Revolutionizing the Music Industry

Posted on Posted in 2014-2015
By Jonas Cabochan and Gabe Pila

Piracy was already a reality in the Philippines as early as the 1950’s. To address this, local recording companies collaborated with each other to form the Record Industry Association of the Philippines (RIAP) where their objective mirrors that of the Recording Industry Association of America (RIAA) in combating piracy and protecting the intellectual copyright of artists. By 1972, after several changes, the Philippine Association of the Record Industry (PARI) was founded and became the only legitimate music industry in the Philippines that represented both major and independent recording companies.

Prior to iTunes, record labels relied only on their revenue from sales of physical copies for the music such as vinyl records, cassettes, and CDs; however, as we know too well, technological advances changed everything. Methods of recording and transmitting information became easier and more available to everyone. From clunky vinyl records, we progressed to digital copies that are easily transferred and stored, making it more convenient for everyone to enjoy music.

However, the benefits of technology are not without costs. Though we are living in a different age, piracy is still as much of a reality as today as it was back then. In 2002, the RIAA reported that CD sales had fallen by 8.9 percent, from 882 million to 803 million units; revenues fell 6.7 percent. In the same period that the RIAA estimates that 803 million CDs were sold, the RIAA estimates that 2.1 billion CDs were downloaded for free. Thus, although 2.6 times the total number of CDs sold were downloaded for free, sales revenue fell by just 6.7 percent… [So] there is a huge difference between downloading a song and stealing a CD.* The biggest enemy of the music industry is not that piracy is rampant but that physical copies of music are no longer becoming a reliable source of revenue.

How then, can the music industry solve this digital problem?

The iTunes phenomenon

Since its advent, digital music has been gaining momentum because of the introduction of portable MP3 players. With this, artists were more willing to sell their albums online but avenues to do so were scarce.

Then there came Steve Jobs, now a familiar name. He not only came up with the idea of the iPod, an MP3 player that arguably changed the game of music storage, but he also came up with a proposition for every artist who would sell their albums on iTunes: Allow each song to be downloaded one at a time and price them at $ 0.99. It was a risky play and an equally unorthodox way to sell music at the time. Prior to that, music was always sold in albums; that is to say that if one wants to buy even one song, he would need to buy the entire collection of songs on an album.

Also, on the part of the artist, who placed in hours of effort in filing for patents, writing the lyrics, composing the music, organizing the band, rehearsing, and recording, having his effort valued at only $ 0.99 per song felt like an undervaluing of his hard work. Hence, this did not sit well with artists when it was first proposed.

To their surprise, people actually preferred this one-song-at-a-time system. As explained later by behavioral economics, people are more willing to buy small portions of something at lower prices (i.e. single songs) than to shell out right away a fairly heftier portion for a larger portion (i.e. the entire album). This is despite the fact that the price per song in the latter option would be even less than that of the former. Since, people don’t want to see significant losses from their costs, they would actually choose the $ 0.99 option.

Eventually, the Philippines caught on. With the ease of digital downloads and handheld devices, people were more than satisfied with the iTunes phenomenon, and artists were still earning their profits. As downloading became more popular and common, the need for greater storage capacity in devices was needed. Another paradigm shift was within the horizon.

Streaming: Data in the Clouds

We have at least heard of Spotify or perhaps even 8Tracks, sites (and apps as well for iOS and Android) that play music. These do not download files to your device, but instead load a song from the Internet for you to play. This has the added advantage of not being limited by the storage capacity of a device, since the song is coming from the limitless data pool of songs from the site that are being temporarily loaded onto the device.

The prices of these sites or apps are free or almost negligible. In fact, popular streaming sites such as YouTube playlists and 8Tracks are practically free, and Spotify Premium will cost less than PHP 150 a month. All those options have almost every song ever written and played in their databases, so it will cost practically nothing per song when using these “cloud players.”

One day, those “cloud players” may eventually surpass even iTunes. One may ask about the livelihood of the artists who write the songs we love to hear. If this trend is to continue, then they would become more dependent on their other sources of income: endorsements, and concerts. The former will become even more valuable and the prices of the latter could increase even further than expected. Another way may even be to go into other forms of media, such as television shows, and quite possibly movies, if those in the music industry wish to make as much as they used to.

From the looks of things, the music industry looks as though it is setting itself up for hard times. iTunes and cloud technology were created to make consumer-choices easier and even boosts an artist’s sales. Because music has reached a point in which it can be consumed for free, artists may be discouraged to enter into the music industry in the first place. This not only cuts out the supply of music that the public can consume, but can raise the prices of other events such as concerts. It defeats the very idea of bringing music into the digital world: to make it more accessible.

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