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NEIL DAWSON, DANIEL HARVEY & WILL ANDERSON
THEMUSICINDUSTRY:
ACRUCIBLEFOR
DISRUPTION
INDUSTRY VOICES & GAME CHANGERS
As traditional business models and
routes to market fall apart, the music
industry provide...
INDUSTRY VOICES & GAME CHANGERS
A tipping point came in the first quarter
of 2015 when Warner Music Group’s
(WMG) streamin...
INDUSTRY VOICES & GAME CHANGERS
The search for a new
business model
With the entire history of recorded
music now just one...
INDUSTRY VOICES & GAME CHANGERS
Some lessons for marketers from recent music industry events
1THE RETURN OF THE
ALBUM AND ...
INDUSTRY VOICES & GAME CHANGERS
2A BAND IN NEED IS A BRAND
OPPORTUNITY INDEED
Making the best track or album of the
year m...
INDUSTRY VOICES & GAME CHANGERS
3TAYLOR SWIFT SHAKES
IT OFF
The open slugfest between Taylor
Swift, her label, and Spotify...
INDUSTRY VOICES & GAME CHANGERS
4HOLLA IF YOU HEARD ME,
F*** YOU IF YOU WATCHED ME
Although our access to music has
grown ...
INDUSTRY VOICES & GAME CHANGERS
Some relevant ‘what ifs’ for
marketers and brands
Disruptive change is all around us –
no ...
SapientNitro®
, part of Publicis.Sapient, is a new breed of agency redefining storytelling for an always-on world. We’re c...
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The Music Industry: A Crucible for Disruption | By Neil Dawson, Chief Strategy Officer, Europe; Daniel Harvey, Creative Director & Global Practice Lead for Experience Design; and Will Anderson, Associate Marketing Strategy & Analysis

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As traditional business models and routes to market fall apart, the music industry provides invaluable lessons to marketers everywhere – a useful “canary in the coal mine”.

The music industry continues to suffer – and sometimes benefit – from the combined assaults of technological innovation, always-on (particularly millennial) consumers, the degradation of legal controls and copyright, start-ups and acquisitions, and the random interventions of creative egos. No industry has been disrupted so deeply or frequently, or indeed contains as many lessons or inspirations for brands and marketers in all sectors. The music industry is proving to be the preeminent crucible of disruption, with a wealth of innovations and experiments in marketing (both successful and otherwise).

By looking at four moments that occurred in 2015, we can begin to understand the volatility and opportunity that exists within the industry, as well as broader lessons for brands in all markets as they address their own particular challenges.

By Neil Dawson, Chief Strategy Officer for SapientNitro in Europe; Daniel Harvey, Creative Director and Global Practice Lead for Experience Design in SapientNitro London; and Will Anderson, Associate, Marketing Strategy and Analysis in SapientNitro London.

Published in: Technology
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The Music Industry: A Crucible for Disruption | By Neil Dawson, Chief Strategy Officer, Europe; Daniel Harvey, Creative Director & Global Practice Lead for Experience Design; and Will Anderson, Associate Marketing Strategy & Analysis

  1. 1. NEIL DAWSON, DANIEL HARVEY & WILL ANDERSON THEMUSICINDUSTRY: ACRUCIBLEFOR DISRUPTION
  2. 2. INDUSTRY VOICES & GAME CHANGERS As traditional business models and routes to market fall apart, the music industry provides invaluable lessons to marketers everywhere – a useful “canary in the coal mine”. The music industry continues to suffer – and sometimes benefit – from the combined assaults of technological innovation, always-on (particularly millennial) consumers, the degradation of legal controls and copyright, start- ups and acquisitions, and the random interventions of creative egos. No industry has been disrupted so deeply or frequently, or indeed contains as many lessons or inspirations for brands and marketers in all sectors. The music industry is proving to be the preeminent crucible of disruption, with a wealth of innovations and experiments in market- ing (both successful and otherwise). Music industry disruption timeline FIGURE01 No industry has been disrupted so deeply or frequently, or indeed contains as many lessons or inspirations. Source: MIDIA. “Research.” September 2014. Disruption has always existed in the music industry across the whole range of social, cultural, economic, and technological change. Perhaps most pivotal in recent times was the rise of piracy networks in 1999 that gave music fans a taste of free music. Ever since that genie was released from the bottle, the industry has never been quite the same. Since then related disruptions have come in waves (see Figure 1); the rise and fall of piracy (Napster et al.) and downloads; the rise of streaming services, such as Spotify and Tidal, quickly joined by more humanized and curated services, such as Beats 1 and Songza; and the democratization of music creation via mixing platforms, such as LANDR. 2003 Rise of download sales 1999 Rise of piracy networks Future 2008 Rise of streaming services 2013-15 Rise of curated, “listening” services 2000 2010 2001 2002 2004 2005 2006 2012 2007 2009 2011
  3. 3. INDUSTRY VOICES & GAME CHANGERS A tipping point came in the first quarter of 2015 when Warner Music Group’s (WMG) streaming revenues overtook their download revenues for the first time, recording a net profit of $19 million, including a 33% increase in streaming income (see Figure 2). With streaming services such as YouTube, Spotify, and Pandora contributing 33% of total industry revenues in the first half of 2015 (RIAA), combined with sharp declines in downloads, the music industry increasingly depends on streaming not to topple over (see Figure 3).1 FIGURE02 Source: Ovum FIGURE03 Global recorded music sales reached the digital tipping point in 2015 Sales($Billions) Digital Physical Total recorded music 30 25 20 15 10 5 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Music subscriptions will lead the digital change 2015 14% 23% 22% 29% 12% Single tracks Albums Subscriptions Advertising Other Digital 2020 13% 9% 9% 51% 18% 1 Friedlander, Joshua P. “News and Notes on 2015 Mid-Year RIAA Shipment and Revenue Statistics.” Recording Industry Association of America (RIAA). http://riaa.com/media/238E8AC7-3810-A95C-44DC-B6DEB46A3C6E.pdf. 2015 marked the first year in which digital beat physical revenues (top graph). And the trend is projected to continue – by 2020, subscriptions will represent 51% of digital music sales, up from 29% today. U.S. music industry revenues first half of 2015 U.S.digitalmusicrevenuesmidyear U.S. streaming music revenues midyear Physical Synchronization Ringtones & ringbacks Total streaming Permanent downloads 24% 40% 32% 3% 1% $Millions 2014 Midyear Ringtones & ringbacks Streaming Permanent downloads $36m Total $2,186m 2015 Midyear $28m Total $2,324m $Millions 2014 first half 2015 first half Subscription services SoundExchange distributions On-Demand ad supported $383m $478m $323m $387m $128m $163m +6.3% +24.8% +19.8% +27.3% U.S. revenues of the music industry skew even more digital than global averages, with just 24% of sales being physical as of early 2015 (left graph). Permanent downloads have declined in the past year, as streams jumped 23.6%, while digital growth is dominated by subscriptions and on-demand channels (middle and right graphs). $1,316m $834m $1,268m $1,028m
  4. 4. INDUSTRY VOICES & GAME CHANGERS The search for a new business model With the entire history of recorded music now just one click away, there’s never been a better time to be a music fan. But this has come at significant commercial cost. Even the strong growth of streaming revenues couldn’t stop the global record industry’s reve- nues from dropping below $15 billion – compared to $26 billion in 1994 – the lowest in decades (see Figure 4). Wave upon wave of unprecedented disruption continues, with endless change, business models in continuous flux, and still no certainties regarding how people will pay for music. Originally, live music was abundant and the recorded form was scarce, but comparative supply has resulted in the value equation being totally reversed. Recorded music has become a loss leader, with successful artists now making their money through advertising, brand partnerships, sponsorship, live concerts, and merchandise. This shift has led to growing oppor- tunities – indeed active invitations – for brands to partner with the music industry via promotional campaigns and bespoke platforms (such as Amex’s UNSTAGED, Red Bull’s Music Academy, and Converse Rubber Tracks). For all its attractions, it’s still a moving target, with the last couple of years teaching us that the marketing rulebook can be chewed up and spat out before a new one is written. The economics of disruption: The music industry has seen fifteen years of straight revenue decline. FIGURE04 Source: IFPI 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $26.6 $26.11 $25.77 $24.37 $22.54 $22.39 $21.76 $21.08 $19.55 $18.13 $16.93 $15.87 $15.66 $15.65 $15.03 $14.97 $ Billions in Revenues Annual global recorded music revenue in billions of dollars (1999-2014)
  5. 5. INDUSTRY VOICES & GAME CHANGERS Some lessons for marketers from recent music industry events 1THE RETURN OF THE ALBUM AND THE REBIRTH OF THE RADIO In the midst of a seemingly “sinking industry”, an unlikely record was broken in the form of Adele’s album 25, which successfully sold 3.38 million copies in a week (more than any album before). Previously, Beyoncé’s album Beyoncé caught the world off guard with her “surprise” release, which – after selling 800,000 copies in just 72 hours – was also a resounding success. Possibly more impressive than the scale at which 25 was sold is the fact that consumers were still willing to fork out $15.99 for an album. An incredible feat considering that the album was deemed dead in 2014 in the shadow of the track. Some argue that Adele is an anomaly, much like Beyoncé, boasting privileged positions in the industry and circumstan- ces that will be difficult to repeat. Although popular albums are produced year after year, 2015 saw more artists – such as St. Vincent, Lana Del Rey, and Taylor Swift – produce refreshingly coherent and critically-acclaimed albums, suggesting that there is hope for the not-so-dead art. The album was not the only blast from the past making a revival in 2015. Apple have not only re-engaged us with our watches, but they are also taking us back to the 70’s when the radio DJ could (to quote Tom Petty) “play what he likes to play” and “say what he wants to say.” Apple Music provides a radio service through Beats 1 and was quick to establish itself as a genuine player with its high profile move for Radio 1 DJ Zane Low. Music lovers are redis- covering the rewarding experience of discovering new music from behind their radios; interacting with the DJ and with each other on various channels; and creating a network of music lovers on a journey to find, share, and enjoy their next 3-minute fix. By looking at four moments that occurred in 2015, we can begin to understand the volatility and opportunity that exists within the industry, as well as broader lessons for brands in all markets as they address their own particular challenges. So what? Some lessons learned People don’t change, but their tools do. Previously treasured moments can be recreated and nurtured through curated experiences crafted by contemporary means. People want discovery from trusted sources. Look to the traditional brokers in your industry and consider how to enable them for the digital world. It’s not all about the individual – big tent communities still exist and impact mass consumer behavior. Identify the key communities that influence your industry and get them engaged as part of your platform strategy.
  6. 6. INDUSTRY VOICES & GAME CHANGERS 2A BAND IN NEED IS A BRAND OPPORTUNITY INDEED Making the best track or album of the year may not be enough for artists to establish and distinguish themselves among the highly saturated and nomadic music industry landscape. Artists find themselves having to diversify and find new, innovative ways to stand out and profit. Telecoms provider O2, for exam- ple, has captured the music-hungry audience by offering tickets for live con- certs at the O2 arena, 48 hours before general release and exclusively to their mobile customers. Scottish rock outfit Idlewild, on the other hand, hope to mirror the success of their return to the charts after six years by accompanying their new album release with Scottish Fiction IPA – an Idlewild-branded ale. However, you don’t have to look far before you come across band and brand partnerships with less fruitful hops. Last year, Usher’s “Clueless” partnership with Walmart and Honey Nut Cheerios fell by the wayside and proved to be a marketing stunt without a sting. Likewise, U2 were left stunned and embarrassed when their album stunt with Apple iTunes proved to be less of a bold and generous gesture, and more “like waking up in the morn- ing with herpes” (according to Tyler The Creator on Twitter). More recently, confusion surfaced during the Weezyana Fest in New Orleans, when the live stream of the festival on Tidal was abruptly cut off as Drake took to the stage. A message was broadcasted on Tidal’s site stating that it was an “intervention by Apple” – who Drake has a major deal with – and that “they were interfering with artistry and sorry for the ‘big brother’ inconvenience.” It must be mentioned that Drake’s manager voiced that Tidal was “completely wrong” in its claims, while Apple continues to deny the (un-proven) accusation made by Tidal. However, in our always-on world and increasing brand partnerships, this kind of discrepancy and confusion may become more common. So what? Some lessons learned There will be increasing cross-collaboration between brands and cre- atives in our always-on world. Be aware: Overlapping partnerships can easily undermine the con- sumer experience by causing misunderstandings and disagreements around copyright, regulations, and contractual matters. Brands are vying with publishers and platforms to present new content online. Execution and brand-fit matter for all parties involved whenever a partnership is formed.
  7. 7. INDUSTRY VOICES & GAME CHANGERS 3TAYLOR SWIFT SHAKES IT OFF The open slugfest between Taylor Swift, her label, and Spotify shines a harsh light on the fairness of Spotify’s business model, artists’ rights, the value of music, and hypocrisy. Artists have fought Spotify’s pari-mutuel payment model before, but none with such a large army behind them. Taylor Swift has a combined Facebook, Twitter, Instagram, and YouTube audience of more than 140 million, with her YouTube views in the billions. And while Spotify begged for her to come back to the platform, Taylor sold over a million albums in the first week away. Social media’s critical reach nowadays (exem- plified by the fact that seven of the ten most followed Twitter accounts are those of pop stars) played a big role. Taylor was able to leverage her enor- mous following and intimate, social- media-enabled relationship with her fans – a strength that not too many celebrities can boast. Similarly, Jay Z pulled his album Reasonable Doubt from Spotify this year – a move he was able to make due to a negotiation that he made when he became president of Def Jam So what? Some lessons learned Social media are critical channels for driving brand consideration and, most importantly, sales. Today’s challenge is to create a sense of intimacy with the audience, to involve them so thoroughly in your brand’s life that they will talk about it even when there is nothing to talk about, and participate in (and share) its story. Business models matter. Fairness in equity influences customers’ brand preferences and, ultimately, their propensities to purchase. Records back in 2004. Jay Z and Tidal are focused on signing artists with control over their music and control over where their future releases will be placed. Although we saw that Taylor Swift’s withdrawal from Spotify was not enough to pressure people into switching providers, the 16 artists that Tidal represents – Rhianna, Beyoncé, Daft Punk, Kanye West, and Arcade Fire, to name a few – would make up a substantial loss of music if any provider were denied access to all of them.
  8. 8. INDUSTRY VOICES & GAME CHANGERS 4HOLLA IF YOU HEARD ME, F*** YOU IF YOU WATCHED ME Although our access to music has grown and improved over the last few years, measuring an artist’s impact con- sistently and accurately across these various channels still leaves something to be desired. It has become increas- ingly difficult to aggregate all available and wanted measurements in a way that’s truly representative of an artist’s or song’s popularity. Towards the end of 2015, Drake was hoping to claim the enviable top spot on the Billboard Hot 100 with “Hotline Bling”. His smash hit was ringing out everywhere and anywhere, making it the clear favorite to top the pile. However, since Apple – who Drake exclusively released his video with as part of his deal – doesn’t report music video views to Nielsen Music, the company couldn’t incorporate the video into the streaming calculations for the week. Hence, Drake lost the Billboard top spot. Drake will have to wait a little longer before he can enjoy “the biggest moment of his career” as we now have an industry that is increasingly harder to read and measure. As their streaming figures become increasingly measured and influential to “the charts”, artists will be inclined to prefer platforms that incorporate more streaming media into their calculations. So what? Some lessons learned Big data isn’t all that big if you can’t aggregate it. While digital media may be highly measureable, we still need to create common currencies across channels and platforms in order to under- stand performance. And if we start measuring video streams, where will it stop? What about 3rd party sources (social media and offline mode, etc.)
  9. 9. INDUSTRY VOICES & GAME CHANGERS Some relevant ‘what ifs’ for marketers and brands Disruptive change is all around us – no market is immune, no brand secure. The maxim is “disrupt or be disrupted”. In this context, the music industry makes a useful random disruption generator for brands everywhere, an abundant source of “what ifs” related to their particular situations as sources of opportunities for new market entrants or ideas for incumbents looking to sustain their businesses. For instance, looking at the application of broader music trends to other markets: What if subscription (leasing or renting) replaces ownership (as it’s already happening in the auto industry)? What if consumers started paying for access rather than prod- ucts in your industry (e.g., shared wardrobes and travel)? What if we sell the experience and not the product (e.g., Doritos/Tostitos)? What if Millennials walk away from older business models (e.g., fixed- line phones and home ownership? What if, as they are for music, our distribution channels become increa- singly controlled by those who con- trol our access to the Internet (e.g., Apple, Google, YouTube, Facebook, and Amazon)? What if we disrupt ourselves with game-changing acquisitions or partnerships – as Apple has done by buying Beats from Dr. Dre for $3.2 billion to roll out Apple Music (and Connect + Apple downloads!) as a competitor on iOS? In the music market, how far away are we from Ticketmaster buying RDIO or Spotify buying Songkick? Conclusion In a “disrupt or be disrupted” world, the music industry can provide plentiful stimuli and lessons for marketers in all categories. In seeking to innovate and remain ahead, it is always instructive to look at the music industry and ask, “What are the equivalent opportunities and risks to think about in our market? What if we did that or, indeed, new or existing competitors did?” The music industry has also never been more open to brands nor pre- sented with more opportunities for mass or targeted engagement. Brands and media owners increasingly compete with the music industry to present artists online or live. This is not endorsement, but rather a resuscitation of the centuries-old model of patronage – with wealthy benefactors financing gifts of entertainment and beauty to the benefit of all, including themselves. The final lesson for brands from the music industry in 2015 is a simple and important one: Great music has always been viral. From Elvis Presley to Kendrick Lamar, hits are still hits and fans always decide. Whatever new ways of delivering our products, services, and messages emerge, in the end, the consumer always has (and always will) decide. Great music has always been viral: hits are still hits and fans always decide. • • • • •
  10. 10. SapientNitro® , part of Publicis.Sapient, is a new breed of agency redefining storytelling for an always-on world. We’re changing the way our clients engage today’s connected consumers by uniquely creating integrated, immersive stories across brand communications, digital engagement, and omnichannel commerce. We call it our Storyscaping® approach, where art and imagination meet the power and scale of systems thinking. SapientNitro’s unique combination of creative, brand, and technology expertise results in one global team collaborating across disciplines, perspectives, and continents to create game-changing success for our Global 1000 clients, such as Chrysler, Citi, The Coca-Cola Company, Lufthansa, Target, and Vodafone, in thirty-one cities across The Americas, Europe, and Asia-Pacific. For more information, visit www.sapientnitro.com. SapientNitro and Storyscaping are registered service marks of Sapient Corporation. COPYRIGHT 2015 SAPIENT CORPORATION. ALL RIGHTS RESERVED. INSIGHTS WHERE TECHNOLOGY & STORY MEET The Insights publication features the marketing intelligence, trend forecasts, and innovative recommendations of boundary-breaking thought leaders. The SapientNitro Insights app brings that provocative collection – now in its digital form – to your on-the-go fingertips. Download the full report at sapientnitro.com/insights and, for additional interactive and related content, download the SapientNitro Insights app. Neil Dawson Chief Strategy Officer, SapientNitro Europe ndawson@sapient.com Neil has previously held strategic leadership roles at Havas, Dare, TBWA, and in his own creative agency. He is passionate about proving the link between creativity and commercial effectiveness. Daniel Harvey Creative Director & Global Practice Lead, Experience Design, SapientNitro London dharvey@sapient.com Daniel is Creative Director & Global Practice Lead, Experience Design at SapientNitro in London. Before that he was Executive Creative Director at R/GA in New York. He’s led innovative work for clients like HBO, NatWest, and Verizon. Will Anderson Associate Marketing Strategy and Analysis, SapientNitro London wanderson2@sapient.com Previously a student of Politics and Sociology at Newcastle University, Will then joined SapientNitro as an intern before he became permanent in May 2015. Since then, he has been part of the Experience Strategy team based in the London office.

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