Business  Models  in  the  Music  Industry  Eurosonic  Noorderslag  

January  14th,  2011  

Business  models  in  the  music  industry?  

Value  creation?  

Firms  that  record,  produce,  publish,  distribute,  and  market  music.  

Fans  that  listen  to  (or  experience)  music.  

How does the music industry create, deliver and capture value?  

What different business models do exist in the music industry?  

Business    Model?  

Business    Models?  

A  business  model  describes    the  rationale  of  how  an  organization  creates,  delivers    and  captures  value  

Definition_Business  Model  

Self  Published  

14  translations  70.000  sold  copies  

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BUSINESS  MODEL    

CANVAS  

THE  

1.  CUSTOMER  SEGMENTS  

2.  VALUE  PROPOSITION  

3.  CHANNELS  

4.  CUSTOMER  RELATIONSHIPS  

5.  REVENUE  STREAMS  

6.  KEY  RESOURCES  

7.  KEY  ACTIVITIES  

8.  KEY  PARTNERS  

9.  COST  STRUCTURE  

Client segments!

Key Partners!

Cost Structure!

Revenue Streams!

Channels!

Client Relationship!

Key Activities!

Key Resources!

Value Proposition!

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

The  Music  Industry  

The  Music  Industry  

A  dynamic  market  a  global  industry    characterized  by  many  players  and  fierce  competition  

A  product  or  service  with  a  mass-­‐market  potential  

BrandAmp  study,  Millward  Brown,  2007  

“Music is something most people love, that no one dislikes and that touches everyone throughout their lives”

The  role  of  music  in  peoples’  lives  

A  global  industry  

Something  for  everyone  

The  creative  genius  

Lots  of  good  advisors  

Enough  players  

Technology  advancements  

Declining  sales  

Global  music  sales    (physical  and  digital)  excluding  VAT  

1997:  38  billion  USD  2009:  17  billion  USD  

Global  music  sales  

Business  models  in  the  music  industry  

A  record  company  

The  big  4  

Independent  labels  

1  main  activity  

The  business  model  of  a  record  company  

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

Mass  market  Hits  and  

wannabee  hits  

Tours  and  concerts   Huge  sales  

from  a  few  ar:sts’  albums  

Merchandising  

Marke:ng  &  promo:on  

Detec:ng  &  building  talent  

Por@olio  of  star  ar:sts  

Copyrighted  content  

Distribu:on  channels  

Manufacturers  

Marke:ng  &  promo:on   Subsidizing  

unsuccessful  ar:sts  

Royalty  payments  

TV  

Radio  

Retailers  

Digital  

Piracy  

The  dominating  phenomenon  

The  big  discussion  

The  business  model  of  piracy  

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

Mass  market  

Digital  

Developers  of  illegal  

applica:ons  and  soGware  

User  skills,  interest  and  commitment  

Upload  

Peer-­‐to-­‐peer  

Download   All  the  worlds  music  

A  network  of  commiLed  

users  

iTunes  

“Rock  and  Roll  will  never  die.  It  is,  however,  being  reborn.”  

A  new,  successful  business  model  

Very  successful  

1  billion  songs  sold:  February  23,  2006  

1.5  billion  songs  sold:  September  12,  2006  

2  billion  songs  sold:  January  10,  2007  

2.5  billion  songs  sold:  April  9,  2007  

3  billion  songs  sold:  July  31,  2007  

Steve  Jobs  announced  in  his    "It's  Showtime"  keynote    

that  Apple  had    88%  of  the  legal    

U.S.  music  download  market    on  September  12,  2006  

The  business  model  of  iTunes  

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

Mass  market  

iTunes  store  

Retail  stores  

Apple  stores  

apple.com  

Seamless  music  experience  and  great  design  (music  and  hardware)  

Lovemark  

Switching  costs  

Hardware/soGware  design  

Marke:ng  &  Sales  

Supply  chain  management  

Content  &  agreements  

Apple  brand  Talented  people  

(designers)  

iTunes  soGware  

iPod  hardware  

Music  royal:es  

People,  design  &  development  

Hardware  manufacturing  

Marke:ng  &  Sales  

Record  labels  

OEMs  

High-­‐volume  content  revenue  

High-­‐margin  hardware  revenue  

Spotify  

“We  are  going  to    provide  music  to  everyone    (any  time,  any  place)  for  free  in  a  legal  way”  

“Our  dream  is  to  collect  all  the  world’s  music  and  make  it  accessible  to  everyone.”  

Spotify  aggregates  content  from  right  holders,  distributes  it  to  consumers  through  the  technical  platform  and  monetizes  both  through  a  free,  ad  funded  service,  and  a  subscription  service.  

The  business  model  of  Spotify  

The  Business  Model  of  Spotify  

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

Access  to  music  via  

streaming  and  download  services  

Pla@orm  development  

and  maintenance  

Licensing  agreements  

SoGware  and  network  engineers  

Rightholders  (labels  and  publishers)  

Adver:sers  

Internet  +    PC  

Ad  fees  Subscrip:on  

fees  PC  

Subscrip:on  fees  PC  +  mobile  

Royal:es  to  rightholders  

Salaries  

Bandwith  costs  

Automated  online  

rela:onship  

Global  music  fans  

Adver:sing  

Pla@orm  and  brand  

Internet  +  mobile  

3rd  party  APIs   Communi:es  

The  artist  

“I  just  want  to  sing  and  perform.”  

Crowd-­‐funding  paves  the  way  for  the  independent  artist    

€  40.000  11  days  

€  24.000  promotion  

The  business  model  of  Hind  

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

Music  

The  Brand  Hind  

Videos  (performance)  

Music  archive  

Songwri:ng  

Promo:on  

Singing  &  performing  

Concerts  

Music  fans  

Radio/TV  

Hind.com  

Online  pla@orms  

Events  

(Social)  media  

Brand  experience  

Musicians  &  Songwriters  

Producers  

CD  produc:on  &  distribu:on  

Artwork  &  Studios  

Management  

Tech  &  tour  team  

Band  

Investment  concerts,  

transporta:on  Salaries  

IT,  website  and  marke:ng  

Concerts  

Music  sales  

Merchandising  

Looking  back  at  some  major  shifts  in  the  music  industry  

A  fragmented  copyright  industry  made  it  impossible  to  set  up  legal,  sustainable  business  models.  

The  gap  of  legitimate  business  models  for  customers  paved  the  way  for  the  rise  of  piracy.    

The  unbundling  of  the  album  killed  significant  revenue  streams  impacting  the  whole  music  industry.  

Looking  at  some  current  shifts  in  the  music  industry  

Legislation  around  piracy  

Music  distribution  

Shift  from  ownership  to  access  

Technology  capacity  

Customer  in  charge  

What  do  customers  want  (tomorrow)?  

The  Big  Challenge  in  Business  Modeling  

Who  is  my  customer?  

What  does  he  or  she  wants?  

What  is  he  or  she  willing  to  pay  for?  

Different  needs  

Market  split-­‐up  

Multi-­‐party  scene  serving  customers  needs  

More  questions?  

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