‘Pay for software? Only if I can’t download it. Pay for a movie? Never. Pay for music? You must be from before 1998 (a.k.a. pre-Napster, explanation will follow).’
This would be the answers you’d get a few years ago. But thanks to the creativity (and urgency) these industries developed new business models, allowing them to generate revenue again. But before jumping to the actors that influence business models, I would like to show the effects of Free products on the behaviour of consumers.
Music labels collapse
‘All my classmates in high school spoke about the new Eminem album which wasn’t even released yet in the Netherlands –the country in which I grew up- . I couldn’t wait to get home. As soon as I got home I would open Napster, search Eminem and after thirty minutes it was there, I could finally hear what my classmates spoke of, and I loved it.”
From 1998 music labels started to “collapse”. The arrival of illegal downloads hit the CD sales drastically (O’Dell, 2011). The music industry decided to invest millions of dollars in court cases to stop the file sharing service which spread their music; Napster (Pequeno, 2010). But consumers didn’t care, even when the governments implemented laws making downloading music illegal, people would still download music.
Why does everyone violate these laws?
Downloading music is illegal in most countries for a while now, but why do people still do this? Are people not willing to pay for music, or is it the ease and the habit which was created over the years?
One of the four biggest record labels, EMI presenting Robbie Williams, Radio Head and Coldplay, stated in 2006 that illegal downloading caused so much damage, that they had to sell all their shares. But according to music journalist Pegueno (2010) one of the most important reasons that EMI had troubles was because the company was to slow to adjust their business model to the developments surrounding downloading.
My assumption is that consumers are consistent in their behaviour. They were used to getting music for free and most importantly, they got it within minutes after they felt that they wanted it. And although many court cases tried to stop this, consumers would keep downloading massively. They had already created routine behaviour. Furthermore, people use reference groups. When we think of people doing drugs we can come up with a lot of bad stories. But when music labels tried to convince everyone that downloading was bad, people would look to their reference groups. Their families, friends, neighbours, everyone surrounding them downloaded music. If everyone does this, then it doesn’t fit the criminal image which the music labels tried to give to downloading music.
Next to this, downloading was the easiest way to access music. It is the simplest way to stimulate recognition and self-development from the pyramid of Maslow. And everyone wants to reach those highest steps. Because when people identify themselves with music, they get recognition by other people who love that music. And by accessing an endless bowl of music you can develop your own music taste and stimulate your brains even further. (Maslow, 1943).
A million court cases wouldn’t stop downloading. This was “the reason” that multiple music labels went broke, but also the reason for other companies to profit from the newly created behaviour of consumers; needing music as soon as they wanted it. This allowed new services and products to enter the music industry and allowed them to compete with big existing companies. I believe services like Spotify show that people are willing to pay a ‘fair’ price for music, or more importantly the easiest way to access music.
New products in the music industry
An iPod allowed you to store 100.000 songs. Imagine the success of the iPod if you’d had to buy all these songs…Let’s say an average album costs 20 dollar and contains 30 songs. To fill your iPod you’d have to buy 3.333 albums, costing you $66.666,-.
So imagine the use of an iPod if you weren’t able to download music. Some people even dare to say that Apple wouldn’t be as big as it is now without the iPoad. Myslewski (2011) stated that this product helped Apple to gain market share and familiarity on Microsoft again.
Deezer, Pandora, SoundCloud, Spotify and a lot of other legal streaming services have risen from the wish to on-demand music consumption. In 2014 a journalist from the Guardian, Dredge, concluded that Spotify had a revenue of 746,9 milion euros in 2013. Spotify offers two options, the free version allows you to play music with commercials between the songs and limited features. When you pay 10 euros a month it allows you to listen music on any device, without commercials and even when you’re offline. 91% of the companies revenues existed of paying member in 2013 (Dredge, 2014). How big would Spotify be if the labels would have set up a streaming service themselves? And would Apple be as big as they are now or would Sony, now mainly known for electronic devices but also a record label, been first in entering the smart device market combined with their own streaming service?
My conclusion is that it is important to be creative. When a company innovates they can adapt their company to the market. Don’t force laws upon music-consumers but use all the tools available to spread your product around the globe.