Research Approach

We have taken a fairly broad approach to our research question by looking to a variety of different avenues for information. These include:

* Online academic articles
* Statistics (graphs, tables, reports)
* Interviews (professional musicians, music industry professionals)
* Music blogs, both academic and non-academic
* All research and conclusions to be hosted on our blog, Future Notes.

Our research question

Despite their attempts, it is still evident that record labels are slowly but surely losing the fight. It seems the only way forward is to embrace online music use and work it towards their advantage.

This brings us to our research question:

How can record companies and signed artists better utilise the online music market to make money?

How have record companies responded?

Record companies have tried to adapt to the changing music industry in small ways. EMI, for example, recently made all their digital music Digital Rights Management (DRM) free. This means there are no longer restrictions embedded within EMI song files that limit the number of times the song can be copied, transferred to burned to CD. It also means there is no restriction on what devices will play digital music owned by EMI.

iTunes is another figure who has utilised this idea by introducing the iTunes Plus DRM-free service. iTunes now offers DRM-free songs, which cost $2.19 per track and have a higher sound quality because they are encoded at 256 kilobits per second (kbps), in contrast to tracks that do have DRM and cost $1.69, but are of lesser quality.

And, of course, labels have been offering legal download of their music that users must pay for, similarly to iTunes.

The growth of the digital music market

*Click image to view full size version.

Since the introduction of iTunes, the digital music market has only grown. The above statistics from the London-based International Federation of the Phonographic Industry, or IFPI, indicate a further reduction in revenue for record companies due to the increase in popularity of online music use over the past decade.

The Recording Industry Association of America’s 2008 Yearend Statistics demonstrate that the total record sales in America have dropped by 18.2% since 2005. While downloaded singles have increased by 27.6% from 2007-2008 and downloaded albums by 33.9%, the CD as a physical commodity has experienced a radical drop of 26.6% in dollar value from 2007-2008.

Major record companies have also expressed concern for the current state of the recording industry. According to Charles Goldsmith's aforementioned article, EMI, whose roster includes Coldplay and The Rolling Stones, reported a net loss of 71.6 million pounds from 2003-2004. Its shares also dropped 20% in 2005 in London to a low of 212 pence. Recording giant Warner Music has also suffered in recent years, with company stock falling from $17 to $15.47 in 2005.

Other factors that have led to financial losses for record labels include platforms such as such as Myspace and Youtube. These have allowed artists to market themselves for free, no longer having to rely so heavily on record labels for marketing and distribution. According to Nick Phillips, Vice President of A&R at Concord Music Group, one of the world's largest independent record labels,  major music stores such as Tower (USA) and Virgin in New York have closed down due to sales losses. The issue of illegal downloading and piracy have also contributed significantly to the problem, as have independent websites offering free downloads that do not supply royalties to the music’s rights holders (i.e. artists and songwriters).

Introduction of ITunes

In response to the growing popularity of digital downloading worldwide, Apple launched online music store iTunes in the U.S. in April 2003. iTunes Music Store offered a range of possibilities, including being able to download a single song for 99 cents, rather than having to purchase the whole album. This saw a sudden peak in single hits, which completely undid the concept of the album.

Charles Goldsmith reiterates this point in his 2005 article Apple’s IPod Success Isn’t Sweet Music for Record Company Sales on Bloomber.com, stating, "In the digital era, the "unbundling'' of CDs through the purchase of individual tracks lets consumers pay far less to get a few of their favorite songs rather than buying an entire album.” 

One of the first legal methods of accessing music online, iTunes offered investment plans for record companies, who could then receive royalties when their music was downloaded. iTunes also offered quality recordings produced by the artist, rather than recordings illegally downloaded from a program such Napster that were often of poor quality.

iTunes, however, soon proved to be more beneficial to Apple than any of the record labels with whom it associated. According to Goldsmith, Apple soared while music stocks declined. iTunes Music Store accounted for only $265 million of Apple’s $3.68 billion sales in 2004, meaning that the majority of the profits Apple were receiving were from other avenues such as iPods and iPod accessories – these all went straight to Apple. In addition to this, record companies were only receiving 65c per track, from the initial 99c iTunes selling price. And selling 10 digital songs on iTunes meant a loss of 20% for record companies than if they sold an album wholesale at $10.

Record companies losing money since late 1990's

The Recording Industry Association of America’s 2002 Yearend Statistics demonstrate a steady decline in both CD production and sales. As we can see from the chart, the manufacture and shipment of physical CD’s decreased by 8.9% from 2001-2002, as a result of a loss of 6.7% in sales. This was largely due to new computer technology that sparked an increase in music piracy such as CD burning. The climbing popularity of digital downloading from illegal software such as Napster was also a highly contributing factor. Napster was hosting approximately 4 million users per day until its demise in 2001, and played a significant role in the decline of record sales during this period.

PROJECT BRIEF

Background

• The music industry holds an interest for us in terms of future employment, therefore its future is relatively important to us.

• It seems that the music industry (record companies, artists etc) are at a kind of crossroads where the music industry is perhaps lagging behind technology, and as such it has become increasingly difficult for record companies and artists to make money from music (Due to file sharing and consequent lack of CD sales; record companies/artists being currently unable to make the same money through digital means as they were from CD sales).

• Developing ideas about the future of the music industry would be good for future endeavours.

Aims

• To develop a comprehensive knowledge of the current music industry landscape

• To identify possible developments in the music industry with respect to new ways of money-making (distribution, marketing etc)

Scope

• This study will trace recent developments in the music industry with the intention of predicting what the future holds for record companies, artists and consumers.

Research Questions

• Are record companies and artists taking full advantage of the online music market?

• How can record companies and artists take better advantage of the digital realm in terms of distribution and marketing?

• What are the new that may emerge for money-making in music?

• Are there any untapped opportunities for money-making in music?

Research Design

• Interviews with: - Band members

- Record industry professionals

- Consumers

- Marketers

- Digital experts

• Looking at record company sites & existing distribution sites/platforms

• Articles: research journals, newspapers, music blogs

Outcomes:

• A report documenting the project, including data collection, analysis, research conclusions and recommendations.

The report will be presented on a blog, with links to other research and examples of pre-existing models of online music.

Possible answers or solutions to the research question.

Throughout the project, individuals will also be using their blogs to document the projects progress.

Time - line

• Start late March

• Finished and submitted June 12th
  

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Why research the future of record companies and signed artists?

Since the advent of digital music in the late 1990’s, record companies have been experiencing serious declines in revenue. This has been due to increased access to free digital downloads, as well as file sharing. Such declines have inevitably affected signed artists, who have also seen a drop in income due to online music access.

As Media students as RMIT University in Melbourne, Australia, we are interested in pursuing careers in the music industry. Thus, this research is directly relevant to our future endeavours as media professionals.