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4.1 - How and why has the internet changed the music business for record labels such as 2AM in terms of the marketing mix? 4.3.5 - How and why has the internet changed the music business for record labels such as 2AM and why is this a communication problem? The goal of this thesis is to solve this communication problem, which is done in the solution section, after developing a proper understanding of the context and reality of the problem. The answer to the question "how and why has the internet changed the music business for record labels such as 2AM and why is this a communication problem?" provides the context in which the solution is later developed. Product: the physical product has also become digital (note that it has not been replaced).
4.1 - How and why has the internet changed the music business for record labels such as 2AM in terms of the Marketing Mix? This section answers the sub-question "how and why has the internet changed the music business for record labels such as 2AM in terms of the marketing mix?" It explores various dimensions of the problem which are referred back to in the section regarding the solution.
A unique selling proposition is the identification of that which makes your product unique; why this product and not the competitor's? Using the marketing mix immediately focuses the research on the communication management aspect of the problem and delivers a clear structure in a blurry field of study. This section looks at how the marketing mix's place pillar has been changed by the reality created by the internet. What makes place so important for music is that developments in place or distribution have always determined the product and the business model.
Historically, the distribution via radio meant royalties and new ways of getting discovered. These developments in place have always created new hybrids in business models, marketing practices and product development, but have also created new ways in which fans and artists could interact.
The 'list' of places, distribution channels and distribution methods is more or less endless, which is why the most important groups and trends have been highlighted. One of the most important components of the music business in the last 50 years was the ability to sell music as a copy (live performances, media appearances, music videos, merchandise, etc. It all begins with the MP3—consumers' most popular music format (by volume) nowadays I assume, as opposed to the CD in the mid-'90s. MP3 technology allows people to compress music into digital files which take a lot less space than the original.
The digitization of audio means that anyone can make as many copies of however much music they want and distribute it at an almost negligible cost.
As pointed out earlier, filesharing has become increasingly popular in recent years, but not only the number of filesharers has risen. Figure 1: Percentage of total market value of physical versus digital sales, according to the RIAA (Recording Industry Association of America, 2009). This graph shows that digital distribution, as place, is becoming increasingly important and the physical 'place' less important.
Also interesting in this graph is the fact that illegal downloaders are more likely to stream music online than CD buyers.
A report on music consumption in 2008, by NPD Group Inc., also showed some interesting statistics regarding changes in music consumption and the place.
46% used social networking sites to download or stream music—an increase from 26% in 2007. Web 2.0 refers to the social web, where online media and websites become platforms facilitating interaction from user-to-content, user-to-content-creator, and user-to-user.
Social networks offer ways to connect with other people, which to artists means connecting with existing or potential fans. Aforementioned research (see Figure 1) suggests that digital purchases are on their way to overtake physical purchases, but where are these purchases made? Digital music stores sell music online, the defining characteristic of this music being that it's delivered digitally. Ways of distributing one's music to most of these stores, as well as other popular digital music stores are services like Routenote and TuneCore, which, for a certain fee, take care of distributing your music to music stores around the web. Previously mentioned research into how US teenagers consume music shows that sales are down, illegal downloads are down, but streaming is getting more popular, but what is streaming? Streaming is the real-time delivery of content which is not hosted on the recipient's computer. Streaming sites and services offer people a way to listen to their favourite music, but also a way to discover new music. There are two main types of music blogs: MP3 blogs (mainly offering MP3s) and music review blogs (mainly offering criticism). Most music blogs, however, lie within the grey area between these two extremes and offer a multimedial experience, sometimes with a download or stream of a music file, or embedded video content from YouTube for instance. Blogs that are more music review-oriented tend to focus more on the review, but try to offer streaming audio or video so that the readers can preview it themselves. This section explores how the shifts created by the internet have affected the price of music products. Like in the previous section, this part mainly approaches the topic from the perspective of music as a copy. The first principle at work, as we saw in the previous section, is that it's now possible to copy and distribute at negligible cost. This does not necessarily seem relevant for 2AM directly, however one should bear in mind that as our internet connections get faster, people will no longer want to store music on their computer, just like they don't store music on CDs. Aforementioned Chris Anderson has written and spoken a lot about this topic and gets support from many experts. What this means for music publishers and artists is that he's saying: publish everything and don't be too selective.
This ties in well with the solution, where you will read more about the Economy of Abundance later. The concept of something becoming free (or feeling like free) leading to a decrease in value is an often repeated logic in the music business and needs to be addressed. A report by the trade group Recording Industry Assocation of America reveals that as (physical) CD prices dropped 9% between 1996 and 2006 (inflation-adjusted), concert ticket prices rose 86% (RIAA, 2007), suggesting that that which is easy to reproduce reduced in (commercial) value and that which is not easily reproduced has actually gained commercial value. Some are even suggesting a more radical drop in price for that which is easy to reproduce (this is where the financial cost versus mental cost discussion returns). The devaluing-the-art argument misses two other important points: First, coffee and water bottles can't be downloaded quickly and anonymously at no cost, while digital music can. This section takes a quick look at how promotion has been changed, but the way in which promotion has changed will be discussed in much more detail in the solutions section. The digitization of music, the reality of filesharing and social networking sites have increased the importance of 'word of mouth' promotion and have changed it to 'word of mouse.' Unlike word of mouth, which worked from person to person, word of mouse uses aforementioned networks to broadcast to groups of people. The reach of one particular bit of media (which a promotional video or ad is), has thus been increased a lot. The channels of distribution are also channels for promotion, since they offer ways to get discovered. One negative consequence might be that the means for promotion have been democratized, which means every artist can (and probably does) now promote him- or herself. The previous 3 Ps have all had their impact on the most fundamental P, the Product (and in the solutions section, this will become even more apparent). Developments show clearly that as a successful musician, you no longer have your CD in just a few shops per city. The only other thing pertaining to the product that I would like to discuss here is the public's attitude towards buying music from unsigned artists or artists signed to indie labels compared to that of the artists of major labels. This difference in willingness to buy from major labels compared to unsigned acts is relevant for 2AM, because they're an independent label that has had their work released via major labels, but it has a lot of flexibility in terms of image.
In order to add more depth to the problem and solution, I conducted empirical research for this thesis.
During my research I've spoken to a lot of people about the music business—both insiders and absolute outsiders. One would assume that it's mostly young people buying digital music, because of being digital natives and perhaps being more comfortable with buying music online, but this is not true. Assumption: Fans of electronic dance music buy music in different places than the average consumer.
Assumption: Music blog readers are more likely to purchase music, because music plays a bigger part in their lives than for the average consumer.
What stands out is that the difference between people who say they regularly read blogs and the other groups, is noticeably bigger when it comes to purchasing physical copies, than with digital copies. According to some music industry reports I've read for this thesis, music piracy is a huge problem. 2 - It's more important to me to attend an artist's live show than it is to acquire their music legally. The first statement shows that when asked, most, though only 54.1%, of the people are willing to buy music online. Statements 3 and 4 partly speak for themselves (one assumption brought up in the product section was that people are more sympathetic (financially) to unsigned bands, than major label acts), but what's more interesting is what happens when they're linked to another tested statement. When people that claim they do know what label their favourite artists are signed to were confronted with statement 3 and 4, the results changed quite a bit.
This reveals that people that have a sense of what labels their favourite artists are signed to, feel more strongly about purchasing music, than those people who don't. According to the music industry lobbies, digital music sales are not enough to replace the physical sales loss. In terms of the marketing mix, the top reasons mainly pertain to place, with the exception of those who think it's too expensive which refers to price.
The way in which the survey was spread (see the methodology for more info) has created a non-representative sample of the global music consumer.
The primary reason for analysing survey results specifically for 20–24 year olds is because of 2AM's current demographic. Unfortunately, when filtering it down to 20–24 year old Bulgarians, only 14 cases were left, which would not be a representative sample to base assumptions on. The most important information has to do with the way these 20 to 24 year olds consume music. Note that traditional channels (place, but in some cases also product) have almost completely been replaced with new means. Respondents were allowed to tick between 1 and 3 answers, which is why the percentages in these lists amount to over 100%. People that frequently use filesharing networks to download music are often labelled 'pirates.' This group would not have existed without the developments in distribution. A pirate cannot be defined by music purchasing behaviour, as can be seen in Figure 9 and Figure 10 (which are place and product intertwined). This group consists solely of people that use social networks at least daily and whose first preference either lies with MySpace, Facebook or Twitter (note that this means that this group is formed on the basis of place; communication channels).
People that don't use social networks daily also purchase digital music less often than daily social network users.
This section looks at the results from the empirical research that looked into the problem. For 20 to 24 year olds, the traditional channels for listening to music have been replaced with new channels: computers and portable devices. Daily social network users buy physical and digital copies of music more frequently than those who don't use social networks daily. In figure 5 music blog readers showed a higher likeliness to have recently bought a physical CD than people who don't read music blogs regularly.
Most people think it's not important to buy music, as shown by statements 3 and 4 in table 1. The fact that people regularly engage in peer-to-peer filesharing ('pirates') does not mean they don't purchase music. Figure 3 and figure 4 show that the ratio of people who have never bought a CD increases per generation.
People have different expectations and desires when it comes to the price of music, as can be learned from statement 5 in table 1.
Table 2 shows that people that know what labels their favourite artists are signed to also think it's more important to buy their music. Now let's take a look at these results integrated with the theoretical framework in order to answer the research question. As with the theoretical framework section, this section is split up into the elements of the marketing mix.
This streaming plays an important part on social networks as well, where streaming audio seamlessly embeds into pages and users can broadcast their favourite songs to one or all of their friends (and anything in between). The internet also created digital music stores, where you buy digital copies instead of CDs and just like with physical record stores; different niches have different places.
The loss of control and the fact that music is freely available has given a lot of consumers the feeling that music is free. Because of the previous trend, the music business has changed from marketing scarcity, to a place where one can market abundance. This trend flows over from the loss of control and feels like free trends mentioned earlier.
As mentioned in the conclusions of the empirical research, most respondents thought it was not important to buy music.
This is the key trend in my eyes and after reading the solutions section, you will understand why. The survey showed that there is a clear bias towards unsigned artists when compared with artists signed to the major labels. Obviously there is a lot more to say about promotion, but the opportunities that have arised in promotion actually form the key to the solution.
These four P’s are the parameters that the marketing manager can control, subject to the internal and external constraints of the marketing environment. In the context of the marketing mix, promotion represents the various aspects of marketing communication, that is, the communication of information about the product with the goal of generating a positive customer response. The marketing mix framework was particularly useful in the early days of the marketing concept when physical products represented a larger portion of the economy. I haven’t checked in here for a while because I thought it was getting boring, but the last few posts are great quality so I guess I’ll add you back to my daily bloglist. The basic major marketing management decisions can be classified in one of the following four categories, namely Product, Price, Place (distribution) and Promotion. Product: It is the tangible object or an intangible service that is getting marketed through the program. Promotion: This represents all of the communications that a marketer may use in the marketplace to increase awareness about the product and its benefits to the target segment.
So how does a marketer strategize to attain success in a marketing program, using these 4 P’s? Offering specificity introduces the contextual customization of what needs to be done to address the questions raised in each of these 4 Ps of Marketing.
The marketing mix is the unique combination of pricing, promotion, product offerings and distribution system (place) to reach a specific group of consumers (the target market). To better understand the marketig mix click on the below link to see a brief summary of the marketing mix for NIKE. Statement – Successful companies have different marketing mixes for different products.

Services can range from financial services provided by the banks to technology services provided by the IT company or hospitality services provided by hotels and restaurants or even a blog where an author provides a service (information presentation, interesting reading etc) to his audience.
While everyone knows about the 7 Ps of services marketing, the 8th P of Services Marketing has emerged in research very recently. In integral services management, improving productivity is a requisite in cost management; but quality, as defined by the customer, is essential for a service to differentiate itself from other providers. It has been recognized that overall profitability of a firm may be greatly impacted by focusing on not only at the top-line by improving sales but also focusing on the bottom-line by lowering over-all cost of delivering services. It has also been established in research that process improvements deliver better standardization and hence better quality in services. Also did you read our article on the The 4 P’s of Marketing – The Marketing Mix strategies from which the 7 P Marketing Mix theory actually evolves? To be able to properly answer the research question "how can 2AM effectively market their music to fans by using the web?" one must gain a wider perspective on the problem addressed by this research question. The first part looks at previous research, reports, news articles and expert opinions about the problem.
The answer is explained in terms of the marketing mix model, which consists of 4 pillars: place, price, product and promotion.
It investigates the ways in which the internet and the digitization of music have impacted the music business. Some brands and shops price low to sell as high a volume as possible; to outsell competitors. While reading the rest of this chapter, it will become evident how the product has changed, sometimes unbeknownst to the original producers. On the basis of these variables (price, product, place, promotion), the following section will analyse the way the digitization of music has impacted the music business. Place is not just the static location of the end-product, but also refers to the entire dynamics of the distribution of a product or service, from the creator to the consumer. Originally, music could only be played live, so the place would be the location at which the music was being played.
The distribution of recordings and the advent of mass media and consumerism meant the creation of the enormous music industry we have today. For this reason it is difficult to draw a clear line between the industry of the past and the way things work now, because the marketing mix of the past has been integrated (or evolved) into the marketing mix of the present. These groups and developments include the digitization of audio, represented by the MP3, peer-to-peer filesharing networks, their effects on the industry's control of distribution, legal digital music consumption and digital music stores, social networks, blogs and streaming services (both on-demand and internet radio).
So MP3 allowed people to store 5 or 6 CDs in the space of one CD (both in cubic space, as well as in bytes). This means that while it gets cheaper for record labels to get the music to fans, they no longer have control over the distribution of music. One of the biggest online music stores nowadays, with over 830,000 paid subscribers in 2007 (Napster, 2007), Napster started out as an illegal peer-to-peer filesharing network. It let people download a free program they could use to distribute music amongst each other on a worldwide scale. Also, 'simultaneous file sharers' means that this is the number of people sharing files at any given time - not the total amount of people engaging in P2P filesharing. According to the aforementioned report by the IFPI, digital musical sales around the world are up 25%. This means that digital channels are becoming increasingly lucrative while physical channels, such as record stores, are becoming less important. As research by Interpret reveals in Figure 2, music pirates also buy digital music, although less often than ‘cd buyers' (Frommer, 2009).
The reason why I list this in place is because I think piracy has a lot to do with the convenience of certain distribution channels.
Most bands and artists already have a MySpace page, a Facebook fanpage and a lot of them also have accounts on Twitter.
The four biggest online music stores in terms of catalogue and sales are iTunes, Amazon MP3, Rhapsody and Napster (Routenote, 2009). For instance, when one clicks a play button online, the data is transferred as the song plays (instead of downloading it first and then playing it) and then removed from the recipient's computer's memory again. Music streaming services have various business models, such as ad supported music (like traditional radio), subscription models which allow people to stream in higher quality or quantity, premium models for added functionality, etc. It distinguishes itself from the above services, because unlike those, it doesn't have an on-demand function.
In this grey area, MP3 blogs write some information about the artists and the songs they offer in the particular posting. In the previous section regarding place, we already covered a lot of these effects, but now it's time to get into more detail.
Pricing has always been rather simple and predictable, every new popular album or single costing more or less the same (unless there's some special sale). He explains that even though it seems that the reality of 'free' is creating losses; there are big opportunities to make profits. This means that computers and portable devices, like mobile phones, will be streaming music from a service (like Spotify) instead of playing a downloaded copy. Before delving into business models, it is important to understand the meaning of having to compete with free. Among them is David Hornik, an intellectual property expert and venture capitalist involved in StumbleUpon, Aardvark, Six Apart, Gravity and other famous new media ventures (August Capital, 2010). A lot of the common medicine we use now, used to be a lot more expensive, but their value has remained the same or perhaps even increased due to their availability.
This has very important consequences for the marketing mix and will be discussed in the solutions.
Quite simply put, the way in which promotion has been changed by the internet has hardly contributed to the communication problem, but has immense consequences when it comes to the solution.
For example, an artist you follow on Twitter posts his new music video, where he has 2,000 followers.
Let's say someone does indeed have the aforementioned network size mentioned between brackets.
The most fundamental way in which music has changed is that it has gone from physical to digital. These are all attempts to solve the research problem, so they will be discussed further in the solutions section.
I have not been able to find any research into this, but over the course of doing this research I have participated in multiple group discussions about the music business and most 'consumers' were more sympathetic towards unsigned artists than major label acts.
If it seems that people are more inclined to spend money on something that has been branded 'independent' or 'unsigned,' then it might be interesting for 2AM to strengthen that image. Everyone seems to have their own assumptions about what the problem in the music business is and how it works. It was tested by asking when the last time people bought either physical or digital music was.
An important way in which the music industry wants to fight piracy is by educating consumers. When presented with the statement "downloading music illegally is not as bad as the music industry makes it out to be," nearly 60% agreed, whereas only 18.5% opposed. A lot of different people in the public arena have mentioned a lot of different reasons for why this is.
Just over 30% of the people that have never bought digital music cite that it's easier to download via peer-to-peer (P2P) filesharing networks.
Streaming mainly refers to the way music is delivered (place), but might also have to do with price and product (since streaming products are often free). For this reason it is useful to zoom in further and create groups and cross-relations, because those relations can provide more accurate insights than pure averages (besides, the pure averages can be found in prior research).
One reason which goes for all of the groups is that I've tried to look at the more digitally-oriented respondents, because of the topic of this thesis, but also because they're easy to reach with limited means and might be ahead of the curve in the digitization-trend. Especially the music discovery part of the solutions section will contain a lot about these groups, but first to find out more about the problem. The below graph shows information about the Facebook fanbase of Star Tattooed, 2AM's most successful project, based on a sample of roughly 750 people. My assumption is that pirates are probably digital natives and slightly ahead of the curve, which is why I wanted to take a closer look. Actually the chart above seems to indicate that there are two groups of pirates (maybe more).
Pirates buy digital music about as frequently as non-pirates (except when you add the sporadic buyers that only purchase 'a few times per year'). I've chosen to look further into this group, because it reflects the networked generation of digital natives, which are the people you will reach first when executing an online communication strategy. It also lists the averages for the users of Twitter, Facebook or MySpace (listed as Socnet Average) and the averages for people that don't make use of social networks daily. This is shown by the fact that fans of electronic dance music buy music in different places than the average consumer.
What stood out in reasons for never having bought digital music was the fact that it's easier to get it illegally.
There's a chunk of pirates who buy physical copies of music more regularly than non-pirates. This is most likely due to the fact that per generation, it has become increasingly unnecessary to purchase a physical CD in order to enjoy music. Perhaps this is because they have more disposable income or because they have formed a habit of music purchasing. This correlation could be explained by the connection between the artist and fan, which would explain both the fan's increased willingness to buy, as well as their awareness of the artist's label. This section summarizes the information of the theoretical framework and the conclusions of the survey to answer the sub-questions, which, when combined, answer the above research question.
Unless it's a review of an album or gossip talk, most of the stories about the music business in the news have something to do with this loss of control.
An IFPI report, mentioned in the same section, claimed that 95% of the music downloaded in 2008 was illegal.
This has to do with convenience again, because if you can just click a play button and the song starts playing, that's much easier than making a purchase, downloading a song, loading it into your media player and then finally clicking the play button to hear it. They're a relatively new type of distribution channel; a way to get discovered and to connect and the conclusions in the empirical research showed that music blog readers are more likely to have recently purchased a physical CD.
When looked at a specific genre (electronic dance music) the fans of this music bought their music at different stores than the average respondent. Streaming services like internet radio channels, YouTube and in the past offer users music at seemingly no cost. CD prices dropped, but concert ticket prices rose spectacularly, which suggest that that which is easily reproduced (abundant) reduces in (commercial) value and that which is not easily reproduced (scarce) has actually gained commercial value. When I tested if consumers thought this was a reasonable price they were evenly split, suggesting varying expectations regarding the price (see table 1). Internet has turned a rather rigid supply chain into a very liquid reality; music is no longer in a few shops, on the radio and TV - it is all over the internet, on mobile devices, available at any time.
This ties in to the price versus value discussion, where people in the music industry suggest that music needs to have a certain price to maintain its value, but what the solution section has to look at is how it can make music consumption more satisfying for the 'selfish consumer'. Research in the theoretical framework already showed that filesharers (often labelled 'pirates') do spend money on music. The primary research showed that the ratio of people who have never bought a CD increases per generation. Social networks, paid digital ads, digital music stores, newsletters, blogs, content-sharing sites like Soundcloud or YouTube and much more. Instead of writing the same things twice, most of what is to be said about this P is said in the solution section. What was a rigid environment before (at least in comparison to the current situation) has become a very dynamic environment. The goal is to make decisions that center the four P’s on the customers in the target market in order to create perceived value and generate a positive response. Today, with marketing more integrated into organizations and with a wider variety of products and markets, some authors have attempted to extend its usefulness by proposing a fifth P, such as packaging, people, process, etc.
This is one of the preliminary knowledge every marketer must have and is considered to be the basics of every marketing theory, which emerged henceforth. Tangible products may be items like consumer goods (Toothpaste, Soaps, Shampoos) or consumer durables (Watches, IPods). If the price outweigh the perceived benefits for an individual, the perceived value of the offering will be low and it will be unlikely to be adopted, but if the benefits are perceived as greater than their costs, chances of trial and adoption of the product is much greater. Promotion has four distinct elements: advertising, public relations, personal selling and sales promotion. Our authors are educators from top QS ranked universities and practitioners from multinational enterprises.
So the classical 4 P structure of the Marketing Mix needs to be modified suitably to incorporate the 8 Ps for services marketing, which was previously known as the 7 Ps only.
Services marketing are dominated by the 7 Ps of marketing namely Product, Price,  Place, Promotion, People, Process and Physical evidence.
In services management, often the variable costs are a lot more than fixed costs, and so incremental costs, if managed properly can have a huge impact on productivity. Quality perception is a crucial differentiating factor on services management and for long term sustainability of the same.
What is meant by 'problem' is the current situation and the specific difficulties it presents. This also means that music no longer has to travel via a publisher or a shop to reach consumers.
What was previously almost only attainable in its official form, has now become massively available in the form of unofficial (illegal) copies. Other brands price high to establish an exclusive image and compensate for selling low volumes. This has been drastically altered by the internet and has serious consequences for the other pillars of the marketing mix; price, promotion and the product itself, which will all be discussed later. This was followed by print music (which meant music could be distributed on paper) but the birth of the modern music industry came with the technology to record and play musical performances back.
One which spent the latter half of the 20th century setting up huge distribution chains to get music from the producer to the consumer—the primary way being via vinyl, tapes for a while and then CDs. The easiest way to show what has changed is by describing the developments in the last 15 years. For this reason, the problem definition section mainly approaches the problem from this perspective; music as a copy. It also has serious implications for the product itself, which is discussed further on in the problem definition.
A 'conservative' estimate dating back to July 2008 suggests that 20% of Europeans engage in filesharing, including via BitTorrent (BBC News, 2008). Digital revenue for the major labels has risen dramatically and is now composing 32% of the total revenue with regards to music sales and airplay, according to the Recording Industry Association of America (2009), as displayed in Figure 1.
Also, the creation of these new places (illegal distribution channels) has turned the industry upside down. This allows them to interact more directly with fans and lets them keep fans up to date on what they are doing from moment to moment.

Others to be considered by 2AM are 7digital, which doesn't distribute in the US, but is fairly successful in Europe, as well as Beatport and Juno Download, the two biggest music stores for electronic dance music, 2AM's main focus.
The defining characteristic is that the content is not stored on the recipient's device after they're done streaming. You tune in via the website or by downloading a link to their live stream and you listen live, just like with normal radio. The changes in place and the distribution of music created new expectations about price amongst consumers. It has not become scarce or disappearing as their price fell; they became abundant and more widely used.
If they did, they would look down on artists who give away free MP3s and whose albums were obtainable on file-sharing sites. The change in the way promotion works is not much of a problem, unless you're investing huge sums of money in traditional marketing and are not going to see the same return on investment as before. This video would then reach a potential of 1,250 more people, on top of the original 2,000 and that's if only 1 of the artist's followers decides to share. Now, we have digital music stores, social networks, internet radio services, blogs; all of these are potential promotion channels which are used by record labels.
First of all, artists do not rely on getting a contract with a major label for promotion anymore. As shown in the section about place, this means that the amount of unofficial (illegal) copies has exploded (one group claimed that it's 95% of all copies), but it also means that it's now possible to 'stream' music without ever holding or 'owning' a copy. This solutions section explores the solutions that have been found for the communication problem described throughout this section. The research in this part explores the problem in more detail and serves as a jump board into approaching and defining the solution to the problem. Respondents were asked to indicate whether they agreed with the statement "I regularly read blogs about music." As can be seen in Figure 5 and Figure 6, people that read blogs about music regularly, also purchase music more regularly.
This basically comes down to (sometimes government-funded) programs in schools and universities to change consumers' attitudes towards filesharing.
This, by itself, says nothing, but when more context is added through other statements, a pattern emerges.
The assumption mentioned in the product section was that people generally don't know what label artists are signed to, but the amount of people that said they don't know, was equal to the amount that said they do, with 16% being undecided. The respondents that indicated that they would never download music legally were asked why (the 26.8% from statement 1). The total of 362 valid cases leaves enough room for manoeuvring without ending up with very small samples, which would lead to inaccurate conclusions. This means that their behaviour is more likely to become the standard for future generations and those who are not yet so 'connected' (online). In this thesis, 'pirates' is defined as people that use peer-to-peer filesharing networks at least monthly.
The specific social network groups (Twitter, Facebook, MySpace) are each composed of people that indicated that that particular social network was their favourite, although they also might use other networks.
The why remains unknown, but for digital copies it might be due to the fact that people who don't use social networks daily spend less time online, or on computers in general. One explanation for this could be that it is likely that avid music lovers read more blogs, but also like holding a physical copy of a recording more than the not so avid music lovers. However, more frequent purchasing does not necessarily mean they're spending more money on music than other age groups (think live shows, think streaming subscriptions, think t-shirts and other merchandise, etc.).
A lot of people in the music industry seem to hold an assumption that it's people's obligation to purchase music (instead of pirating it), but apparently people don't think it's important for them to purchase music. The research conducted for this thesis showed that daily social network users purchase more music (both physical and digital) than people who don't use these networks daily (see figure 11 and figure 12). One could then choose to market that specific 'product', but I'm getting ahead of things, because the solution is discussed in the next section. This is perhaps one of the most profound findings and is essential to the solution discussed in the next section. In other words, the willingness to pay a certain price for a song differs from person to person (or group to group perhaps). Media futurist Gerd Leonhard argues that this means music is no longer a product, but a service. The research conducted for this thesis actually shows that there is a sizeable a group of pirates that actually spends more money on music than non-pirates. This presents a challenge in terms of establishing a clear presence, but it also presents an opportunity, because now any artist (big or small) is actually able to establish a presence.
Word of mouse lets people broadcast their 'content' (thoughts, essay, music, video, whatever) to many people at once.
Many respondents thought it was not important to buy music, but there is a slight difference between artists who are unsigned and those who are signed to the majors. On the one hand, the internet has created massive 'piracy', but it has also created a great word of mouth environment. Intangible products are service based like the tourism industry and information technology based services or codes-based products like cellphone load and credits. This may include any physical store (supermarket, departmental stores) as well as virtual stores (e-markets and e-malls) on the Internet.
Advertising may include using specialty packaging to showcase products, utilizing promotional products for your company, or online ads. In there very essence, the 4 Ps of marketing is actually a framework that allows the marketer to structure the value proposition of an existing product (or a new product at the time of launch) so as to garner the highest mindshare by distinctly structuring the same. So for services, a firm may greatly benefit through proper re-engineering of processes and remodeling the same if required to improve productivity at each stage.
Artists can get their music to consumers directly, but there is also a lot of consumer-to-consumer exchange. People do not have to go to a shop anymore, people don't even have to download anymore; they can stream the music they want to hear directly.
For defining the problem, I consider place the most important part of the marketing mix, because the changes on this level have impacted every other part of the marketing mix as well. This change, which is on the level of the product (even though digital music took years to take off as an actual product), had immense consequences on the level of place and distribution, which resonated to all the other fields of the marketing mix, including back to the product itself. According to a report by the International Federation of the Phonographic Industry (IFPI), "95 percent of the music downloaded in 2008, or more than 40 billion files, was illegal and not paid for" (Holton, 2009).
The latter has actually has made music quite ubiquitous now that many people are able to connect to the internet and listen to music all the time with their mobile devices.
Traditional radio stations nowadays also offer the possibility to stream their channel online, but there are also many web-only radio stations, such as Digitally Imported ( which has a lot of free channels for many different electronic dance music styles.
One of the things this resulted in is the one song for one dollar standard as set by iTunes. It is then broadcasted to your network of friends on YouTube (50), Facebook (200), Twitter (1,000) and any other social networking sites which you have connected to your YouTube account. Second of all, if it really gets too saturated, artists and fans both can venture further down into a niche.
Even the most basic product innovations suggest a fundamentally different approach and writing about them now would drastically alter the scope of this section.
Since the previous section showed that there is significant overlap of the 4 Ps, this section is not strictly divided into place, product, price and promotion. If anything, this fact indicates that today's consumers don't feel all that bad about filesharing.
The group that is on the left-side buys music more frequently than people who use filesharing networks less than once per month. I felt the phrase 'social network users' might cause confusion, since it seemingly doesn't exclude less than daily social network users not included in this analysis. Obviously there are some overlaps here and there, but I've made sure to indicate these overlaps whenever relevant. This corresponds with what was already hypothesized in response to Figure 2—an important cause of 'piracy' is the consumer's desire for convenience.
For physical copies, it might be that daily social network users are easier to reach through promotion. In other words, they are more likely to see a physical copy as something with value, which, to them, would be a reason to buy it. With digital music this chunk seemed to be absent and digital music purchasing seemed to be about the same as with non-pirates. Perhaps they are a 'lost generation', because they grew up in a time when the music business still had to adapt to the new reality, or maybe they simply have less disposable income.
Another reason is that people grew up at different times, so where the 35+ generation is used to paying 15 euros for a copy of an album, younger people might find it very unreasonable to pay such a price just for a copy.
However, the respondents of the survey conducted for this thesis have indicated that the main reason for never having bought digital music, is because it is easier to get it illegally. YouTube manages to pay for licensing fees by featuring small (usually non-obtrusive) ads in videos.
However, there are also worries about the image of music and the value a consumer connects to music when the prices drop.
Whether it will actually die, remains to be seen, since about 3% of the 20 to 24 year olds surveyed indicated listening to vinyl (not by multiple choice, but by filling in vinyl in the 'other:' field, which is another 'outdated' medium). Personally, I can instantly reach a few hundred people, but for every person this number is different. Only about 10% of respondents thought it was important to buy music from artists from a major label, but three times as many people thought it was important to buy music from an unsigned artist.
The ingredients in Borden’s marketing mix included product planning, pricing, branding, distribution channels, personal selling, advertising, promotions, packaging, display, servicing, physical handling, and fact finding and analysis.
Despite its limitations and perhaps because of its simplicity, the use of this framework remains strong and many marketing textbooks have been organized around it. This is crucial as this provides the place utility to the consumer, which often becomes a deciding factor for the purchase of many products across multiple product categories. A certain amount of crossover occurs when promotion uses the four principal elements together (e.g in film promotion). However, that is easier said that done and many marketers fumble when it comes to playing with the real life nuances and bringing out a crisp value proposition. The traditional industry has basically lost control over the distribution of their product.
Filesharing is most commonly used to refer to P2P filesharing and will refer to this type of filesharing in this thesis, unless specified.
Of course, due to all the publicity caused by lawsuits and famous artists and bands such as Metallica and Dr.
For around $5 per month, listeners can get premium service which offers much higher quality than the free service.
Trends such as 'feels like free', the economy of abundance and discussions about price versus value now play an important role in the reality of the music business. Also important is that when users pay a monthly fee to a service like Spotify, they don't have to make the purchase decision for every song they listen to. For the sake of focus and clarity, some of the product innovations and their effects have been placed in the solutions section. Making this division will reduce the quality of the information retrieved from the research, which is highly dependent on cross-relations (the reason why is explained in the methodology).
However, the group on the right side is more likely to have not bought physical copies of music in the last year or even in their lifetime. After this recap, these results are carried over into the complete conclusion of the problem section, which integrates the theoretical framework with the survey results and provides an answer to the first research question. As was noted, streaming (as a distribution method) is set to become an increasingly important source of revenue in the future. In my eyes, the most logical explanation for people thinking it's not important to buy music, is the behavioural economics concept of the selfish consumer. Perhaps the difference between physical and digital is that pirates are more likely to already own a digital copy and thus don't see a point in buying.
Personally, I think for a communication strategy, being aware of the fact that these different expectations and desires exist (and are not going away) is more important than the specific reasons. Internet radio channels have different models; some are ad-funded, some manage to fund the free service by offering a higher quality service as a premium and a lot of them combine the two. This doesn't matter though; good content spreads beyond the one person, throughout many interconnected networks. Dre speaking out against it, Napster rapidly grew in popularity (Barbra Streisand effect, anyone?). Facebook and Twitter are valued at $10 billion and $1 billion respectively (Macsai & Wilson, 2009).
From the money they collect through ads and premium subscribers, they pay out royalties to the artists whose music is played.
If you discover a new artist through downloading some music from a filesharing network, but become a fan, download his discography and attend a show every time he's in your area, you're still spending money on the artist. There has been a lot of discussion about the financial cost versus the mental cost of music and this will be touched upon further on in this section about pricing.
What's more is that it would create 4 sections with many cross-references all throughout the text which would make reading the pages in numerical order impossible. However, the trend that clearly shows when it comes to purchasing physical CDs is the size of the orange block (Never) that increases the younger the age group gets. The idea is that consumption is generally a selfish act and you thus have to motivate a consumer to buy a product for their own benefit. This fact needs to be taken into consideration in developing the solution; a one-size (one-price) fits all album release is probably not the best idea nowadays. Every product is subject to a life-cycle including a growth phase followed by an eventual period of decline as the product approaches market saturation. Most people at that time (1999-2001) had never heard of an easy way to share music for free with other people around the world. Facebook is [was] expected to generate $1 billion in 2010—nearly doubling the $550 million revenue estimate in 2009 (O'Neill, 2010).
This indicates that with every generation, there are more people that have never bought a physical CD at all.
The only definition of this group is the definition given above; daily social network users whose first preference either lies with MySpace, Facebook or Twitter. For some people 12 to 15 euro for a new album is fine, but for others the right price is 'feels like free'. To retain its competitiveness in the market, continuous product extensions though innovation and thus differentiation is required and is one of the strategies to differentiate a product from its competitors. Especially a look into the purchasing habits of music 'pirates' could show interesting results to increase further understanding of this trend. Tons of clones and new technologies had been created, most notably BitTorrent, which created a bigger obstacle to stop files from being shared, because the files are turned into small packages of information and distributed within networks of users - never passing by a centralized server. This is why it has been so hard to close down sites like The Pirate Bay or Demonoid, because they're not hosting the copyrighted material on their servers at any time.

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