Once upon a time, computer software companies developed software packages (such as Microsoft Word) and made their money be selling copies of their software to users to run on their own computers. Then along came companies like Google who changed the underlying business model. As we are all aware, Google doesn't charge for use of its products. And users don't download them to their personal machines. The applications (such as the Google search engine and Google docs) are run on Google servers. Google's income comes from the selling of advertising space to organisations. In 2008 quarter 4, it reported income of approximately $6 billion, up 18% on the previous year.
The music industry has been in need of a new business model for some time. The British Phonograph Industry (BPI) and the major record labels have suffered loss of income in recent years as many music consumers have used peer-to-peer networks to obtain copies of songs rather than purchase them from record shops. The BPI estimates the industry has lost £1 billion of income in the past three years. The online record stores, such as i-tunes, have had some success but these are still based upon the 'outdated' business model.
Now we are starting to see in the music industry a similar development to that which occurred in the software industry several years ago. Sites such as LastFM and Spotify are streaming music for free and making money from onsite advertising. A proportion of Spotify's income is distributed to the music companies. It is currently experiencing a dramatic growth. In just six months since it launched, Spotify now has more than one million users.
Will this new model work? Will it provide sufficient income for the music providers and will it tempt customers to convert from illegal downloading to streaming instead?
1 comment:
I think streaming sites have their place complimenting the ecosystem but the music industry isn't doing themselves any favours by refusing to pick up on new models like this from the beginning.
I remember when Pandora (music genome project) was shut-down in the UK and that was a travesty. Spotify to my knowledge is just an industry approved version.
I think we'll start to see a big shift towards all encompassing download services which work at a set fee. There have already been some humorous mutterings in this direction from the Isle of Man et al.
Also, if you take a peek at many of Nokia's new music orientated devices, you see that they are using them as a platform for users to download 'unlimited' amounts from their own i-tunes rival.
There really is no other way. The RIAA and similar parties are stifling innovation and doing so at their peril. Only a cavalcade of similar services seems to wake them from their docile slumber.
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