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A GROWING DIGITAL MUSIC MARKET

March 27, 2019| Porchmusicbox

The music industry went to great lengths at the beginning of the century to put a stop to online piracy; however, they were not equally ambitious and innovative in developing new models for legal online distribution. Certainly, there were a few feeble attempts from the major record labels at the time, but the most important criterion in the development of these services seemed to be that they should not in any way threaten the existing revenue streams but should only add additional revenue to the companies. The majors did succeed with one of their goals, which is that the new services should not compete with the existing physical sales. However, unfortunately the services could not compete with anything, especially not with online piracy.

The first company that was able to create a successful online service for legal sales and distribution of music was not a music industry player at all—it was Apple Computer (as it was called at the time). In 2003, Apple was able to convince the major labels that music consumers would buy music legally if they were offered an extremely simple service that allowed them to buy and download music for less than a dollar per track. The service was called iTunes Music Store. In one sense,

iTunes was a radical change for the music industry. It was the first online retailer that was able to offer the music catalogs from all the major music companies, it used an entirely novel pricing model, and it allowed consumers to de-bundle the music album and only buy the tracks that they actually liked.
On the other hand, iTunes can also be considered as a very careful and incremental innovation, as the major labels’ positions and power structures remained largely unscathed. The rights holders still controlled their properties and the structures that guided the royalties paid per every track that was sold was predictable and transparent. Apple were correct in their prediction of consumer behavior and the iTunes Music Store can not be considered as anything but an enormous success. In 2013, iTunes Music Store is the world’s largest music retailer (offline and online) and it has sold more than 25 billion songs since its launch in 2003. The service has evolved substantially during its decade-long existence, and a number of competitors using more or less the same business model have entered the digital download music market. Even though the competition has increased, iTunes remains on top with a market share of more than 50 percent of the global digital music market.

While digital download services, such as iTunes Music Store, introduce a gradual change to the music business logic, there are other legal music services that are far more radical and thereby also far more controversial. These services do not offer individual tracks for purchase at a set price—they rather offer the users access to a large music library that they are able to listen to at their leisure. The users normally pay a monthly subscription fee that allows them to listen to as many songs in the library as they want, how often as they want.This may sound like an appealing proposition, but these legal access-based music services have struggled both to convince record labels to license their catalogs to the services as well as to convince users that it is possible to enjoy music without actually buying and owning a copy of the track or album.

There is a considerable entrepreneurial activity in this segment of the music business, and services go live and bust on a weekly basis. Many service providers are still desperately looking for the business model that can attract music listeners and satisfy rights holders. The challenges are certainly considerable but the music service that so far has received the most attention of the international music industry and the one that could possibly have found the right path is a service called Spotify.

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