When Internet Killed the Music Business — 6 Important Lessons Leaders Can Learn From Music’s Digital Disruption

Remember when Napster came out and it turned the music business on it’s head? It was a big deal and the music business has never fully recovered from a monetisation standpoint.

First, I am going to share with you a brief history of this disruption in the music industry and then share six important lessons that leaders can learn from it — no matter the industry.

Let’s go back to 1999, the heyday of the music business. The industry was producing revenues of $27bn — an all-time high. It was CD and album-driven with singles only making up 4% of revenue. This is the same year Napster came into play and it was around the time Apple began to introduce commercial download models.

Since 1999, the industry has been in steady decline through piracy. Today, at $15bn, the industry is half the size it was then; and it is 50% digital. Music is the most digitised and most global media business in the world. To put that into perspective, filmed entertainment is 15% digital, books are 14%, and newspapers are 7% digital.

Now, if the music business is half of what it used to be, is music still relevant in the digital age? You bet. And here are some facts to support it:

  • The #1 video ever was a music video, “Gangnam Style” (2 billion views)
  • The #1 artist on Twitter is Katy Perry (78m likes)
  • 29 of the top 30 videos on YouTube ever are music videos
  • 16 of the 20 most liked/followed people across Facebook and Twitter are musicians as well.

So what happened? How did we lose $15bn?

Bottom line: The industry lost the revenues to illegal consumption, piracy. Now consumers get the same product for much less money. 20 years ago you would hear a song and go and buy the album for $20. Today at best you spend 69c and you get the song.

The industry also lost income to tech platforms. Some have quite high valuations and the music industry probably did not get its fair share. The revenues certainly did not go to artists or the investors in music rights.

One thing is clear: The music industry does not have a problem with the product, but it does have a huge problem with monetisation of the product.

So, what can leaders learn from the music industry? A few key lessons:

  1. The leadership and talent dimension is critical. Leaders need to have a real appetite for risk, and be comfortable operating in an ambiguous environment in which business models are constantly shifting or under threat, they need to be aware of what is happening in related sectors and be flexible about importing talent as the situation requires. Commercial teams will need to be highly creative, experimenting with alternative monetisation models. Identifying, securing and retaining creative talent will be key in this context thirsty world — especially people who can unlock big data and drive insight from the analytics.
  2. You cannot fight technological development and consumers. Consumer behaviour is constantly changing, partly as a result of demographics and the digital native effect. For the first time ever, it seems that there is a cohort of people in their middle age and older whose media consumption habits are not transferring to the next generation — children are not growing into their parents’ behaviour. No business can protect itself from this shift: you have to be prepared to give the consumers what they want, where they want it and when they want it.
  3. You have to be prepared to cannibalise yourself. You have to make bets, be brave and accept some trial and error, particularly if no-one has been down this particular road before. Need an example? When the music industry allowed Steve Jobs to unbundle the album, it was a real bet. It was inevitable but also timely, since piracy might have become rampant. Jobs and iTunes retrained a whole generation to pay for content.
  4. The digital world is in a constant state of flux. Companies have to constantly adjust. Sony, as an example, started out with a few digital experts in a cubicle, but digital is now 50% of its business and the company has to deal with global accounts (Spotify, Google, Amazon, YouTube and many others.)
  5. Disruption equals opportunity. It’s open 24/7 and there is no limitation in shelf space. Today, distribution is much more cost-effective than it has ever been and this opens up new regional growth opportunities (e.g. Africa, China, India). Artists, and the content they create, can be known anywhere in the world, which is a new phenomenon. Making money out of user-generated content was impossible in the old physical world, but through disruption this has become possible in the digital world.
  6. The paid subscription streaming model is the future. The world is moving towards access models and a decline in ownership — you can access all the music but you don’t have to own it. The challenge is to work out what should be paid for and what should be free. Streaming is the final destination in the music business.

Interested in learning more about the topic? See the full Spencer Stuart report here.