Sounds of success
How is research helping music companies deal with a rapidly changing market? Robert Bain meets Keith Jopling, strategy consultant to The British Phonographic Industry.
The music industry began amid confusion. When Thomas Edison came up with the phonograph it was a revelation, but it wasn’t immediately clear what it was for. Edison had been fiddling with the recently invented telephone, which he expected to be used like its forerunner the telegraph, to send messages that would then be put into writing. He thought the ability to record the spoken word would allow operators to work more efficiently.
But the invention never caught on as an aid to telephone operators or secretaries, and attempts to sell it as a novelty item were short-lived. It took years of refinements and experiments (technical and commercial) before the new technology found its place: as a device for playing music in the home.
Eventually the modern recording industry came into being and went on to enjoy a century of relative stability. Although Edison’s wax cylinders gave way to vinyl records, tapes and CDs, the basic model stayed largely unchanged. Until the internet.
When the digital revolution made it possible for anyone to reproduce and distribute music almost without limit, the industry was thrown back into the kind of uncertainty and turmoil not seen since its birth.
It’s now nearly 20 years since the development of the MP3 format, nine years since the opening of the iTunes Store and two and a half years since the launch of Spotify’s music streaming service, which has 10 million users. It’s also eight years since UK album sales last saw an annual rise.
“There’s always been piracy and shifts from one format to the other, but digital has moved things on enormously”
As they learn to live in the digital world, music companies and industry bodies are keen to get their heads around the complex and ever-changing ways in which fans discover and enjoy music.
Two years ago the British Phonographic Industry (BPI), which represents record labels and music publishers, brought together a panel of representatives from Warner, Sony, Universal, EMI and independent record labels, to focus on innovation. With technology and behaviour changing fast, the digital music innovation panel wanted to understand how people are finding, buying, sharing and listening to music, how behaviour varies between different types of people and how things are changing over time. They took as their starting point two pieces of research: a qualitative study by 2CV based on focus groups and interviews with consumers and industry executives, and a quantitative study by HPI that segmented the market on an individual and household basis (and which was reviewed last year to bring it up to date).
This meant starting out with “a massive amount of data”, says Keith Jopling, the consultant who, together with the BPI’s director of research Chris Green, has been in charge of interpreting the research and identifying opportunities for digital music services to fill gaps in the market.
The idea is to understand the market in more breadth and depth than before, says Jopling - which means starting from the user’s perspective rather than from the point of view of a company’s strategy or product - and looking in detail at different types of consumers.
The research defined five stages in a music fan’s ‘journey’: discovering music, accessing it, acquiring it, managing it and enjoying it.
Different types of customers move through the process at different speeds and in different ways.
The BPI says companies “must look to develop and market services that take consumers through this journey more seamlessly, join the dots and add value at each stage”.
It also identified eight consumer segments (see box below, click to enlarge) and found that ninety per cent of spending comes from four groups who make up half of all households: die-hard music obsessives, mainstream middle-class homes in the process of going digital, wealthy households willing to pay a premium for a slick, seamless digital experience, and physical fanatics who insist on CDs and vinyl. The research also recognised the importance of ‘Generation Free’ - the 12% who don’t pay for music.
Jopling says the findings challenge a couple of common music industry misconceptions: that the market is homogeneous, and that the rise of subscription services like Spotify means that physical music formats like CDs and vinyl (or even the idea of owning music at all) are over.
For instance, CDs still make up the majority of music spending, and while downloads and online streaming are growing, so is vinyl (sales were up 44% last year).
Clearly, significant opportunities remain for the tactile, physical music experience. “It’s not one market that behaves in one way,” says Jopling. “That has, to some extent, been the experience of music in the past: massive formats driving consumption. So vinyl, then cassette, then CD and now we’re thinking digital is the new format, but actually it’s just one new format. CD is still the majority and vinyl is becoming more popular. There have always been different dynamics in the market - there’s always been piracy and shifts from one format to the other, but the whole digital aspect has moved things on enormously.”
Elaborate special releases like Pink Floyd’s Immersion box set series and U2’s 20th anniversary edition of Achtung Baby show that there’s plenty of life left in physical formats. Radiohead charged £40 for the boxed vinyl version of their 2007 album In Rainbows, and sold thousands, even though they had already made it available free to download. “It’s about how you serve all those niches and segments successfully,” said Jopling. “At the other end of the spectrum are the voracious pirates who want to consume everything for free then discard it.”
The music market is more nuanced and complicated than many in the industry realise, and failing to see the differences between different consumers and what they want could mean missing out on big opportunities, says Jopling. “If you go along to any tech conferences now, you’ll hear that music is moving from a product to a service, that consumers are moving from ownership to access. That’s true in the long term maybe, but for the time being we’ve got roughly 58% of music buyers still buying just CDs and you’ve still got a lot of digital buyers buying downloads. So there’s a need for ownership. Fifty-six per cent of the UK music consumer market agree that they like to have music as part of a collection. Sixty-five per cent agree strongly or very strongly that ownership is still really important to them.”
There are also opportunities for companies to find new ways of adding value, in a world where consumers have easy access to more music than they’ll ever have time to listen to. For dedicated music fans this might mean more personalisation, engaging editorial content, higher quality audio, more detailed song information that helps them organise their music libraries, or more flexible streaming systems. For the budget-conscious, it might be a move to pay-as-you-go streaming.
Even services that are apparently similar can be positioned to target different segments. Jopling says: “One of the perceptions in the industry of streaming services is that they are all the same. Spotify obviously is a big success, but it was very similar to a service called We7, which actually got to the market first. But they were branded differently, so We7 was clearly [targeting] budget-conscious digital dabblers, a cheap and cheerful segment, and Spotify was competing for the higher value consumers.”
Since then both services have altered their offerings to cement their chosen market positions. But there still isn’t a “mass-market family-based subscription product”, says Jopling, although the integration of Spotify’s services with Virgin Media may be about to change this.
Jopling says there is “a massive appetite” in the music business for a better understanding of the behaviour of music fans. “Music companies have done research before,” Jopling says, “but on an industry level the information we tended to publish in the past was more general in nature - breakdowns of demographic groups and purchased music - rather than looking at attitudes and trying to identify needs.”
As well as going to members of the innovation panel, the results of the research were presented to the BPI’s board and have been made available across the industry and beyond. Future research is likely to look at the individual segments that were identified, and what particular opportunities each one presents for new products and initiatives - in particular the future of physical music formats.
Understanding the power of positioning helped to convince music firms that, despite the dominance of services like iTunes, Amazon and Spotify, room remains for other services, says Jopling.