The music business is about to undergo another seismic shift. And Apple’s streaming service is the tsunami that will force the industry to rebuild. Again.
It was around 2005 when I joined Warner Bros. Records as their new head of technology. I was the 20-something-year-old kid who was supposed to have every answer about all things digital. I remember distinctly the first record I worked on. Not because the record was special to me personally (it wasn’t), but because that was when I began to understand how a “record” was viewed by the record labels and the industry.
Back in the day, two things drove music sales: the record itself and the story that publicists told about the record. There were no iTunes pre-sales or bundling the album with new Samsung phones. Everything depended on first-week sales and chart position, as well as how the record rose or fell during the second week. It was a totally anonymous process. Even the record store owners had no idea who was buying. It was a simple transaction reported to SoundScan.
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By the late 1990s, the music industry had created a pretty successful promotion and publicity machine. First-week sales were driven by meticulously choosing the best single from the record, getting spins on top radio shows, producing big budget videos for MTV, print and TV promotions, record reviews and interviews with the artists. All things served the commerce transaction funnel.
The results of that first week of sales, along with the radio airplay, helped tell the “story.” If the record charted to No. 1 with millions of sales, the news was used to bolster second-week sales, as well as support the second single on radio and MTV and help launch the tour. The story, the sale and the spins — this marketing dance worked over and over again.
When the iTunes Music Store started dominating digital retail sales, and digital started eating into the total retail picture, the record labels didn’t bother to change the process very much. They just got a level of analysis and quantification that they never had before (for Apple, primarily), as well as higher margins.
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Music industry professionals never thought about loyalty or customer churn, because the month-over-month cycle (or even year-over-year) was less important than release-over-release.
In fact, the record labels often anticipated that an artist would lose portions of their audience with every new release, in exchange for new fans, as people got older, audiences changed and pop culture evolved.
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While first-generation SaaS (software as a service) providers were taking hold in the enterprise, a few pioneering streaming music services were making their debut. As Napster fell victim to legal battles, Rhapsody emerged in 2001 as one of the first legal providers of subscription-based music. At that time, the record labels viewed Rhapsody and others subscription services as “just another” source of revenue to support physical retail sales.
When retail sales in Wal-Mart and Target were strong, streaming was a nice additive source of revenue. In the waning days of physical retail sales, iTunes and Amazon propped up the entire music business, and streaming continued to be a small additional source of revenue.
It appears now that the scaffolding is falling away for the digital music sales cycle.
The problem? The music industry is still organized to support the traditional retail and digital sales cycle. As subscription services become the dominant source of revenue for recorded music, the entire business will have to shift gears to survive.
It’s no longer about pre-sales and Week 1, it’s about nurturing an audience month-over-month to drive loyalty and increase returns on a streaming service platform. All of the promotion dollars and methods to support Week 1 have to be retooled for a longer cycle, up to 6 months in many cases.