Presentation on theme: "A Survival Plan for the Music Industry - Napster and the Consequences"— Presentation transcript:
1A Survival Plan for the Music Industry - Napster and the Consequences Wanted:A Survival Plan for the Music Industry -Napster and the ConsequencesAndreas BeckerManaging Consultant, “Media, Publishing & Entertainment”Management & IT Consultancy Diebold, GermanyO’Reilly p2p ConferenceSan Francisco15th February 2001
2About Diebold Diebold fingerprint. Establishment of the Diebold Group: 1954Revenues1999: Million DM2000: 110 Million DM340 employeesOffices in GermanyFrankfurt-Eschborn (Headquarters), Berlin, Munich, Stuttgart, SaarbrückenOffices worldwideAmsterdam, Budapest, Zurich, Vienna, Madrid, Singapore
3About the Business Unit “Media, Publishing & Entertainment” The following industries are at the center of the Business Unit “Media, Publishing & Entertainment“.PublishingPublishers: newspapers, periodicals, booksCorporate PublishersNews agenciesPublishing suppliersMPEMediaFilm producersBroadcastersInternet (media) start-upsMedia suppliersEntertainmentPortalsGames producersMusic labelsEntertainment suppliers
4As an introduction..."The great cultural war has broken out at last. Long awaited by some and a nasty surprise to others, the conflict between the industrial age and the virtual age is now being fought in earnest, thanks to that modestly conceived but paradigm-shifting thing called Napster.”John Perry Barlow, Musician & Journalist, October 2000
51.The current Internet strategies of the “Big Five”2.The p2p pioneers3.The Internet challenge for the music industry4.Refocusing strategy and business models5.Examples of new business models6.Does a p2p business model for the media industry exist?
61.The current Internet strategies of the “Big Five”
71. The current Internet strategies of the “Big Five” (1) The world music market has been fairly constant for the last five years. Five countries account for about 75% of all revenues. The “Big Five” control about 70% of the total market.$ 38.5$ 38.6$ 40.0$ 41.5TotalMarket size(billion $)USAJFDGBRest of WorldSales(billion $)71%74%69%72%Share of thefive largest na-tions (total %)Source: Phonographische Wirtschaft,Year book 2000
8WWW 1. The current Internet strategies of the “Big Five” (2) By the end of 2000, all five major labels want to be represented on the Internet with download offerings.WWWSale ofdownloadssince# 511/2000# 207/2000# 105/2000# 308/2000# 410 / 2000BusinessmodelSale of online music through dealersSale of online musicSale of online music / subscriptionOfferingStart with 100 songs; expand to 1,000 singles / albums200 singles / 100 albums175 songs60 songsStart with 100 songs; expand to 300 songsPrice pertitleno information$ 2.490.29 DM (1x)2.99 – 4.99 (unrestricted)
91. The current Internet strategies of the “Big Five” (3) “An industry that goes to war with its customers is not an industry that will ultimately prevail.”David Boies, Napster Chief Legal Counsel, October 2000
112. The p2p pioneers (1)An overview of some key dates for the most important online competitors.WWWAThe Freenet ProjectOnlinelaunch# 111/1997# 303/2000# 404/2000# 208/1999# 508/2000BusinessModelPlatform with free and chargeable offeringsNone apparent and not intendedTrying for subscription feesStrategy / PrincipleProducts and services relating to music in generalPlatform for end cust-omers, artists and retailersRemote search on chain letter principleNot really open to attackRemote P2P file-sharing for all kinds of informationNot open to attackCentral server, on which songs are registeredRemote downloadsPlugin for the AOL Instant MessengerFile-sharing among buddies, who decide who has or has not access
122. The p2p pioneers (2)A recently published survey by Spin magazine shows that, in practice, many Napster users are downloading whole albums. Despite this, many users also claimed that using Napster prompts them to buy new CDs.Spin.com, 6 September 2000, online survey among 480 Napster usersHow many individual songs do you download from Napster onto your computer each week?28.2How many complete albums do you download from Napster onto your computer each week?1.7How many CDs have you bought because you heard the music on Napster?7.2
132. The p2p pioneers (3)Are services such as Napster really stealing profits? So far, it has been impossible to give a clear answer to this question, but it does appear that the formula ‘download song = lost sales’ is erroneous, as the following research suggests.Yankelovich Partners, March 2000, online survey with just under Internet users (Profile: aged between 13 and 39; 10 hours or more per week spent listening to music via traditional and online media; expenditure on music in the last six months > 25$)“Has online listening to a song persuaded you to buy the song or album in a shop?”yes: 59%no: 41%“Do you believe that as a result of downloading music you would buy more, the same amount, or less on CDs in shops?”more: 31%the same: 57%less: 12%
15& 3. The Internet challenges for the music industry (1) In order to charge for online music, the hi-fi industry will need to set itself four challenges. Each will in turn have consequences which need to be taken into account when planning Internet strategies and allocating relevant resources.Create a sense of injusticeIntensify existing marketing activity1ChallengeConsequenceEliminate illegal offeringsHave ready supply of dedicated resources&2Obtain online copyrightNegotiations can be difficult and protracted3Create a cross-label offeringIncreased demands on co-ordination and agreement4
163. The Internet challenges for the music industry (2) The following theses are used to develop a worst-case-scenario, if the music industry fails to meet the challenges outlined above.Low income target groups (e.g. teenagers) will not be prepared to pay for downloads charged for by record labels on the Internet.12Even the high income target groups are only prepared to pay for music over the Internet if it is enhanced by significant benefits.3The time-to-market of large record labels will, in the medium term, be substantially longer than that of pure Internet enterprises, whose focus is on online activity alone.4In terms of music product enhancement through information and services, record labels and artists are clearly left behind by online providers.5The number of known artists circumventing record labels in favor of direct selling will significantly increase in the next years.
18Traditional media business models Internet business models 4. Refocusing strategy and business models (1)The Internet will have a lasting effect on the existing business models in the media industry. The music industry in particular will be affected by this. As a result it will need to rethink its current internet strategies and the SOPs (service offering portfolio) tied up with these.Traditional media business modelsInternet business modelsTV,radioAdver-tizingMedia convergenceContentAdver-tizingProductsServices(*) Distribution sharepurely for exampleNewspapers,magazinesAdver-tizingContentBooks,musicContent
19Money resources specifically 4. Refocusing strategy and business models (2)Successful business models for online music sales will need to be guided by the needs and attitudes of their target groups. With use of the following three criteria, two clearly distinguishable segments begin to emerge.QualitativeNOTquantitativerepresentationAttitudes to illegalcopyingor downloads‘I don’t care’/‘I think it’s good’‘I’m against it’Convenienceexpectationlow - mediumhighMoney resources specificallyfor music expenditurelow – mediumhigh
204. Refocusing strategy and business models (3) The previously derived target groups will need to be targeted with different business models. The consequence will be sharply divergent strategies and SOPs.Target group’scharacteristicsExamplesBusinessmodelAccepts ‘illegal music’Low ‘music budget’Low service expectation‘Kids’TeenagersClasses C2, D, ECharges for music not enforceablePrimary refinancing possible with advertisingAgainst ‘illegal music’High ‘music budget’Highly developed service expectation‘Freaks’Classics enthusiastsCollectorsCharges for music + service may be enforceableAdvertising hardly accepted, if at all
214. Refocusing strategy and business models (4) Will the breakdown be as follows? Provisional working hypothesis: The number of ‘non-payers’ will be substantially larger than the group of users prepared to pay for online music.Music for freeAdvertizing as source of revenueTarget group ATarget group BMusic and services for feesAdvertizing unnecessary
235. Examples of new business models (1) Users will be prepared to ‘pay’ for free music with their profiles, which in turn will be bought by commercial enterprises and used as ‘enablers’ in targeted advertising.UsersABCMarketing platformMyMusicShop.comRockPopJazzClassicsIndieFolkR&BSoulBluesMyProfileProfilesBusiness Partners1BUYIT !Advertizing4Music2Money3
24Exponential growth of free song offering 5. Examples of new business models (2)The number of songs to be obtained free is dependent on the number of questions answered by the user.ModularquestionnaireMyProfileWhat I buy...What films I go to...Where I go on holiday...Which TV programs I watch...What clothes I wear...Exponential growth of free song offeringNumber offree songsQuestions answered100502010
25Other external content 5. Examples of new business models (3)‘My Music Account’ allows users to listen to their music any time and on a number of devices.My personal music boxMy own musicMy collector‘s cornerMy bonus pointsFreely configurable individ. musicarchive with various ‘play options‘Tools for the creation andmanipulation of own musicStorage and management ofmusic-related informationand ‘items‘Bonus account with specialexclusive offersMyMusicAccountDesktop PCMobile devicesMP3 playerNotebookStereoOwn-label music contentOther-label music contentOther external contentSongsAlbumsMerchandisingSamplesVideosConcert clipsArticlesBooksPeer informationotherDevotional objects
266.Does a p2p business model for themedia industry exist?
276. Does a p2p business model for the media industry exist? (1) In the area of conflict between artists, online players and music listeners on the Internet, the hi-fi industry is in danger of losing its central mediator role and being bypassed in the future.Co-operationsArtistsOnline playersMistrustRecord labelsCompetitionDirect sellingAcceptanceNon-acceptanceMusic listeners
286. Does a p2p business model for the media industry exist? (2) The music industry is the first “victim” of p2p - others will follow.“It’s not just pop music. Every industry that trades in intellectual property - from publishing to needlework patterns - could get Napsterized.”Adam Cohen, Journalist, Time, , p. 66
296. Does a p2p business model for the media industry exist? (3) But will these models really work? Will users finally be ready to pay for contents or will they happily embrace p2p networks, enabling them to receive access to all kind of copyright-free materials? Will the current Bertelsmann / Napster deal determine tomorrow’s destiny of today’s media giants?“As soon as Bertelsmann is trying to charge Napster users, we are going to copy the bloody thing - and call it ‘Obstler’ (= German for booze).”Doc Summer, Computer Hacker, Handelsblatt, , p. 62Will Napster users be willing to pay?Is a monthly fee of $15 way too high given the fact that the average German spends $30 a year on music?How can a centralized business-model work with a decentralized p2p community?Will the other music labels co-operate with Bertelsmann?How will musicians profit from the revenue generated?Will the music industry fight other online players like they fought Napster?
30...available on one consumer “This is the end, my only friend, 6. Does a p2p business model for the media industry exist? (4)IT specialists predict that within 10-years-time - due to progress in compression technologies - all of mankind’s recorded music could fit onto a convenient consumer storage device.JazzRockClassicalAlternativeAll of mankind’srecorded music......available on one consumerstorage device:All the world’s musicAvailable atHong Kong’sNight Markets:US$ 10“This is the end, my only friend,the end” (Jim Morrison)p2p-networks could playa key role in aggregating the necessary contents.JazzRockClassicalAlternativeP
316. Does a p2p business model for the media industry exist? (5) The consequences of Napster & Co. will have a lasting impact on the other media genres on the Internet. This Forrester Research overview still seems to show cautious optimism about the prospects.Demand-side threat elements- long-term reusability- good, connected non-PC devices available- users want to manage library- collectibility- appeal to Net demographic- users already have free accessSupply-side threat elements- lots of independent artists- solo production easy- content bundled in clumsy packages- Internet-friendly file sizeThreat of collapse of controlMusic53Books135Games531Movies31
32As a closing...“At the heart of the controversy is a clash that goes far beyond the music industry. What we're witnessing is the beginning of an epic struggle between two great economic systems. On one side lies the old market-based economy, made up of sellers and buyers. On the other side lies the new network-based economy, made up of servers and clients. In markets, the parties exchange property. In networks, the parties share access to services and experiences. (...)Today, Napster is an oddity. In the future, it will be the norm.”Jeremy Rifkin, Los Angeles Times,
33Recent Diebold Publications This presentation is based on the current Diebold Study “Wanted: A Survival Plan for the Music Industry - Napster and the Consequences”. Watch out for the first world wide p2p-study which will be published by Diebold in May 2001.2000Wanted: A SurvivalModel for the MusicIndustry - Napster andthe ConsequencesThe p2p Phenomenon: The NextInternet Revolution for the TIME Industries2001P-t-PDas Peer-to-Peer-Phänomen:Die nächsteInternet-Revolutionfür die TIME-IndustrienDummy
34Thank you very much for your attention. Which questions do you have? Andreas BeckerManaging Consultant, “Media, Publishing & Entertainment”Management & IT Consultancy Diebold, GermanyO’Reilly p2p ConferenceSan Francisco15th February 2001
35About Andreas Becker Andreas Becker Managing Consultant Business Unit Media, Publishing & EntertainmentDiebold Deutschland GmbH Dessauer Strasse 6 D Munich GermanyTel.: +49 (0) Cellular: +49 (0) Fax: +49 (0)Andreas Becker studied Business Management in London (UK) and Reutlingen (Germany), and then worked for two years as financial controller at the leading German educational publishers in Stuttgart (Germany). Since subsequently completing an MBA course in Edinburgh (UK) he has worked as a consultant for publishers and media firms. The emphasis in his consulting activities has been on topics such as eBusiness, Strategy Development, Business Planning, Controlling and Organization.