to sign artists, they may already have a following online (e.g. Justin Bieber). Thanks to parallel improvements in home recording equipment, YouTube sensations can quickly amass followings to rival international stars before they sell a single record. – Psy (Gangnam Style): Now international popularity is easier to achieve, our video was the first to reach 1bn views thanks to the global platform and increased user ability to discover and share music (DM Euromonitor). Now the user is their own DJ, whereas radio is prescriptive – the scope of music they might listen to is now much broader. – Radio is still important, but we can use YouTube statistics to sell-in to the stations and get the most plays. “Digital is really important, if for example you’re trying to get on the Radio One playlist as a new artist, they will look at how many YouTube views you’ve got, how many Facebook fans etc.” Sim Rollison, Digital Channel Manager, Colombia Records ©XPotential 2013 9
  10. 10. Turning Challenges into Opportunities  Twitter and other social media is suddenly a big part of our industry for many artists: – It gives us the opportunity to create online personalities for artists, making fans feel connected beyond just the music. – We can use it to connect with other people in the industry to help us keep up-to-date with new apps, successful campaigns etc. – We can track our initiatives via hashtags, and target people for advertising based on which hashtags they’ve used.  The new channels make our old measures of performance irrelevant! – Now tracking can branch out to include downloads, fans, comparison to other projects, online conversations (e.g. on YouTube “Thumbs up if the IKEA advert brought you here”). – New media like Shazam (the music identification app) can predict our chart success in a way we couldn’t before. It can also show us the effectiveness of our adverting / film placement / event affiliations – a Shazam spike is a good indicator for chart success. ©XPotential 2013 10
  11. 11. Building Brands with the New Tools The new and broader sphere of media touch points brings more opportunities to build a stronger brand, with fan relationships running deeper and music experience growing more immersive:  Social media is now a big part of the music industry and the way people consumer and share music. There’s been a change in the relationship that fans expect with their music idols, they are way more available now through twitter, facebook, reality TV etc. so the level of intimate knowledge of them and their daily life, and the closeness fans feel is higher – which in brand terms means better strength and affinity (provided their personality appeals to their fans!).  Social media brings the opportunity to let fans feel a lot more close to musicians, bands like One Direction have used this really well, empowering fans to promote them online – they are very vocal and identify themselves as “directioners”. The campaign “Bring 1D to me” got them to vote to bring the band to their town. They are currently the biggest band in the world.  “Social media can’t be sell sell sell, it would be like cold-calling someone. You want to build up the social media around an artist so that people feel more invested in them, beyond just the music. Then when the time comes to ask them to pay for something, they won’t mind because the last 10 times you’ve connected with them, you haven’t asked them to. That’s not just true for music, it’s true for everything, it’s true for your local coffee shop.” Sim Rollison, Digital Channel Manager, Colombia Records ©XPotential 2013 11
  12. 12. Building Brands with the New Tools  Aside from social media, the trend of TV talent shows like X Factor over the past decade has also changed the type of relationship fans have with artists; they want to feel that they know them, that they have seen them grow. This could be likened to an increased importance of “brand”, rather than just “product” (their music).  Apart from the experience of artists, consumption of music itself is now more immersive; the visual link which a few decades ago was more or less restricted to posters and album cover art is now more dynamic through YouTube (more widely available than TV music channels, as access to music videos). Online experience of any brand could soon include music playlists (a tool being developed by Spotify), making music part of a brand’s online personality. (Brand Channel)  Music has always been used by fans as a means of expressing who they are (e.g. band t-shirts etc.), new platforms offer them more and more opportunities to express themselves through music and share it with others, e.g. – where users can DJ to each other online, it has 110,000 active users and is already inspiring copycat sites. (Fast Company) ©XPotential 2013 12
  13. 13. Don’t Lose Sight of Who You Are In the flurry of new industry innovations, it is important to know what your essence is; what really matters for you to keep hold of, this of course must reflect your consumers’ needs.  As discussed in the first chapter, adoption of innovation needs to reflect the behaviours and attitudes of consumers.  When innovation happens quickly, it can split user groups, some of whom will continue to do things the old way, so organisations may need to fragment and have parallel processes to meet new and traditional needs (e.g. Rod Stewart’s fan are less digital-focused than say Lady Gaga’s, so CD’s and vinyl would be more important in reaching them).  Away from the excitement of new online platforms, the music industry can’t forget radio which is still important (and hard to top the charts without airplay) especially in the UK, where there is national radio. The medium is particularly important in reaching the more traditional consumers who are more likely to still buy records and bring in revenue.  The various radio stations allow for segmentation by age / attitude to music etc., such as mass appeal music vs. specialist/niche music, e.g. Radio One (young) vs. Absolute Radio (rock) vs. BBC Asian Network (Asian) – this type of segmentation can still be applied to new platforms, but through new means, such as suggested music videos, display ad placement etc. ©XPotential 2013 13
  14. 14. Don’t Lose Sight of Who You Are  Although it is not always profitable for smaller bands, live shows are still very important, lying at the heart of music and showing authenticity.  Even with the advent of masses of amateur music becoming available online, along with whole back catalogues and forgotten numbers, music will not become a commodity – quality is still as important as ever. The new ease of getting yourself out there online has shifted power more in bands favour, particularly when they have a large following, they can begin to ask what benefits a label can bring them. “It puts pressure on the labels to get rid of all the bullshit and come up with a plan that works for the band as well as the label… Now bands have a lot of power. Once you have a following the labels are largely as dependent on you as you are on them.” Mark Hoppus, musician (Blink-182) and producer. (  5 XL Recordings (an independent label) have seized this philosophy to focus on quality not quantity, only signing one artist and releasing half a dozen records per year, with artists such as Adele and M.I.A. This approach has earned them successes like Adele’s album 21 selling over 22 million copies. (Fast Company) ©XPotential 2013 14
  15. 15. Open to Change One of the most difficult obstacles in facing quantum innovation is internal organisational culture and structure. As Jack Welch, former Chairman and CEO of General Electric said, “When the rate of change outside your organisation outpaces the rate of change inside your organisation, the end is near!”:  Bigger companies tend to be less nimble, and slower to change but for them it is vital to innovate and keep up as they have more to lose, for example HMV (the music retailer) did not adapt to the new digital formats and ended up facing bankruptcy.  Being slow to innovate as a company does not mean that there are not innovative staff in different departments who could help to lead change. At Colombia records, the digital department was given an internal voice; a newsletter and internal blog to keep colleagues up to date with innovations in their industry because digital was at the forefront of the change.  This department at the cutting edge of the innovation also doubled in size in one year, employing people who were passionate about new media and used the new technologies themselves; a wise move to bring on-board understanding of new media nuances (like the hashtag jokes mentioned earlier).  From outside the organisation, the digital team also keep up to date through relevant sources like Wired, Mashable and Music Ally, feeding their interest in new technologies and searching for opportunities. ©XPotential 2013 15
  16. 16. Open to Change  Being able to understand big behavioural shift and not resist it is key. Steve Rennie, Incubus Manager said “It felt like all the labels spent more time protecting than innovating, that was the undoing of the label business as we see it today”. The status quo can’t be taken for granted, as Rennie put it “Music has got to keep innovating. I feel myself being suspicious of so many of the things that worked in the past, and looking more at ways people are doing it that are outside the mainstream of the business… The great people and the great ideas find a way to happen.” (  Embracing change, Bjork created the first app album (Biophilia) – a new media model likely to be adopted by others. (Fast Company)  More open-minded thinking has also opened up opportunities through a different physical channel too; cinema. Event Cinema (including music concerts) is forecast to be worth $1bn by 2015 (5% of the global box office), boosted by technology like 3D and RealD. (European Digital Cinema Forum) ©XPotential 2013 16
  17. 17. The Light at the End of the Tunnel When your industry is hit with quantum innovation, it can seem impossible to keep your head above water, but the music industry is showing light at the end of the tunnel. After settling in to a new innovation phase, growth is back on the horizon:  It seemed bleak; revenue from record stores decreased by 76.3% between 2000 and 2010. (Techdirt)  “Apple is now making more in profit than the recorded music industry ever made in revenue. I would like to think that the music industry contributed a little bit of that value to Apple, so my question is have we handled that well in this transition?.. I would say not. Apple have done much better than we have.” Robert Ashcroft, CEO of PRS for Music (  Streaming has emerged as an alternative source of revenue but huge volumes are needed to make money, the audience is less captive than those who download. As well as demographic variation in adoption of new media, there are also geographical differences that stagger the rate of innovation; in most countries under 15% of the population use Spotify (streaming service) but in Sweden 1/3rd of the country do – suddenly tailored approached for different markets become more important.  Even moving ahead from Spotify, Sound Cloud now offers a browser-led service for online music sharing (unlike Spotify, which you have to download). It has more than 10 million users (Fast Company) and is easy to integrate with social media to allow more sharing. ©XPotential 2013 17
  18. 18. The Light at the End of the Tunnel  The growth of sharing and access should be an exciting prospect for the future of music; people can listen to more than ever before, from more diverse sources and share it more easily with one another (through smartphones, social media etc.).  The music industry took a long time to embrace change, but other industries can learn from them, particularly now that TV is now moving in the same direction, e.g. Netflix, and 3D printers have further implications, e.g. for manufacturers like Ikea.  After a decade of disruption, at last global recorded music revenues increased in 2012 (for the first time since 1999), they rose 0.3% to $16.5bn, led by digital sales (including streaming services) which grew 9%, now accounting for $5.6bn. (Business Time)  It took time for new business models to arise, meeting the changing consumer preferences but now it is clear that growth comes from embracing new opportunity from all different sources (apps, brand affiliation, merchandising, streaming…) a very different set up to the music industry of the past with its one clear revenue leader. Now the industry has been pushed to be more consumer and service focused, not product just driven. (Reyhani Law blog) ©XPotential 2013 18
  19. 19. Summary: What We Can Learn Throughout the changes in the music industry, there are some key drivers of success that emerge: always know and consider your consumer, maintain your strong brand and its values, know that change is inevitable so learn to embrace it and seek out new opportunities.  As new platforms and innovations emerge, always base your adoption on clear understanding of your own consumers and make sure your brand is in the places where they expect to find you.  You are more likely to see opportunities and get execution right in new platforms when you are a user yourself. Immersing yourself as a user is the best insurance against making rooky errors that could make you look out-of-touch and damage brand image. The new media world demands identity and personality surrounding a product, which is a great opportunity for brand building.  To keep your brand strong through times of big innovation, you have to clearly know what it stands for (reflecting what really matters to consumers) and always act in line with that.  Organisational culture and structure can hinder innovation, so make sure that you are always flexible and open to change so that you can react to opportunities quickly rather than playing catch-up. Internal communications to keep each other up-to-date offer a big advantage.  Quantum change can hit you business hard, but if you are ready to adapt to emerging consumer preferences, seek out and seize new opportunities then you can survive the change. The “Transumerism” trend places a bigger emphasis on service, as ownership stops being so important.    Keep an open mind to how changes in and around your industry could be used to your advantage, or how you could adapt to make the most of them. Proactively seek out the new opportunities, rather than relying on defensive action against “threats”. ©XPotential 2013 19
  20. 20. Key Sources of Information Digital Marketing (Euromonitor International Dec 2012) With thanks to Sim Rollison, Digital Channel Manager, Colombia Records ©XPotential 2013 20
  21. 21. Who are XPotential? XPotential is a brand focused strategy consultancy that helps to align individuals, functions and organisations throughout the world to create and deliver Brand Value. We work with some of the world’s biggest brands to deliver outstanding results. We orientate individuals and teams in the organisations to focus their responsibilities to deliver value to their most important asset - their brand. We are proud to have worked with over 30 companies in over 50 countries and touched tens of thousands of individuals, delivering some of their most impressive business results. We do this through working closely with the leadership of organisations to develop Brand Centric Vision and Strategy through a deep understand of the challenges and opportunities for the Brands and the Company, the Brand Vision and the key audience for change. We then design and implement a programme of brand centric change including communication, engagement, training and follow up. We have worked both cross functionally and also through specific areas including sales, supply chain, innovation, marketing, R&D, finance and HR. ©XPotential 2013 21
  22. 22. “We align individuals, functions and organisations, throughout the world, to create and deliver brand equity” Take a look at our website to find out more about us: ©XPotential 2014 22