Friday, November 16, 2007

Rethinking the Music Industry Business Model

First, treating all your customers as criminals doesn't create much loyalty or willingness to buy your product. Especially in a market where the product is based on being a fan, not filling a need. You want your fans to be happy -- not pissed off. Second, the basic economics are there. On the supply and demand curve the supply of digital goods is infinite, meaning that the trend over time will absolutely be for the price to get pushed towards zero. It's just the way the market works. That's not a bad thing if you embrace it and recognize that, rather than lost revenue, free content represents free promotion. After all, the hardest part of becoming a success in the music business is the marketing to get your product known. The third, and final, aspect of this is how new technologies have dramatically decreased the costs of every other aspect of the music business. Creation, publishing and distribution are all now much cheaper due to the onward march of technology, forcing a shift in how we think about copyright issues. Based on all of this, it's not hard to come up with a variety of different business models that are based on (1) using the music as a promotional good to get a lot more attention in a crowded market (2) offering customers what they want, and offering them plenty of different ways to get it and (3) building tremendous loyalty from happy customers who feel much closer to the musicians and are much more willing to spend money on secondary products (merchandise, concerts, access).

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