Business Model Alchemist

It was fun to give a keynote on business model innovation at Eurosonic Noorderslag, Europe’s most important live music industry conference. The music industry is more or less a playground (and battlefield) of new business models

In this second blogpost (read part I) on the music industry I present two of the examples of innovative business models in this area, which I presented during my keynote talk: Sellaband and Spotify. Both companies were actually present during my presentation.

While in the past the music industry was characterized by one dominant business model design (the one of the major recording companies), the future will be characterized by multiple competing business models.

There was also an interesting discussion in the panel after my talk, which hosted Nokia, Spotify and rights holding company Buma/Stemra. One of the elements pointed out was a the competition between business models based on ownership of music (e.g. download) versus access to music (e.g. streaming).

Check out my slides for an illustration of Sellaband’s and Spotify’s business model:

Next week I’m giving a keynote on business model innovation at Eurosonic Noorderslag, Europe’s most important live music industry conference and showcase festival for new talent.

While the music industry provides sufficient material for a whole book on business model innovation, I will simply package some thoughts in two blogposts. The first part is on “what’s broken”. The second part will be on the fact that

Today’s music industry is a business model playground – and to a certain extent battleground

It is quite a particular industry because of its high concentration of power. 85% of the recording industry, the most important subset of the music industry, is controlled by only four players, Sony Music Entertainment, Universal Music Group, Warner Music Group, and EMI (source 1, 2). That didn’t prevent them to screw up when it comes to business model innovation. In fact, it probably is one of the root problems.

Check out the slides below for a brief outline of the “old” recording industry business model and an assessment of where it is broken. After reacting only slowly to the external pressures on their “old” business model the major record companies are now slowly experimenting more seriously with new models (topic of part II of this blogpost).

Although the major record companies are engaging in new business models, I don’t think they are aware of the extent of flaws in their “old” model. Some points that their executives should keep in mind when they brainstorm on new models:

• Recording companies are fighting piracy, while that won’t win them “the battle”.
• Albums sales are out in the digital world – they are unbundled into single songs (e.g. iTunes).
• The price of albums and songs (not necessarily music in general – e.g. services) will inevitably move towards ZERO.
• Distribution has become a commodity because of the Internet, attention is the new scarcity.
• Talent and hits will be discovered by other mechanisms than those that the majors have in place – social networks are what drive music sales today.
• The old model carries an outmoded legacy cost structure (talent discovery/marketing), which is unsustainable.
• The balance of power between recording companies and artists is inevitably moving towards artists.
• The future of music is all about hits AND the Long Tail of music.