Archive for November, 2007

Bundling in the Music Industry

November 30, 2007

Found a few days ago on my computer this presentation of mine from 2004 at the Institute for Marketing at Munich School of Management, Ludwig-Maximilians-University Munich . The presentation is about pricing in the music industry and tries to show that bigger bundles not stopping bundling is the better pricing concept.

Sorry… in German.

“They just didn’t know what to do.

November 29, 2007

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It’s like if you were suddenly asked to operate on your dog to remove his kidney. What would you do?”
That`s a quotation from Doug Morris, chair and CEO of Universal Music Group in the latest Wired Magazine issue. A great Article about behind the scenes in the music industry.
Statements like this and the following maybe describe the situation in the music industry for a long time.

“There’s this mentality of always needing to make the numbers for the next quarter,” says Ted Cohen, a former exec at EMI and Warner Bros., now managing partner at the consulting firm TAG Strategic. “It kept me up at night. Some of us could see that something needed to be done, but no one wanted to do anything that wouldn’t maximize profit for that quarter.”

Hopefully things are changing.

Does Web Distribution Stimulate or Depress Television Viewing?

November 26, 2007

A very interesting paper from  Prof. Joel Waldvogel (Wharton University) on consumer behaviour in times of “peercasting” or IPTV.

A short overview:

“In the past few years, YouTube and other sites for sharing video files over the Internet have vaulted from obscurity to places of centrality in the media landscape.  The files available at YouTube include a mix of user-generated video and clips from network television shows.  Networks fear that availability of their clips on YouTube will depress television viewing.  But unauthorized clips are also free advertising for television shows.  As YouTube has grown quickly, major networks have responded by making their content available at their own sites.  This paper examines the effects of authorized and unauthorized web distribution on television viewing between 2005 and 2007 using a survey of Penn students on their tendencies to watch television series on television as well as on the web.  The results provide a glimpse of the way young, Internet-connected people use YouTube and related sites.  While I find some evidence of substitution of web viewing for conventional television viewing, time spent viewing programming on the web – 4 hours per week – far exceeds the reduction in weekly traditional television viewing of about 25 minutes.  Overall time spent on network-controlled viewing (television plus network websites) increased by 1.5 hours per week. “

Read the paper here.

Bad boys … anyway that`s the reality.

November 25, 2007

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Ok it`s sad, but it`s still a fact: There is still no chance to protect your copyrights in the “worldwide” web. Here the Allofmp3.com (now with new name: mp3sparks.com) for movies is coming: ZML.com.
The site sells hundreds of blockbusters with no license for round about 2$ or 3$ each. We are not talking about “sharing” … it is selling!
And the lawyers can`t shut it down.

Bundling not just Pricing option? Bundling as a basic value chain component?

November 22, 2007

Still thinking about the question from my last post : How can you get some exclusiveness to a music product and how should you define a “music product”?

If you have a look at basic value chains for the media industry sometimes, dependent on the author ( a while ago I already wrote about different authors and their value chain definition), you can find “bundling” as an own value chain component.

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These authors see in media companies the central function to act as a “content intermediary”.

Definition of Intermediation:
(Rose, F. (1999): The Economics, Concept, and Design of Information Intermediaries, Physica-Verlag, Heidelberg, New York, NY. )

“An intermediary is an independent, profit-maximizing economic agent mediating
between two market sides in presence of market imperfections. Intermediation is the
bridging the incompatibilities between the two (market) sides involved in a transaction
by transformation of output attributes of the supply market side to appropriate input
attributes of the demand market side.”

That`s for example the classic job of the editorial office in a newspaper, a magazine, a news website, a radio station: Bundling of news articles, fotos et cetera – simply content.
Not till then the value of the product is high enough to get sold or to get the attention of the consumers. And the way of doing this bundling is a factor of success for the product.

So back to the “product definition of music”:
When we talk about bundling in the music industry we often just thinking about a “pricing option”.
But instead bundling should be seen as a basic part of the value creation. A few years ago compilations were very successful. At that time the industry saw the value of this step. But this bundle of round about 30 songs is not interesting enough for the consumers in the digital age, and the market for compilations dropped.

Aren`t there chances to find new interesting bundles?
Perhaps the successful services of Last Fm and Pandorra can be seen as a bundling service – done by a computer programm.

But isn`t there more?

Music a pure public good? Is it all about services?

November 20, 2007

After having the flu for a few days (sorry for not posting) I found this paper from Will Page, Executive Director of Research at the MCPS-PRS Alliance. He wrote about the pricing in the music industry and asked the question: “Is the price of recorded music heading towards zero?”
A good paper that shows in a few pages why recorded music in the digital age seems to be a pure public good. His conclusion is that the future challenge is to force some measure of “excludability” back upon the consumer, again.

I agree with him, but if we want to find an answer to this question/challenge, we first have to define “the product”.
– Is the product just the “music” – the tones, the recording file et cetera?
– Or is the medium, the way how music is distributed (mp3 file with/without DRM, music streaming, ringtone file, CD, Vinyl et cetera),  also included  ?
– Or is even included where and how I buy the music? Where I discovered the music? The supply of a service?

For the first point their is clearly no chance of excludability anymore from the point on where you publish a digital recording.
For the second of course their is, depending on the medium, but the sales figures show that only few people appreciate for example the value of a good old vinyl record.
For the third point in my opinion there are better chances to get this kind of excludability, even if there will be an “open source” community that supply services for free. You have the chance to sell the music with a better service, a better brand, a better customer experience to a better price for a valuable product bundle, for a special community…
So, it´s just a question of product design.
But this means that biggest part of the value creation of a excludable product is now in the supply of a service and not anymore in the creation of music. This will change the division of  revenues.

And I`m writing now just about music, but of course pretty much the same apllies for any digital content, where our digital distribution systems / technologies are fast and cheap enough to share the digital content easily.

Does that make any sense?

Unbundling the chief factor for the music industry decline

November 14, 2007

Just found this old The Register article from October.
It reports about a “confidental” Capgemini paper that analyses “a value gap” in the music industry, the amount sound recordings revenue has fallen in the UK since 2004.

Capgemini calculates that of £480m lost to the industry since 2004, £368m was the result of format changes: principally the unbundling of the CD into an “a la carte” selection of digital songs. Of the remainder, 18 per cent was lost to piracy.

I have no clue how you get this numbers and really would like to read this report, but I think the conclusion that unbundling is a chief factor for the current situation in the music industry is absolutely true. The product characteristic has changed cause of the digitalisation. Unbundling was a new option that emerged, but it`s definitely the wrong pricing strategy for the industry. Bundling was for years one of the success factors in the music industry and still is in my opinion. The “old” album bundle is (obviously) not acceptable for most consumers in the digital age so the industry has to make a new offer, a new deal: Bigger bundles! Subscription Services! That`s the chance.

TED Talk by Lawrence Lessig

November 13, 2007

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Most of you will know him… Lawrence Lessig, Stanford Law Professor, Creative Commons founder…
An “important mind”, the popstar, on the field of copyright discussions.
Here his speech at the TED Conference – Some of his insights in just 20 minutes.
Lessig shows that the law has to conform to the new product charateristics cause of the new technology developements… as it has often before. Here a more detailed speech “Who owns culture?”(part1 and 2):

Very recommended!
Also his book Free Culture.

Radiohead did it

November 7, 2007

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They are heroes of mine for a long time, so maybe I’m prejudiced… anyway…

It was written a lot about there move to release the new album just on their own website per download or per mailorder as special CD/DVD luxury version.

Radiohead took a high risk, abandon a lot of fix money (in comparsion to artists who had done this before Radiohead are still on the heyday of their career) – EMI would pay a lot of money for such a release…

Now there are the first sales figures according to DigitalMediaWire:

38% of consumers paid an average of $6 to download Radiohead’s “In Rainbows” album during October, while 62% of global downloaders chose to pay nothing, according to a report from comScore

There different opinions out there, if this is a success or not… I would say: Yes!

6$ is definitely a realistic price for a album download, and that 38% paid (don`t forget the fact, that when you pay, you even have more hazzle downloading the tracks cause of the payment process) is a great percentage! On top the mailorder revenues and don`t forget the indirect revenues cause of the image benefit through ticket sales or merchandising.(It’s the right way to talk to your fans, the people who value your music. It gives the band a high credibility.)

And best of all: All revenues go directly to the band.

…and they still have the option to get back to the EMI afterwards.

It is the right time for such a experiment and Radiohead clearly has a better target group to do such a stunt than for example Britney Spears.

Well done, boys.

Besides: The new album is great! Can`t wait to see them live!

There is no connection between filesharing and cd sales?

November 6, 2007

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Well… that`s what I call a thesis.
Billboard reports about a new Canadian government study that says that there is no discernable connection – either positive or negative – between music filesharing on the internet and the purchasing of cds.
The study queried 2,100 Canadians and was written by University of London department of management professors Birgitte Andersen and Marion Frenz and commissioned by Industry Canada, a federal government ministry.
I didn´t have the time to read the study yet, but that`s not only a surprise… many people will doubt the credibility of the study. Or is it all just in “crazy” canada?

You can find the study here.

What tells me this study about the consumer behavior?