Something Else From firstmonday [10:09 am]
A common criticism of the recording industry’s methods is that they are alienating customers and such a strategy can only come to grief. Trade in recorded music is completely dysfunctional: suppliers are suing customers; some labels have colluded to fix prices; and, consumers are foiling the suppliers’ distribution systems wherever possible. Various industry commentators have suggested that the music industry’s business model is obsolete. We suggest that not only is the model for pricing and distribution outdated, but the industry’s understanding of its product, even of its business, is as flawed as its customer relations practices.
A business model should optimize a firm’s functioning in its current market environment in order to provide products or services that are in demand and competitive. This requires a clear understanding of the nature of the product and the characteristics of the market. The challenge to the music industry arises from the fact that over the past five years the World Wide Web has radically changed the market’s perception of the nature of music itself and the services it demands. While the industry’s lobby group, the Recording Industry Association of America, struggles to limit behaviors enabled by the Web, it is hard to imagine that that genie will ever go back in the bottle. As Michael Porter notes, “the winners will be those that view the Internet as a complement to, not a cannibal of, traditional ways of competing.”
Discovering a successful business model for the music industry may require going “back to basics,” or to primary principles. Before we can propose updated sales or delivery constructs, we must clarify the product definitions and service expectations among music consumers. In the case of music, primary principles underlying the product definition and market characteristics may be assessed through two elementary questions: (a) As a product, what characterizes music, and what are people willing to pay for? And, (b) why do we choose to listen to music in different ways (on the radio, live performance vs. pre-recorded music)? Once we have examined these questions, we look at the role that compression, data storage, and transmission technologies have played in altering the conceptualization of music as a product. We then look at how retrieval and selection technologies can help consumers obtain access to the music that they want to hear. This paper concludes with some observations about the role of technology in creating value for consumers.