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The Future of the American Music Industry

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by

Chuck Kohaut

on 29 April 2013

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Transcript of The Future of the American Music Industry

Consumers left to find music on their own since record companies focus more on generating revenue
Downloading songs illegally as an alternative to paying The Future of the American Music Industry In an Ever Changing World of Economics, Technology and Culture What is the future of the American music industry as it relates to changes and trends in technology, culture, the U.S. economy, and legal regulation? Drivers of Change Consumers are Changing the Music Business Model Digital albums in higher demand
Ability to have more customized library
Online streaming now gaining mass popularity Music Industry Continues to Counter Piracy Napster first widely known application used for piracy
DRMs created to protect against rising illegal activity
Spotify offers royalties to artists Record Company Suicide Record Companies cut artist development to maintain profits
Music treated as product rather than art Disconnect Leads to Apathy Methods of Piracy Hackers gain access to albums before release and leak to Web
Torrents allow mass sharing between strangers
Social media has allowed piracy to become socially acceptable
Users do not view piracy in a negative light Changing the Collective Conscience Media leaders comparing music piracy to physical theft
Consumer stakeholders and copyright stakeholders must align views for industry to flourish Copyright Holders Fighting Back Copyright Holders taking matters into their own hands by teaming up with Internet Service Providers (ISPs) to combat piracy
Copyright Alert System (Six Strike System) created to slowly fight online piracy and to avoid risky legal action against private parties The Trouble with Legal Action Stop Online Piracy Act (SOPA) quickly shot down by online community for its oppressive restrictions and censorship
Government considering working with consumers rather than copyright holders to settle piracy dispute Baseline Forecasts U.S. Disposable Income Increase in disposable income results in increase in music sales with a 98.19% correlation
Note: Correlation does not mean causation
If trend of increasing disposable income continues, a 19% toatal increase in music sales is expected over the next seven years (2013-2020) Consumption Preferences Biggest shift in digital music demand and online piracy began with Napster in 1999
Napster altered consumer preferences towards digital music consumption
Concert ticket prices rise
Online streaming poised to become new medium for digital music consumption and possible solution to music piracy Technology Broadband subscriptions and digital music sales continue to rise every year as more people connect to the internet from their homes and offices
Estimated revenues from digital music consumption to be $13.3 billion
160 million U.S. broadband subscriptions by 2023 Legal and Regulatory Changes Piracy regarded as major barrier of growth in music sales by the International Federation of the Phonographic Industry (IFPI)
U.S. government, search engines, and ISPs called on to regulate and create policies to combat illegal downloading Expected Future Scenario Holding all current trends constant, the music industry can expect to see:
Constant growth in music sales as disposable income increases
Fixed broadband subscriptions rising at 7 million subscribers per year
Streaming services preventing and decreasing the amount of digital piracy
The internet becoming more highly regulated by the government, ISPs, and search engines Expected Scenario Alternative Future Scenarios Transformation Competition for Best Listening Environment Focus on Artist Development Collapse Government Removes All Piracy Regulations Domination of Free Online Streaming Largest Music Profit Drivers Are Eliminated The Streaming Switch The Legal Landslide Constraint The Broadband Bottleneck Stagnation of Internet Broadband Growth Consequential Decline in Music Sales Technological Changes Necessary to Resume Growth By Chuck Kohaut, Patrick Nguyen, Kyle Patel & Brett Sassetti Strategic Business Implications Strategic Business Implications Strategic Business Implications Key Points Strategic Business Implications 1 Table of Contents Central Question
Drivers of Change
Expected/Baseline Scenario and Business Implications
Alternative Future Scenarios and Business Implications
Key Points
Discussion Central Question Questions? Traditional methods of music sales become obsolete, with new need to focus on live concerts and merchandise Record labels and musicians must cater to new standard of live performance and concert/festival format Necessary shift away from all aspects of physical music almost immediately Companies will have to seek new methods to increase digital music sales other than internet Diminishing marginal returns for music sales will set in as the number of broadband subscribers drops The first company to find a solution to constraint scenario will gain success and music sales will begin to rise Record companies and streaming services will need to continuously improve to create competitive advantage and capitalize on growth of industry


Content will be key! Potential obsolescence of profitable digital music sites and piracy sites due to convenience and prominence of streaming services Further shift to low margin digital/streaming will increase ticket prices. There may be an investment opportunity in venues and acts for live concerts. Legal/Regulatory actions maintain momentum against piracy
Changes in U.S. disposable income
Continued increase in American households with internet access Signposts Signposts Signposts Major decrease in the growth rate of the number of broadband subscribers
Music sales continue to drop instead of rising as expected Music becomes commodity and business must revitalize artist development CD sales plummet below sustainable levels
Major piracy sites are shut down or infested with viruses
Improved quality of streaming sites Signposts Major abandonment of regulation by the U.S. government Streaming services will have to compete for customers on a multi-media level For now, major trends point in direction of likely growth for the American music industry
Four largest factors to watch in the coming future:
U.S. disposable income
Shifts in music consumption preferences (i.e. downloading vs. streaming)
Improvements in technology and online music platforms
Major changes in U.S legal regulation
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