The Future of the Music Industry, and How Record Companies Should Respond

by Haris Krijestorac on March 3, 2011

The State of the Music Industry

Due to today’s rapidly evolving online distribution channels and interactive marketing techniques, record companies are in a position to leverage these changes by staying ahead of, and not merely following the latest marketing trends. In light of this, the marketing initiatives of record companies should be based on extrapolations of current trends in the music industry, and they should produce a marketing mix that is based around around future changes in the industry. The fundamental assumption of the following hypothetical marketing plan is that there are two possible doctrines record companies can follow. The first is that they should attempt to gain control, for example through direct legal regulation, of the influence of technology and particularly the Internet on music consumption. This marketing plan, however, suggests the alternative. Record companies should and in fact can compete under these changing conditions. This view has been supported by Apple CEO Steve Jobs, who claims: “You’ll never stop [piracy]. So what you have to do is compete with it”. Disrupting the natural forces that are shifting music consumption is difficult and costly. Attempts to counter these trends have been met with almost no success, and will become even more cumbersome as technology advances. The following is an overview of the marketing mix (under the framework of the traditional 4 P’s) that music distributors are beginning to emulate. Each of the four elements in this mix reinforces the others in that it agrees with and substantiates this assumption.


In order to market its music, it is important for companies to look at extrapolations of current trends of music as a product. The ‘Long Tail Effect’ has caused the culture of music consumption, as well as that of many other products, to be transformed from one characterized by a monopoly of hits to one in which hits emerge within niches. This has transformed the definition of a ‘hit’, and ‘hits’ under their older definition are dying out. Contemporary ‘hit’ equivalents are falling under the umbrella of ‘mainstream music’. American examples of these artists from my own teenage years would Britney Spears, The Backstreet Boys, and ‘NSync. Music with such generic appeal is now inherently targeted towards the lowest common denominator of consumers. Our current culture of hits within niches really leaves room for no other characterization of ‘hits’ under their older definition. The waning interest in the Grammy awards ceremonies, a hits-driven music event, is a visible manifestation of this trend. In fact, the current music industry has already begun to adjust to this trend, as boy bands and female teen pop singer stars are either becoming less prominent or are evolving into niche artists. Justin Timberlake, for example, managed to remain popular through alienating his previous fan base, abandoning his pretty-boy, boy-band image in favor of one of greater maturity. In signing new artists, record companies must account for our transforming definition of hits. Instead of asking ‘how many people will buy this’, they should focus on artists that have the potential to effectively penetrate a niche. If I look back at the bands I have been enjoyed through my years, most were liked only by a small but definable niche among my social network. I personally listen to some of the most obscure ethnic music that someone of my age would listen to. Nevertheless, I have found a bond among my fellow ethnic friends to whom I have introduced my collection and who have likewise shared theirs with me. In many ways, we enjoy being defined as part of this musical niche in the same way that we enjoy being part of a social group. In my generation, I don’t believe that there has been a supergroup that has taken everyone by storm for a long period of time – as was the case with Led Zeppelin and The Beatles. Music in its ‘physical’ form will not die out in the foreseeable future, but is likely to decay in popularity over time. Some member of my own generation still prefer CD and even vinyl format. The purchasing and collecting of music in these now almost ‘primitive’ forms is even ingrained in the culture of some music scenes, such as the New York underground punk scene. I still buy CDs because I consider the packing, artwork, and lyrics to be an essential component of the product and artistic statement. Although MP3 technology and downloading has increased the exposure of music in our everyday live, I would argue that it has done so while decreasing the enjoyment of music in general. In the 70s, the mere dropping of the needle on a record player was an experience! Torrents, large hard drives, and iPods have all contributed to the current over-saturation of music, which in turn has decreased the enjoyment per unit of exposure to music. Some agree and will continue to do buy music in CD and vinyl form. Record companies should cater to these valuable customers by maintaining and inventing new benefits of the physical copy – namely appropriate artwork, and perhaps bonuses such as stickers. Furthermore, they can ‘version’ products to add exclusive bonuses, such as additional artwork, to their physical copies for devout fans.





The combination of improved means of distribution, the placing of means of production in the hands of consumers, and the Internet’s facilitation of information transparency has allowed consumers to experience the pleasure of choice. More products are being produced, they are being distributed to their target markets more effectively, and consumers are able to easily view their options in terms of product as well as price. The trend of providing choice has existed before the advent of the Internet; however, the Internet has greatly accelerated this trend and made it more visible. A less contemporary example of providing choice is that of product catalogs. Consumption increased when consumers gained the option of selecting from a large inventory of goods, as opposed to being restricted by the physical space of a store. Although the music industry has begun to accommodate this level of choice through its distribution, it has not given enough attention to the factor of choice over price. With the current free downloading methods available such as BitTorrent, consumers have the power to choose any price to pay for their music – including 0! Fighting this would require a difficult clampdown on these methodologies on the part of record companies. Instead of resisting, they can indeed use this trend to its advantage. To give users more freedom to choose their price, record companies can use this momentum in their favor by adopting a ‘pay what you want’ system for digital products. Consumers have shown that granting them the power of choice results in their increased willingness to pay. Downloading music for free can be seen as a form of rebellion from the pricing confines of the current record industry. The success of Radiohead’s distribution of their latest album, ‘In Rainbows’, under such a pricing methodology is a testimony to this statement. Although no official numbers were released about sales, the band claimed that it they made more money within a few months of selling ‘In Rainbows’ under the ‘pay what you want’ framework than they made selling their previous album.





Because the means of distribution is shifting towards the Internet, EMI should synchronize its promotional strategies by making them Internet-based as well. Furthermore, it should exploit the interactive marketing means that the Internet provides. With the means of music production falling into the hands of consumers, the Internet has empowered these consumers to interact with music in new ways. Innovative viral marketing strategies can create new sales opportunities in addition to a better brand image. A recent example of a music marketing strategy that exploited this fact was Radiohead’s ‘Nude Remix Competition’. In this contest, Radiohead’s label sold the individual instrument tracks of their song ‘Nude’ as songs. In return, they created a forum on their website in which people could post remixes of the song that they construct from these instrument tracks. Fans could stream and rate these remixes, turning it into a competition. Part of the fun was, of course, that Radiohead themselves would be listening to these tracks, and it gave small producers a rare chance to show their talents to a band they admire. EMI should look to implement strategies that similarly engage consumers while encouraging them to buy a product or market an existing product.


As previously discussed, the Internet is increasingly becoming the prominent medium through which music is obtained. Instead of resisting this omnipotent force, record companies must focus their own distribution on Internet channels. Music consumers are increasingly being helped in finding their niche through Pandora and other music recommendation systems. Record companies should therefore partner with and establish their presence within these systems to facilitate direct song purchases (either physically or digitally).

Conclusion: The next steps for Record Companies

Record companies now have the opportunity to distinguish themselves as innovators within the music industry. They must use their analyses of the current trends of the music industry to look ahead and see what is next. Marketing strategies should work with and leverage this foresight.

This post originated on Marketing Information Systems, a blog by Haris Krijestorac.

To continue learning how to better align technology, people, and processes for marketing success, subscribe to this blog and follow me on twitter.

{ 1 comment… read it below or add one }

Asian Tv May 21, 2011 at 3:39 am

There are a few other challenges that are sure to arise from trying to tackle the technology problems such as budgeting, how much a technology solution cost to develop? Well, that depends on what analytics and data solutions you are currently using and if you already have any technology solutions in place that allow them to communicate with one another. As you can see, developing technology solutions is not an easy task, it definitely takes work to get done but it should be a very rewarding endeavor as this should also help your company understand the value of marketing investments as well as the value from social media.


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