Managing a media company in the “digital age”. The effects of Web 2.0 and social media on music industry

Table of contents

1 Introduction

2 New framework – The web 2.0 and the music consumption habits
2.1 Changes in the consumption of music
2.2 Social Media
2.2.1 Facebook
2.2.2 YouTube

3 Current and new communication model
3.1 Management topics
3.2 Effect on the music industry – Differences between “traditional” companies ahead of digitalization

4 Pandora Radio

5 Conclusion

6 Bibliography

Image index

Figure 1: Current communication model from the perspective of music companies

Figure 2: Elements of a business model

1 Introduction

The music industry is in the midst of change. This change has been triggered by the influence of new media, such as the Internet or mobile telephones, which contribute to an increasing digitalisation of society during the last years. The results of the growing digitalisation are changes in the consumer behaviour, new devices and also new sales channels. Supply and demand of music products is greater today than ever before; however, the music industry generates only little capital because of illegal downloads and small revenues of the digital music market (Thurner, 2010, pp.5). In the course of the digitalisation, new media plays a big role. Like Peter R. Scott and Mike Jacka put it: “social media is the set of Web-based broadcast technologies that enable the democratization of content, giving people the ability to emerge from consumer of content to publishers” (Scott and Jacka, 2011, pp.5). Due to social media, people have the opportunity to communicate with people all over the world, to share pictures, videos, and audio files (Safko and Brake, 2009, pp.6). Interesting songs or videos are going to spread rapidly from YouTube within social networks like Facebook and Twitter. Therefore, unknown artists can become stars overnight (Urbanowizc, 2013). The digitalisation and social media have changed the framework of the music industry and because of that the management topics of the music companies changed as well.

This assignment identifies and discusses the management topics a company has to deal with in the music industry in the digital age. In chapter one the author explains the new framework of the web 2.0 and therefore the changing consumption habits of the consumer. Also the paper identifies the changes of the consumption of music by social media. In chapter two in the scope of this assignment, old and new communication models will be presented and analysed. Also the important management topics will be explained and further the effect on the music industry will be established.

For exemplification of both subjects the author makes use of the company Pandora Internet Radio.

2 New framework – The web 2.0 and the music consumption habits

The changes in communication are caused by the influence of new media like smartphones or the Internet, which creates an increasing of digitalisation in our society, as well as an altered consumption. One of the reasons why communication has changed is the constant advancement of technology, especially on the Internet. In the past, only a few people could publish web content online; today, almost everyone has the possibility to do this. Everybody with an Internet connection as well as web-enabled terminal equipment is able to send and receive data (Skibicki and Mühlenbeck, 2008, pp.16).

Listening to music is a part of many people’s life. Music evokes memories and emotions, in the same way as only people can do. For this and many other reasons, it plays a significant role in our daily life and in our leisure time. Especially for the younger generation, who lives continually accompanied by music, and who can personally select songs and artists of their liking through the portable recording media. In the past, music was reserved to only the prosperous people, but today, thanks to the radio, TV, MP3 players or the mobile devices, music is a constant companion. Almost every German household (98%) has for example at least one radio, 42,3% owns an MP3 player, and 90% have a mobile phone (Statista, 2013).

From 2000-2008, the average daily radio listening progressively declined. In the year 2000, the daily radio listening was 209 minutes; this amount changed in 2008 to 176 minutes per day (Statista, 2012). From the conspicuous figures it can be concluded that there has been a clear change of the user’s behaviour. Particularly strong is the change of this behaviour in younger people. A 2008 study conducted by Dennis Collopy and David Bahanovich from the University of Hertfordshire / UK interviewed 1900 young people aged between 14 and 24 years in England to figure out which type of device they used to listen to music most. The study states that 47% of the people use the radio to consume music. On the other hand the MP3 player is used by 65% of these young adults, followed by the computer, with 56% (David and Dennis, 2013). The radio, as the medium to listening to music, which was used the most in the past, has been replaced by the above-mentioned technologies, at least among young people in the UK.

Various factors are responsible for this change. One of the central points is that due to MP3 players or mobile phones, people have more opportunities to listen to music whenever, wherever, and whatever music they want. The user decides which kind of music, artists or album they want to include on their device. This music is not delivered by the radio or a record company, who determines which playlist is played or which kind of song is selected on a CD album for the user to consume. Moskalyuk describes this phenomenon as a development towards a use independent of the medium of transmission and decided by the user.

This transformation is shown in the development of the Internet as a medium for passive communication into an interactive web medium (Trömer, 2010, pp.32).

The opportunity for the consumer to determine the content and music they want to listen to for themselves has been adopted by some companies as their business model. Some examples are Spotify, iTunes or Last.fm.

2.1 Changes in the consumption of music

Almost everybody in the world is using the Internet, and of course, they also have the opportunity to listen to music online. On the one hand, this is a blessing for the music industry, but on the other hand, it is a curse as well. The music industry has many marketing and distribution options, which used to be unprecedented; however, the development of the so-called peer-to-peer networks gave the consumers the ability to consume music illegally and in large quantities, which led to a large drop in sales in the music industry (Vaeth, Müller and Hossbach 2010, pp.30-31). The advent of Web 2.0 and the possibilities for the user not only to consume the provided content, but also to create their own content, increases the problems that the music industry must face from this moment on (Kollmann and Häsel, 2007, pp.1).

2.2 Social Media

Through social networks, people get the opportunity to connect with each other at any time and everywhere in the world. Today, the Internet is no longer identified as a further channel for promoting and selling products. Due to social networks like Facebook or YouTube the users are in the middle of communication (Skibicki and Mühlenbeck, 2008, pp.16). In 2014, Facebook had more than one billion members all over the world (Facebook, 2014). Comparing Facebook to a world populations, it is the third largest behind China and India. This number represents the status quo of new media in this day and age. Social media, and generally new media users, have the possibility to lead a dialog actively (Skibicki and Mühlenbeck, 2008, pp.16). According to Brennan, the description of the so-called “Web 2.0” is “the evaluation of the Internet from a statistic environment that focused on one-way […] receipt of information (what is called the Web 1.0) to an interactive community where it is possible for users to communicate, share, blog and create content in real time” (Brennan, 2010). These technological advances facilitate communication between businesses and consumers at electronic speed (Fill, 2011). Through social media, firms have the option to specific address the target group and give a direct dialog with customers. Because of that, it will reach exactly those customers who are interested in specific brands, products, companies etc. For example the “follower” on Twitter or the “Fans” on Facebook. Through an interactive and reactive treat of the customer, individualisation of the product and personalised customer contact, recognise the wishes, ideas, views and needs and examining them. This ensure for a sustainable lasting of customer loyalty, to achieve closer proximity to the customer and familiar atmosphere (Müller, C, 2011).

In fact, people still consume but they want products that are attune to their personality and therefore take part in the market development. Through social media, every seller, artist, or marketer can get in direct contact with the costumer. On the other hand, the consumer receives more power because from now on he has the ability to evaluate the products and services of the other party in social networks (Skibicki and Müllenbeck, 2008, p 16).

For this reason, social platforms are also important partners for the music industry. But why are YouTube, Facebook and others so important for artists and companies in the music industry? The answer is simple: digital goods in MP3 form - downloads are not limited, in contrast to physical products, such as CDs or records. Therefore, it is important for artists to stay in contact with their fans, to motivate and convince them to distribute their content, to increase demand, and to increase customer loyalty. Social networks offer the opportunity for an exchange between artists and fans.

2.2.1 Facebook

Only 10 years have passed since a group of Harvard students, including Mark Zuckerberg, established the social network Facebook. It is now one of the most successful companies of Web 2.0, with around 850 million members (Schule, Mertens und Horx, 2012).

According to Facebook, the network is actively used by an average of 802 million users daily. During the month, there are 1.28 billion active users, which are 81.2% outside the U.S. and Canada (Facebook, 2014). The average Facebook user has within the online social network 130 friends, is connected to 80 community pages, groups and events, and produces 90 posts per month (Matula, 2011, S.10). Because of this high reach and frequency of use, Facebook is a very important tool in the digital age and in online marketing.

A phenomenon, which started off as a social network for students, Facebook became a central point of contact for many kinds of communication and advertising possibilities. Through Facebook, companies or artists have many choices to promote themselves. Facebook started their personalised Facebook pages in 2007 and makes it possible to provide appropriate offers on Facebook for third parties. The result is that various music companies have the possibility, for example, to create an application on Facebook (Weiß, 2007). Because of that, Facebook offers and guarantees third parties access to millions of people, but benefits from the fact that people spend even more time on Facebook through the various new programs.

Music can be shared within Facebook in many different ways. For example, users can post the direct link of YouTube videos on their news feed, which will then be viewed and clicked by their friends. In addition, there are also various applications such as Spotify or Soundcloud that have direct connections to Facebook through the interface port 2007. For example, if Person X listens to the song "Happy" by Pharrell Williams at Spotify, provided they authorize access, a status message such as "Person X is currently listening to Pharrell Williams - Happy on Spotify" (Fröhlich , 2012). The potential benefits that Facebook offers the music industry is huge, because the sharing and recommendation of music by the consumer gives the artist a high level of credibility (Holmes, 2012).

2.2.2 YouTube

YouTube is a video portal where people can watch videos for free, evaluate them, and publish them.

YouTube is a company managed by Google, with over 1 billion visitors every month. Six billion hours of video material are seen every month and 100 hours of video are uploaded every minute (Youtube, 2014). The special feature of YouTube is that the videos can be accessed at any time and everywhere, as long as the user is connected through the internet.The viewer’s decide for themselves when and what they want to see.

In addition, YouTube offers a special function which allows users to publish videos on various websites and social networks. Because of that, YouTube generates a competitive advantage that distinguishes it from its competition, offering its customers unique advantages. This function distributes good commercials, artists, etc. within a very short time in blogs, on social media channels, and websites (Skibicki, 2012, pp.93).

YouTube has a cooperation with the major labels that permits sharing of music videos on the site. The cooperation between the major labels and YouTube includes a profit for the labels from the achieved advertising revenue. The labels also receive an additional amount per played video. Through this system, one label, the Universal Music Group, generates around 100 million U.S. dollars in 2008 (Neumann, 2009, pp.15). In addition to the sharing and the viewing of music, YouTube is used as a streaming service, especially among younger people. Almost every song, whether with or without video, is available on the video portal.

3 Current and new communication model

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: Current communication model from the perspective of music companies Source: Own representation based on Skibicki and Müllenbeck (2008, p 16)

The figure depicts the actual way of communication. It shows that business have the possibility to communicate directly with their customers. Additionally, customers are able to act as senders and receivers through social media, since it offers the use of “[...] web-based applications that make it possible to create and easily transmit content in form of words, pictures, videos, and audios.” (Brennan, 2010). On the one hand, every seller can get in touch with consumers directly through new media, while on the other hand, consumers get more power because of the possibility to rate products in social networks (Wood, 2014). It is not longer a one-way communication with feedback, but a two-way communication including a consumer-to-consumer conversation, called Word-of-mouth (WoM) as well as business-to-consumer conversation (B2C) (Fill, 2011).

Finally, while analysing the change of communication from traditional media to digital technology, the two main points could be described as “real-time interactively based communication” (Fill, 2011) and the individualisation that consumers are looking for.

3.1 Management topics

The traditional record labels have to react to the fast-changing technologies of the digital era. New media companies like Pandora have created a ground-breaking business model in the digital age. Consumers do not need or want to buy an album; they would rather listen to their individual playlist. Also the users want to discover new artists or songs similar to their taste. This is why they are using Facebook or YouTube, to receive recommendation from friends or searching for similar artists. They are using the social web to get in contact with the artists or bands and to communicate with other fans with the same taste in music.

Because of the digitalisation, many management topics have changed:

Talent scouting

Music labels have more opportunities to find artists via the World Wide Web. Furthermore, they have the ability to “test” a new song, artist or band in social media platforms like Facebook or YouTube, to find out how many people are going to like, share or recommend it. This is a cost and time-saving strategy for the labels that helps them receive feedback. Also tracking songs and the measurably of pleasure is much easier, because of own pages/channels in Facebook and YouTube.

Music Production

The production of music has been simplified by the digitization. Even from home, artists have the ability to record and edit their music and publish it in the Internet. In addition, new technologies have led to a time and cost-saving process in the music production for the big labels as well. Technology is much cheaper and more effective.

Marketing

The Internet opens for artists and the music industry new opportunities to market their products e.g. with social media profiles or video portals. Also the major labels have the ability to use social media platforms to present themselves and to stay in contact with the costumers. Furthermore, even to sell the products on the platforms with links to Amazon or iTunes and to promote artists with links to YouTube or other video platforms.

Distribution

The traditional distribution channels remain. However, they are supplemented and partially replaced by a very efficient way of transport, the Internet. Transport via Internet represents for the company and the customer more time and cost savings. Some music companies set up their own Internet music platforms to distribute their downloads directly or they set up links on social media sites to download the songs.

Trade

Platforms such as Amazon offer to conveniently bring the recordings home. Also, artists have the possibility to set their songs on Amazon to sell their products. Stationary retailers become less important. Platforms such as iTunes or illegal music downloads also lead to lost of revenue for retailers. Streaming services like Spotify give costumers new opportunities to consume music. For labels it is important to build up contracts with digital company’s like Pandora or Spotify to be present in the market.

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