Monetizing music in the post-scarcity age

1Executive Summary

On-demand streaming, in particular Spotify’s version of it, has been one of digital music’s recent success stories, but that success has come at the cost of a fierce debate over how much streaming music services cannibalize sales. And while it’s a valuable debate, it’s only part of the narrative of a much broader transition in content consumption: the shift from the distribution paradigm of analog media business models to the age of on-demand digital consumption.

This research note discusses that shift in light of the current music industry, where the iTunes digital download leads the market but will not necessarily lead in the future. Rather, services like Spotify, Facebook, Topspin and others are taking us into a new era of music, one that’s dynamic, interactive, social and curated.

In the analog era, media consumption was characterized by the ownership of linearly programmed physical formats we leaned back to consume. In the digital age we lean forward and interact with content, and we value access to it as much as we do ownership (see Figure 1). Crucially though, access to stock is on an upward trajectory, while that of ownership is creeping downward.

Figure 1: Music products still catching up with dramatic changes in consumer behavior

Music products still catching up with dramatic changes in consumer behavior

Source: GigaOM Pro/Mark Mulligan

The root cause of this situation is scarcity or rather the lack of it. Scarcity is what enabled the music industry to create a monopoly on the supply of music. The industry decided when and where people bought music and how much they paid. The only alternatives were poor-quality cassette copies or the radio. Value was determined by the price tag.

CD ripping and Napster together changed that in an instant, throwing scarcity out the window once and for all. Now music fans expect to listen to music they have never owned at the click of a mouse or the touch of a fingertip. P2P file sharing and YouTube have taught consumers that all of the world’s music can be listened to without spending a dime. Music fans have chosen for themselves what constitutes value, and more often than not monetary value is divorced from emotional value, a dynamic unthinkable in the analog age. More than a decade’s worth of user behavior cannot be undone, and these are the expectations future music services must meet.

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mark-mulligan

Mark Mulligan

Co-Founder and Analyst Midia Consulting

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