Postcards from the music industry

So what exactly does, you are already thinking, the music industry have to do with the voluntary and community sector? Well aside from the obvious that many VCOs are in the business of making or performing music, the recorded music industry is going through the sort of structural changes that seem to be relevant for our sector. Let me explain.

Record companies have traditionally generated revenue from selling content generated by a roster of artists contracted to them. This intellectual property has been distributed via a range of physical formats (discs, tapes) via a distribution system of high street record shops. The economics, from what I understand, relied upon big-selling artists subsidising niche acts, a situation that worked for the record company, the distributors and the music buying public: the industry made money, and the public could walk into a shop and buy much of what they wanted. The books market operated on similar lines.

But the internet started to break this down: web-based music sites first undercut the distribution costs of CDs; artists realised they no longer needed record companies as they could communicate directly with consumers (so-called disintermediation); and canny/dishonest punters (depending upon your viewpoint) realised they didn’t even need physical media any more and that they could download the stuff for free. The result: record companies cutting down their artist rosters, high street music chains going bust, falling record sales, but presumably lots of satisfied listeners, in particular an ipod generation who might never have bought a CD, never mind an 8-track.

So, back to the VCS. The disruptive nature of these innovative technologies seems particularly relevant to a sector that relies upon its intellectual property as a source of distinctive or added value. The new models of licensing and distribution seen in the music industry also have implications for the sector’s income generation aspirations, particularly given the niche, dispersed user communities that many organisations work with. As an increasing number of organisations are thinking about the exploitation of intellectual property as a route to sustainability, here are 5 points that might be the basis for discussion.

  1. The web is making niche content potentially more profitable. Some artists dropped by their record companies are finding life on the web sustainable as they can connect with the dispersed community of fans that might not be sufficient in number to justify marketing and distribution via traditional channels.  Lucy Jordache, Communications Manager at Racket Records (home to Marillion) argues that “if there was no web there would be no Marillion by now. It has given us the chance to interact with our fanbase in a way that we could only have dreamed of.” Jordache argues that the web – as a channel for distributing paid-for content - is “now more important than any other channel”. Likewise, VCOs that work with niche interests or causes will find that the web makes it easier to aggregate user communities into a serviceable market, an argument that has been referred to as the long tail.
  2. Users are the distribution mechanism of the future. Peer to peer networks such as Bittorrent have undoubtedly kept music industry executives awake at night: they undermine the new approach outlined above. But organisations such as the BBC are embracing peer to peer distribution, together with creative commons licensing, in recognition that the network effect massively increased their reach without a proportionate increase in costs. Unsigned bands – the equivalent of the small VCO – are using peer-to-peer networks to distribute their music legally, as the networks themselves are not illegal. Likewise, the members, users, beneficiaries and other stakeholders of VCOs can be powerful ambassadors of an organisation online, provided an organisation can cope with less control over messages and distribute trust to their network. Users’ reaction suggests that peer to peer networks are here to stay, so the challenge will be to use them to our advantage.
  3. Stop focussing on the physical format. Innovation in formats, as bands such as Keane release singles and albums on USB memory sticks, suggests that there is still a relationship between form and content. Admittedly people will always want to curl up in bed with a book, but in other situations consumers are becoming more comfortable with reading and buying content that is digital only. As Simon Cope, Online Development Manager at NCVO and co-partner in Try Harder Records says "There's something about the relationship between the object and its use that means it's critical to think about the need the product is intended to address or the outcome you're trying to achieve through its production and sale. Sometime an online format will be more effective." Although this weightless economy is not cost-free, it potentially shifts the business model away from the one-off purchase of physical media to the ongoing subscription to web-based services (web based payment systems and market places make this approach increasingly easy). The downside of the shift from physical to digital formats is that people are less prepared to accept and pay for filler. In the case of recorded music, these were the album tracks that lead listeners to hit the skip button; in the digital environment people buy the tracks they like, possibly based on listening to free samples. The same will happen – is already happening – to the sorts of books and guides that organisations produce (academic journals now sell single articles; Harvard Business School is selling individual chapters in some of its management books). As we all know, staff in the VCS rarely have time to read 500 pages and may increasingly want to have easy access to just the bits they want at a given time.
  4. Innovation in pricing. The recent Radiohead experiment – fans were able to download a new album and pay the price they felt it was worth – is an example of the sort of innovation that might be required. John Naughton’s recent article suggests the economics might just work, as the freeriders and cheapskates are subsidised by those who value the content highly. For VCOs, I wonder if willingness to pay translates into ability to pay? Given the importance of trust to the VCS, and our concern to be as accessible as possible, this web-based equivalent of the honesty box might fit well with the values of the sector.
  5. Giving (it away) is good. The knowledge that those who illegally download music actually buy more CDs has led some record companies to embrace the download generation by making their music available without the software restrictions that limit copying. But there are more radical thoughts: perhaps the paid-for content that has been at the core of the business model should be given away: after all, everyone else is sharing it for free. Such attitudes are manifest by the emergence of 360 degree contracts with artists, where what were recently perceived of as ‘side activities’ such as touring or t-shirts are now recognised as areas where income generation will focus. The implication for VCOs is that giving away the core content might be the way to generate income from added-value, face-to-face services.

Collectively, these trends challenge some of the orthodoxies around intellectual property and sustainability. They suggest opportunities for organisations looking to build their support base. They are also a warning that people can share any content online, whether music, how-to guides or knitting patterns (yes, really: peer-to-peer has facilitated copyright infringement of such patterns). They are also contradictory – which perhaps highlights that the real issue we will need to grapple with is the business models that underpin the way we become sustainable, not the technologies.

Music just happens to be at the forefront of changes in consumption patterns and attitudes that will reverberate throughout the economy and society, and this will no doubt include the voluntary and community sector.  And finally, one other thing that has had a big impact on the music-consuming public in the last few years is the X-Factor. Its probably a few years before we see the V-Factor, but it might be worth starting the talent scout now. But who would be Simon Cowell?

Update: I'll be talking about some of these issues at NCVO's Publishers Forum Conference, Make Web 2.0 work for you, on 20 March.

Last updated at 15:08 Mon 18/May/09.
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AuthorComment

I am really taken with the last point, “Giving (it away) is good”, and the implications for VCOs in thinking about the different things they do that are of value.

The writer Kevin Kelly recently picked up this theme on his blog

He highlights a similar question: how do people whose business model depends on intellectual property and resources thrive when so much of their value can be distributed for free through new technology?

Kelly argues,

When copies are super abundant, they become worthless. When copies are super abundant, stuff which can’t be copied becomes scarce and valuable

He outlines 8 features or qualities that are “better than free” because they have to be generated and cultivated and can’t just be copied. He suggests these are:

  • immediacy
  • personalisation
  • interpretation (paid for services that operate on free stuff)
  • authenticity (any hint of “realness” in the virtual world)
  • accessibility
  • embodiment
  • patronage (feel-good process of supporting the creators)
  • findability (the new version of distribution: drawing users’ attention)
Megan 's picture

Megan

Third Sector Foresight

Karl and I just finished running a session at the NCVO Publishers Forum conference based on this think-piece. Some very interested thoughts emerged about how publishing in the VCS has changed and how it will change in the next 5 years. I’ve captured those thoughts and posted the powerpoint slides over in the events forum.

Caroline's picture

Caroline

Third Sector Foresight

I saw an interesting quote in the New York Times today which seems relevant to this point:

It used to be an elite few. Now anyone can make a book and it looks just like a book that you buy at the bookstore.
Eileen Gittins, chief executive of Blurb, a print-on-demand publishing firm.

The aim of Blurb is to democratise media and make it accessible to all, a drive which seems to be becoming more and more relevant in today’s digital world.

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