Monday, August 28, 2006

Music Download Business Models...

Mike at Techdirt just posted one of the better blog articles I've read on the music industry, downloading, and the new business model that's begun to emerge:

It wasn't the music industry that was in trouble at all -- just the traditional recording labels. People often accuse us of hating the music industry, which is totally incorrect. When we discuss music industry strategies it's hoping that they recognize that these new business models have the potential to be much bigger than the old ones. This is based on a few simple ideas that really shouldn't be that hard to grasp, unless you're desperately tied to an existing business model and unwilling to change. First, treating all your customers as criminals doesn't create much loyalty or willingness to buy your product. Especially in a market where the product is based on being a fan, not filling a need. You want your fans to be happy -- not pissed off. Second, the basic economics are there. On the supply and demand curve the supply of digital goods is infinite, meaning that the trend over time will absolutely be for the price to get pushed towards zero. It's just the way the market works. That's not a bad thing if you embrace it and recognize that, rather than lost revenue, free content represents free promotion. After all, the hardest part of becoming a success in the music business is the marketing to get your product known. The third, and final, aspect of this is how new technologies have dramatically decreased the costs of every other aspect of the music business. Creation, publishing and distribution are all now much cheaper due to the onward march of technology, forcing a shift in how we think about copyright issues.

Based on all of this, it's not hard to come up with a variety of different business models that are based on (1) using the music as a promotional good to get a lot more attention in a crowded market (2) offering customers what they want, and offering them plenty of different ways to get it and (3) building tremendous loyalty from happy customers who feel much closer to the musicians and are much more willing to spend money on secondary products (merchandise, concerts, access). Plenty of musicians have figured this out, and now it's moving further and further away from being a "fringe" idea and into the mainstream music business.

I've been an advocate of this new model for years. The idea is that by reducing costs (or even giving the music away for free), artists would actually be promoting themselves to a much wider audience, and thus ultimately generating more money through concert tickets sales, merchandising, etc. Instead of using concerts to sell CDs, bands give away the CDs in order to make their money on ticket sales.

If this seems far-fetched, realize that many bands have been doing this for years. Dave Matthews Band, the Grateful Dead, and hundreds of others have encouraged people to download recordings of their live concerts for free (and legally), and as a result, their fan-bases grew over time - rather than diminished, as they do for most pop music artists.

To experience the inherent logic in this business model, you can download FurthurNet, a P2P Kazaa-like program for sharing music only by bands which allow it, or else go to, a website for BitTorrent downloads of live concert recordings. Totally legal, free music - actually encouraged by the artists.


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