The Evolution of Business Models and Marketing Strategies in the Music Industry

Valerie L. Vaccaro State University of New York, USA Deborah Y. ohn Yeshiva University, USA

This article provides a strategic analysis using a services marketing framework of 3 business models in the music industry: the traditional music industry; renegade peer-to-peer music file trading; and new, legitimate online downloading services. Key recommendations are made on how new, legitimate services can succeed using convergent marketing strategies. inally, a conclusion is provided addressing the future of the music industry and other media-related industries. (+) Important Point: In the music industry, there are three models of business strategy that is implemented: the traditional music industry; renegade peer-to-peer music file trading; and new, legitimate online downloading services. These three business models are competing for consumers! hearts, minds, and wallets. irst, The traditional business model. This traditional model in the music industry includes the mass production and distribution of physical goods. This model includes the record labels that manufacture the product "e.g., mainly #$s% and distribute it via bricks-and-mortar stores, direct mail clubs, and online e-tailers, as well as artists selling their #$s at concerts. &econd, The renegade business model. 's a model that based on illegal, unauthori(ed )*) music file trading "of digital +)3 files% via the 'nternet; this activity is enabled by organi(ations providing software that empowers millions of consumers to become unauthori(ed mass distributors of music for free. The renegade model can be considered a combination of two types of ,native 'nternet- business models: freeware "i.e., free software% and information barter "i.e., e.change of information; /ambury, 0112%. 3rgani(ations offering renegade services and content can be considered business models due to their contribution to economic value in the form of knowledge and content provided by the participants. Third, is The new business model. The new business model includes legitimate online digital music services. 4egitimate online music services are part of the native 'nternet business model category of digital products and digital delivery "e.g., including music% that often have strategic alliances with access providers. 'n the 5uropean market, there are more than 36 legitimate online services that offer music either by pay-per-download or by subscription. 7owever, right now, the legitimate downloading of music is still 8ust a drop in the bucket compared to the massive adoption and usage of file trading via unauthori(ed, illegal music services.

 The 9merican +arketing 9ssociation defines marketing as ,the process of planning and e.ecuting the conception, pricing, promotion, and distribution of ideas, goods, and services to create e.changes that satisfy individual and organi(ational ob8ectives"American Marketing Association Dictionary of Marketing Terms, *66:%. Thus, the marketing process is a means to implement a business model. +arketing strategists have asserted that for an organi(ation to succeed, a marketing orientation using a customer focus must be a company-wide mandate, not 8ust the responsibility of a functional department. There are three main modern marketing management orientations that an organi(ation may have: a production, sales, or marketing orientation. These orientations are organi(ational philosophies that are part of corporate culture that become drivers of a firm!s business model and strategies. 9 production orientation philosophy is implied when management decisions are made without taking into consideration consumer needs. 9 sales orientation philosophy is in place when an organi(ation attributes its success to large-scale promotional efforts in the mass media. 'n contrast, a true marketing orientation is a business philosophy where the organi(ation fully e.plores consumers! needs first, and then implements strategies to generate ma.imum customer satisfaction and profitability.

!nalysis
,The e"olution of business models and marketing strategies in the music industry - is a 8ournal compiled by Valerie L. Vaccaro and Deborah Y. Cohn in 2 !". and it consist of !" #a$e.
%his e&#lain a lot to 's abo't three kind of b'siness (odel that i(#le(ented in the )'sic *nd'stry+ the traditional ('sic ind'stry, rene$ade #eer-to-#eer ('sic file tradin$, and new, le$iti(ate online downloadin$ services. and the #'r#ose of this #a#er is to analy.e the three ty#es of b'siness (odel strate$ies 'sed in the ('sic ind'stry by 'sin$ the service (arketin$ fra(ework analysis. to analy.e each of the advanta$es and disadvanta$es that e&ist in any kind of b'siness (odels that e&ist in this ind'stry. to 'lti(ately hel# deter(ine what b'siness (odel is (ost a##ro#riate to be a##lied in today/s ('sic ind'stry. beca'se these three ty#es of b'siness (odels was co(#etin$ to win the hearts, (inds, and wallets of its cons'(ers, the ('sic lovers. And finally deter(ine the f't're direction of the ('sic ind'stry, and its other related ind'stry. And then i will co(#are this 0o'rnal

with marketing strategy that include in internal factors. The marketing itself in 'nternal factor have seven basic function and ' will e.plain it one by one. This study is a guide to point the music industry in that direction using a marketing perspective.9s mentioned, earlier studies have already provided an analysis of the music industry!s litigation strategy "e.g., reedman, *663%. This article e.tends previous research by being the first to provide a detailed analysis of strategies related to each of three business models "traditional, renegade, and new% using a services marketing mi. framework. 9lso, this is the first study to provide in-depth marketing recommendations on how firms in the music industry can succeed.

#er"ices $arketing %ramework !nalysis:

The following analysis uses the framework of the services marketing mi. to compare strategies of the three business models "traditional,renegade, and new% and to make recommendations. The services marketing mi. consists of eight )s: the four )s in the traditional marketing mi. of product, price, place, and promotion, and four additional )s of process, people, physical evidence, and productivity. This services marketing mi. framework analysis refers to the three modern marketing management orientations and ties the eight )s to si. ma8or reasons consumers desire to be online for product ac;uisition: convenience, choice, customi(ation, communication, control, and cost. The analysis also connects the si. #s of online motivations with five convergent marketing strategies. ,#onvergence means more than the fusion of different technologies "television, computers, wireless, )$9s% or the combination of channels "such as "a% bricks-and-clicks model% There is a more basic convergence within the consumer created by the technology and the enduring behaviors of human beings- "<ind = +aha8an, *66*, p. >2%. #onvergent consumers are those with both online and offline attitudes and behaviors. The five #s of convergence marketing are community, customeri(ation, choice tools, channel, and competitive value. &). Producti"ity 'n the services marketing literature, productivity is defined as how efficient and effective an organi(ation is at using its resources and producing value for the customer. This is accomplished by implementing the other seven )s in the services marketing mi. in terms of issues such as cost control, which can lead to customer satisfaction and retention, as well as higher profits and larger market share. Traditional business model and productivity. <hat have traditional business channel members done to improve productivity in the face of declining #$ sales? 9s do many large production-oriented corporations in other industries, they have cut costs "e.g., laid off employees and dropped artists%. The big labels have also been seeking mergers or strategic alliances to achieve economies ofscale. 'n the @nited &tates, Tower Aecords filed for bankruptcy and restructured its debt, and other @.&. record chains such as &am Boody have closed some stores ",Tower Aecords,- *66:%. 'n 9ustralia, some retail chains have closed, and others have changed their merchandise assortments from an emphasis on #$s to $C$s "$onovan, *663; Deedham, *663%. Renegade business model and productivity. +ost renegade )*) organi(ations have no sales or profits because they are in the early stages of a business model. 9s described earlier, some of the renegade organi(ations have advertising revenue and are implementing strategies to attempt a transformation to a legitimate business with a billing system.

New business model and productivity. /efore 9pple iTunes introduced its service in +ay *663, both the media and consumers had declared the first generation of legitimate music services online to be failures. 4egitimate music sales on the 'nternet grew from 6.3E in 011F to 3.:E in *66* "A'99.com, *663%. #urrently, there are two basic types of new business models that are online music downloading services, with the possibility of having a combination of the first two as a third model. The first successful online business model in the music industry is pay-per-download "priced at G6.11 per song download% introduced by 9pple iTunes in +ay *663 for +ac users, and in 3ctober *663 for <indows users. 'nitially, 9pple iTunes does not e.pect its service to be a moneymaker; its main goal is to stimulate sales for its i)ods "portable +)3 digital music players%. '). Place Place includes how the product or service is ac;uired at physical locations "e.g., bricks-and mortar stores, or home delivery%, on the 'nternet, or both "e.g., multichannel marketing%. Traditional business model and place. /ecause traditional music stores are losing #$ sales, they need to find other sources of income, or they risk going out of business. Renegade business model and place. Aenegade digital music distribution services are delivered online and provide a high level of convenience, one of the key reasons consumers are online to ac;uire products and services. New business model and place. 'n regards to the si. #s, shopping online at both traditional e-tailers and at online downloading services provides convenience *: hr a day, F days a week, without traffic, parking, crowded stores, and waiting on long checkout lines. 9s far as convergent marketing goes, some consumers want the convenience of multichannel options to be able to shop online and offline "e.g., via catalogs, phone, direct mail, etc.%. (.) Price Price includes financial costs as well as nonfinancial outlays or risks "i.e., waiting time, mental and physical effort, sensory e.periences, etc.%.

Traditional business model and price. Traditional record labels and retailers have employed a production orientation philosophy, dictating price "as well as product, place, and promotion% to consumers. Renegade business model and price. The ability to ac;uire digital music online for free has been a ma8or impetus for millions to participate in illegal )*) services. 7owever, there are also indirect financial costs such as 'nternet service provider "'&)% fees and the costs of purchase and operation of the hardware "e.g., the computer, #dburner, portable digital music player, etc.%. New business model and price. 'n regards to the si. #s, consumers often find costs are lower online than in retail stores. )rices at online downloading services are more cost-effective than purchasing #$s from traditional retail firms. 7owever, actual financial outlays are still higher for online business models than for renegade services that are ,free.:%. Product Product includes both the core benefit "main reason for the consumers! interest in ac;uiring it% and supplementary services related to ac;uisition, delivery, and consumption. "4ovelock = <right, *66*%. Traditional business model and product. 'n regards to product, ma8or record labels and large retailers in the traditional music industry have pursued a mass production orientation without thoroughly researching consumers! needs. ,#ompanies adopting Ha productionI orientation run ama8or risk of focusing too narrowly on their own operations and losing sight of the real ob8ective - satisfying consumers! needs-. Renegade business model and product. Aenegade )*) users can create their own customi(ed compilations by burning their favorite songs onto a blank #$, which is possible with new legitimate services, but not with the purchase of traditional #$s. New business model and product. <ith the 'nternet empowering smaller independent record labels and musicians, consumers will have more types of musical choices in the future.

)). Process Process consists of the steps in the service creation and delivery e.perience that are performed by the service provider or the customer and can be considered an e.tension of a product or service. Traditional business model and process. The process of purchasing #$s in a store is perceived by many consumers as slow, inefficient, and inconvenient.The time and effort spent traveling to the store, searching for music, waiting on line to check out, and being in an often unpleasant store atmosphere have contributed to lower sales at bricks-and-mortar retailers. Renegade business model and process. The convenient process of ac;uiring digital music via )*) file trading on one!s computer can be time-consuming, but it is an en8oyable e.perience to millions of users who are hooked. New business model and process. 3ne benefit of purchasing digital music from legitimate online services is that consumers are spared being potential lawsuit targets. The ac;uisition process may also be superior to )*). *). Physical +"idence Physical evidence includes all tangible and visible aspects of the organi(ation associated with image and perceived ;uality of the product or service "i.e., related to the product, packaging, or promotion%. Traditional business model and physical evidence. <ith a #$, the physical evidence consists of the plastic shrinkwrap, the 8ewel case container, #$, cover art, and liner notes. 'n addition, the store-bought enhanced #$, when played on a computer, may include cover art, a music video, and lyrics. The enhanced #$ is one way in which the music industry is trying to increase product value. Renegade business model and physical evidence. The only evidence associated with )*) file trading would usually be the +)3 file and file name in this pure e.change of information over the 'nternet. New business model and physical evidence.

<ith 9pple iTunes, as mentioned earlier, consumers who purchase a song also receive a picture of the #$ cover. 't is recommended that legitimate online digital music distribution services do market research to find out what types of physical evidence, information, or services could be offered with the core product of music to provide added value to different consumer market segments and generate higher profits. ,). Promotion Promotion refers to the communication of informational messages of persuasion about the product via media "e.g., broadcast, print, the 'nternet% or salespeople "4ovelock = <right, *66*%. Traditional business model and promotion. +a8or record labels and large retailers in the music industry have traditionally employed a sales orientation philosophy toward promotion, which is focused on the firm making transactions, rather than developing and maintaining long-term, profitable customer relationships. This promotional philosophy includes pushing the product using large budgets for promotion in traditional media such as e.pensive videos "to air on cable television stations such as +TC and C70%, radio promotion, heavy advertising, and publicity. Renegade business model and promotion. )ositive word-of-mouth spreads on a global basis to millions of individual users in the digital online community about the benefits of participating in unauthori(ed, ,free- )*) file trading services. New business model and promotion. There are three main ways communication can occur on the 'nternet between marketers and consumers: "a% business-to-consumer e-mails and promotions, "b% consumer-to-business purchases and information re;uests, and "c% consumer- to-consumer communication "e.g., instant messaging, e-mails, and chat rooms%. -). People 'n the services marketing mi., people usually refers to the employees or individuals who deliver the service. This article e.pands the element of people from a producer paradigm to a true marketing orientation by including the consumer. Traditional business model and people.

Traditional bricks-and-mortar stores have fi.ed overhead and labor costs. +ost store employees are cashiers, and do not help with the search or purchase decision process. 'n regards to etailers, the people include management and employees such as customer service representatives. Traditional members of the music industry have been critici(ed for treating customers as mainly a mass market and of neglecting the needs of older babyboomers. 7owever, in today!s information age, and with customer dissatisfaction at high levels with the traditional music industry, it is necessary to go beyond traditional customer market definitions. Renegade business model and people. The people involved in the renegade model include the )*) users who trade files and the owners and e.ecutives who operate the renegade organi(ations. New business model and people. <ith new downloading services, the part of the services marketing mi. related to people refers to the organi(ations! management and employees who may work in customer service operations. 'n addition, there are the customers of the new services. . P/s of the marketing mi0: Product: )roduct is e.actly the main point to be market. )roduct have to full fill what customer need and want. )roduct can vary in ;uality or in services they offer and is targeted to consumers who usually have the need for a specific type. &o as more ob8ective information which offers neuro-marketing provides insight into customer needs to enable organi(ations to better ability to innovate, develop and refine their marketing strategies. Pricing: $ecisions influence the demand and profitability. 'n the 8ournal, pricing have the most important place that can avoid the product to be marketed. Promotion: 3r in this paper we will found it as advertising. @nlike conventional advertisers that work with preconceived ideas about the success of an announcement, it should be fun and the design must be conspicuous. 7owever, marketing e.ecutives and advertising so far have based their predictions on intuition, e.perience and articulated consumer reports to try to predict whether advertising is effective. Place: there are not many words talking about strategy for place. There are seven basic function in the marketing:

&. 1ustomer analysis #ustomer analysis in this 8ournal identifies target customers, ascertains the needs of these customers, and then specifies how the product satisfies these needs. /efore beginning a customer analysis, it would be helpful to have a good understanding of basic marketing terminology. 9nd in the book, to know about our customer needs, desires, and wants. <e learn about different stage of customers in customer analysis. irst are the loyal customers who purchase the company!s services regularly. &econd are the customers who purchase the services and products occasionally but also use competitors! services. Third are the ,not yet- customers who have been targeted by the company!s marketing but have not yet purchased their services. ourth are the customers who used to use the company!s services but are no longer, for some reason, doing so. '. #elling product or ser"ices This Journal talking about develop the ability to select and offer the right products or services to your customers in a competitive market. +ore than any other factor, your ability to make this choice will determine your success or failure. (. Product and ser"ice planning )roduct and service plan coverage goes beyond most manufacturers! warranties, guaranteeing that your product will perform to the manufacturerKs specifications for the duration of the coverage. .. Pricing The pricing has to be consistent with the positioning. )eople really do hold strongly to the idea that will get what you pay for. ). 2istribution 't!s the method you use to get your product or service through various distribution channels to the ultimate purchaser or end-user L in other words, how and where the consumer buys your product or service. The location of your business depends on a number of factors as outlined below:

 are you retailing direct to the public or working through an intermediary? is it convenient for customers to visit you? where is your target market located? how important is e.posure to your business? where are your ma8or competitors located? what is the occupancy cost? *. $arketing research The strategy concept may have different views. 'n this paper it is defined the strategy as the alignment or direction of the resources available to an organi(ation in terms of changes in their environment "Cargas, *60*% and it also focus on the strategy as the theory of a firm about how compete successfully ")eng, *606, 06%. 9lso the core of the concept is related to the formulation of the strategy and the implementation thereof.

1onclusion (3)
The revolution in the distribution of music on the 'nternet via )*) " )eer to peer% file trading started by renegade organi(ations in 0111 is still in the growth stage. The renegade business model, enabled by digital technology and the 'nternet, has become the impetus for sweeping changes in the music industry for both traditional and new business models. These three business models are competing for consumers! hearts, minds, and wallets. The outcomes of new business strategies and legal issues will have implications not 8ust for the music industry, but for the entertainment industry on a global scale for all content that can be digiti(ed, downloaded, and traded on the 'nternet "e.g., movies, television, video games, etc.%. ,3n-demandservices are the future of entertainmentdelivery. #$s, $C$s, and any other forms of physical media will become obsolete- "4egon, *66:%. The firms with winning business model strategies will most likely be ,those with sufficient scale to convert meager per-song margins into meaningful profits and those that use music to sell add-ons, be it hardware, subscriptions to online music maga(ines, or concert tickets&uccessful firms are predicted to also turn to m-commerce by creating alliances with online music services, phone and cable companies that provide broadband services, and ,music to goe;uipment manufacturers "4egrand, *66:%. +embers of the music industry have been operating with traditional business models and have never completely embraced the customer philosophy of a true marketing orientation "e.g., Keith, 01>6; Kotler = 9rmstrong, *66:%. rom a services marketing viewpoint, a knowledge gap "e.g., the difference between

what a service provider thinks customers want and what the actual needs and wants of customers are; Meithaml et al., 0116% still e.ists between the record labels with their traditional business model approach and consumer e.pectations of the music industry. Traditional firms have been accused of lacking the cultural capital to make a successful transition to a new business model in the information age, and it has been suggested that the record labels need to change their orientation from lawsuits to a marketing and promotional orientation " reedman, *663%. The marketing orientation recommended in this article includes a services marketing mi. framework "4ovelock = <right, *66*% and includes relationship marketing, and convergent, interactive marketing paradigms "e.g., <ind = +aha8an, *66*; <iner, *660% that can be utili(ed to help create a competitive advantage "<ebster, 011*, *66*%. These strategies can light the path for winning the legitimate music business model revolution.

4pportunity analysis (3) #T5167