MUSIC DISCOVERY and CONSUMPTION in a RAPIDLY CHANGING INDUSTRY a THESIS Presented to the Faculty of the Department of Economics
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MUSIC DISCOVERY AND CONSUMPTION IN A RAPIDLY CHANGING INDUSTRY A THESIS Presented to The Faculty of the Department of Economics and Business The Colorado College In Partial Fulfillment of the Requirements for the Degree Bachelor of Arts By Morgan Joel May 2014 MUSIC DISCOVERY AND CONSUMPTION IN A RAPIDLY CHANGING INDUSTRY Morgan Joel May 2014 Economics Abstract The music industry is one that has been declining in overall sales for more than a decade. In recent years, advances in technology have altered many of the discovery and delivery platforms for music. The purpose of the study was to examine the different variables that affect the ways in which consumers use the internet to find and consume their music. The research uncovered a distinct difference in discovery and listening behavior between younger and older demographic groups. Digital music software, music blogs and new streaming services have become widely used among younger generations. However, the radio has been identified as the most popular method for both discovery and listening to music among older adults. KEYWORDS: (Music Industry, Listening, Discovery, Internet Distribution, Technology Advances) TABLE OF CONTENTS 1 INTRODUCTION............................................................................................... 1 2 HISTORY OF MUSIC DISCOVERY AND CONSUMPTION......................... 6 3 KNOWLEDGE DISCOVERY AND CONSUMPTION BEHAVIOR.............. 12 4 MUSIC DISCOVERY AND LISTENING PLATFORMS................................ 17 4.1 FM Radio...................................................................................................... 17 4.2 Music Blogs................................................................................................... 18 4.3 iTunes............................................................................................................ 20 4.4 Pandora.......................................................................................................... 21 4.5 Spotify........................................................................................................... 22 4.6 YouTube........................................................................................................ 23 5 METHODS......................................................................................................... 25 6 RESULTS........................................................................................................... 27 6.1 Respondents................................................................................................. 27 6.2 Music Discovery.......................................................................................... 27 6.3 Music Listening............................................................................................ 30 7 CONCLUSION.................................................................................................... 34 APPENDIX I 39 REFERENCES 44 LIST OF FIGURES 6.1 Music Discovery Techniques............................................................................ 28 6.2 Most Frequently Search for Genre.................................................................... 29 6.3 Music Discovery Frequency.............................................................................. 30 6.4 Favorite Genre of Music.................................................................................... 31 6.5 Music Listening Methods................................................................................... 32 6.6 Setting of Music Listening................................................................................. 33 1. INTRODUCTION The music industry is one that has been radically changed by the internet in recent years. In the past ten years, CDs have become obsolete and the main method of music distribution is in the form of digitized copies. Live music has grown highly significant and is viewed as a more authentic version of the artist’s music. The iTunes Music Store has grown rapidly since appearing in 2003 and now accounts for over a third of the United States record sales (Waldfogel, 2010). While overall music sales have decreased over the past ten years, digital music revenues have skyrocketed by over one-thousand percent (Aguiar & Martens, 2013). The purpose of the study was to examine the different factors that affect the ways in which consumers use the internet to find and consume their music. Due to the decrease in total record sales, the overall music revenue stream is falling for the artist. However, a growing number of artists are gaining access to a share of the music industry's revenue. Until about ten years ago, there was a distinct split between artists signed to major record labels and ones that were independent, or unsigned. The record label artists had access to recording studios, tour support and corporate promotion, while independent artists were largely shut out of commercial radio/broadcast media due to limited promotion resources (Thompson & Cook). With the expansion of the music industry on the internet, many promotion and distribution avenues are now more accessible to all artists. “The music industry has adapted to 1 the internet world, learned how to meet the needs of consumers and monetized the digital marketplace” (IFPI, 2013). Music has not only adapted to the internet, it is at the very heart of its development. Music is helping drive technology, far beyond the limits of the recorded music market. Independent artists can now sell their music on the same digital platforms as any major label artist, for a fraction of the cost. There has been an explosion of multimedia outlets and social networking services with negligible barriers to entry for the artists: satellite radio, specialized webcast stations, music discovery sites like Pandora and streaming services like Spotify (Thompson & Cook). Not only has technology improved go-to-market strategies for music producers, but it has also played an enormous role in facilitating the consumption side of the industry. In the past ten years, the technology that facilitates online sampling of digital audio and other digital goods has been revolutionized. Various software packages have made it increasingly easier for consumers to search, download, and share music files. Music is an information good, specifically, an experience good whose true value is revealed to a consumer only after it has been consumed. Music needs relatively little time and skill to consume. It also has the characteristics of a quasi‐public good; once the good is provided to some consumers, it is fairly difficult to prevent other consumers from consuming it (Gopal, Bhattacharjee & Sanders, 2006). According to a study by Peitz & Waelbroek (2005): "Downloading digital products for free may harm creators and intermediaries because consumers may no longer buy the version for sale." However, they illustrate in their paper that the negative effects of pirating music may be overcompensated by the positive effects due to sampling. Consumers are willing to pay more because the match between product characteristics and buyers' tastes is improved. Their 2 argument is that music downloaders use the downloaded files for sampling in order to make educated purchasing decisions. Sampling allows for consumers to find the products that are of actual value to them, therefore, the music industry may actually benefit from file-sharing networks (Peitz & Waelbroek). Emerging new business models are not only adopting different pricing structures but they are beginning to take into account other assets than just music. The music marketplace is beginning to shift from commodity market to a service one (Duchêne & Waelbroeck, 2006). This is illustrated by websites like SoundCloud, which offer a wide variety of services ranging from free music streaming to specific tailored options for big-name artists. Scientists in France have also proposed a new method of music classification that is based on data mining techniques. Their method allows for the rapid extraction of similarities between musical titles or artists (Pachet , Westermann & Laigre, 2001). This classification could become extremely beneficial to the online music stores and music streaming sites, which are constantly inundated with new music. It is virtually impossible to code all the genre data accurately and this method could be an effective solution. While harsh critics of music sampling and sharing still remain, evidence points to the fact that digital technology has unalterably changed the music industry. If the music industry is going to prosper, it needs to embrace this transition (Gorry, 2005). "The definition of content has changed. We are moving from a packaged to a nonpackaged world. It is not about discs in plastic covered cases or pages of print anymore- the consumer can now pull content in the format and bite size he or she wants" (Levy, 2006). The music industry needs to welcome these technological changes and work to formulate an effective solution that works well for both the consumers and producers of music (Garrity, 2003). 3 Some physiologists believe that music preferences are decided by one of two factors. One is that song preferences are completely random; the other, that our musical choices reflect important aspects of our personality (Chamorro-Premuzic, 2011). While the aim of this study was not to discover the factors that determine a person's choice in music type, it is a topic that is related to the theme of consumer preference. The tools that consumers