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The New Music Industry

As we’re sure you’re aware, the music industry is in the midst of some serious changes. From Napster to iTunes to Soundcloud, it’s been quite the decade!

For many this change is quite scary and unnerving - with the old template no longer functional, many yearn for the industry of the past.

We at Amp, on the other hand, are incredibly excited by the New Music Industry. We are passionate about the internet, about social media, direct-to-fan marketing and low cost digital distribution. We fully intend to exploit every opportunity that these new tools provide.

The music business, however, isn’t the only field that has been dramatically impacted by the rise of the internet - there are two other significant, converging trend waves upon which we ride.

The Rise of Permission Marketing

Traditional marketing was about interrupting the regular day of your target audience with a message. If you shouted your message loud enough, to enough people, the hope was that someone would buy your product. The democratizing power of the internet has changed this communications model forever. Now the channels have been opened for the “audience” to talk back, to tell you what they think, what they don’t like and what they do. Modern Permission Marketing approaches acknowledge this two-way conversation. Seth Godin, the expert on the topic, puts it like this:

Permission marketing is the privilege (not the right) of delivering anticipated, personal and relevant messages to people who actually want to get them.

It recognizes the new power of the best consumers to ignore marketing. It realizes that treating people with respect is the best way to earn their attention.

Real permission works like this: if you stop showing up, people complain, they ask where you went.

I got a note from a Daily Candy reader the other day. He was upset because for three days in a row, his Daily Candy newsletter hadn’t come. That’s permission.

Permission is like dating. You don’t start by asking for the sale at first impression. You earn the right, over time, bit by bit.

Permission marketing is coming of age because the internet makes it much more possible. The “fanclub” is no longer  the exclusive domain of huge acts - it is a concept open to artists of all shapes and sizes. Tools like Facebook, Twitter or online forums make fan interaction and engagement easy, efficient and cost effective. Without needing to have huge advertising budgets, musicians can easily connect with fans and get their permission to market music, tickets and merchandise to them.

Permission is an asset that we help musicians build.

The Shift from Atoms to Bits (to Atoms Again)

Chris Anderson, in his book Free (don’t let the title scare you!), attempted to get the world thinking about the effects that the shift towards an online ‘culture of free’ will have on society and industry.

We like to concentrate on the Economics. When music shifts from being sold on plastic CDs to being sold as MP3 downloads, the economics involved undergo a massive rewiring at a very fundamental level. This is more than just a new distribution channel, it fundamentally alters the product being sold. Let’s contrast these two products - the one that you sold in the past versus the one you will sell in the future:

A Physical CD: Each CD unit costed you money to produce. If you gave away 100 CDs for promotional purposes it costed you more than if you only gave away 10. It costed around €5 ($7) to press, package and distribute a CD, so nobody in the industry could sell lower than this and still make a profit. If the consumer wanted to own your music, they had to purchase this plastic CD, because there was a cost involved in each unit.

An Album Download: MP3s have no reproduction costs. It costs you no more to give away 100 Mp3s than it does to give away 10. It is virtually free to distribute an MP3, so if you don’t give it away for free, a competitor can (and will). If the consumer wants to own your music they can acquire it for free, as there is no cost involved in reproducing an extra MP3.

All of this is being discussed purely within the sphere of economics (not morals or rights). We’re not too concerned with what consumers “should” pay for, but what they will pay for.

This is the paradigm that we help musicians face. There is nobody at fault here and there is nothing that can be done to stop the changes that advancing technology bring. This is the reality:

In the past, music had to be consumed attached to a physical product which was scarce relative to demand, and could therefore command a price. Music can now be consumed as a digital good, which has no cost of reproduction and is infinite in supply, and therefore commanding a price will be tricky.

The Business Model comes when we accept these changes and truths and instead of fighting against the tide, we go with it. That’s why this section is titled “From atoms to bits and back to atoms.” The music industry has always used these intangible, digital assets to its advantage. Radio play, television interviews, advertisements, music videos - these all had a cost of production, but we never charged fans for them. They were used to sell (and increase the value of) scarce, physical products like albums.

We are increasingly seeing that the best use of digital music is as an advertisement, as a draw for fans, as a way to connect with an audience and as a way to make other scarcities more valuable. What are these other scarcities? They are things like concert tickets, merchandise, access to an artist, limited edition physical releases, time & convenience (which is pretty much what iTunes charges people 99c per song for), box sets and DVDs.

Mix It All Together

Exploiting these two rising tides is where we see the best opportunity in the music business of the future. We encourage and help musicians to use any digital assets they have (or can produce) to get attention, find an audience, connect with fans, get their permission and sell them high-margin, scarce goods and services.

If you’re interested in discussing any of this over the phone, in person or by email we’d love if you get in touch (our contact details are here).

If you want to see a more detailed overview of how we help musicians, please have a look at our services page.