FEATURE10 June 2009

Facing the music: Research and the digital revolution


As the music industry struggles to deal with falling revenues amid the digital revolution, Gareth Deere asks whether better use of research could have stemmed the tide, and how it could help the industry face the future.

For the music fan things have never been so good. Personal music collections are bigger than ever. They can be accessed any time, anywhere, and with streaming sites such as Spotify and Last.fm fans have access to vast catalogues of millions of tracks without the need to download or store them. Fans are getting what they want, when they want it, and they’re getting a lot of it free. What could be better?

From a business standpoint it’s a different story. According to a recent industry report, 95% of music downloads worldwide take place illegally via file-sharing sites. The ability to copy and share professionally produced original content has had an unparalleled impact on a business model that has created many millionaires over the past 50 years.

It’s not all bad news, of course. The advent of downloads means that in total more singles are being sold in the UK than ever before; digital retailers like Apple’s iTunes have developed successful business models; and digital music revenue continues to grow apace. But the overall revenue trend is downward (last year the fall was 7%) and, with an economic crisis to deal with on top of all this, high street retailers such as Zavvi and Woolworths have gone to the wall.

Could research have helped the industry protect itself? And what role is there for research in the future?

Slow on the uptake
Music is nothing new for the market research industry. Numerous agencies, Ipsos included, have helped to provide charts and sales trackers. But when you go beyond sales data to understanding attitudes and behaviour, music labels and publishers have been slow on the uptake.

When you go beyond sales data to understanding attitudes and behaviour, music labels and publishers have been slow on the uptake

In a recent article in Music Week, EMI’s chief executive Elio Leoni-Sceti asked why it was a technology company and not a music label that invented the iPod. I believe this observation lies at the heart of how music labels have failed to exploit research to help stem the downward spiral in revenues.

At Ipsos we’ve been conducting research with clients in the music sector for years, most notably with our Tempo study, so we’ve been able to observe how research requirements have evolved and how insights are used. Historically, research around music has seemed to focus on three areas, without realising that the real value is in linking them together. The three areas are recorded music, piracy and platforms.

Recorded music research includes sales and chart data. The Official UK Charts Company has been including digital music sales alongside physical ones since 2004. But our research demonstrates that consumers give value back to the music category and music labels across a number of touchpoints – not just by paying for CDs and downloads. Music fans go to concerts, they buy equipment and technology to listen to music, they buy merchandise, they spend money on magazines, they pay for internet connections and mobile data charges. These various transactional touchpoints and the interactions between them tend to be measured separately and in different ways.

The bigger picture
The recent dispute between the Performing Rights Society and YouTube can be seen as an example of an approach centred on recorded music. Thousands of music videos were removed from the site after it failed to reach an agreement with the PRS on royalties. A broader view of consumer behaviour would have demonstrated the positive transactional impact of exposure to new artists on YouTube, with the site acting as a discovery mechanism for an exchange of value elsewhere.

The second type of research is concerned with piracy. It focuses on illegal file sharing and is obsessed with quantifying the number of illegal downloads. Ipsos research shows that pirates pay as they pilfer, and indeed are some of the most avid spenders on music. By punishing these fans, sending scary letters and threatening costly legal action, are we actually looking to punish our best customers?

Finally there is platform-based research, which limits itself to measuring the incidences of different technology platforms used to find, listen to, buy and share music.

On top of the failure to bring these threads together, there has been a culture of defensiveness and reluctance to embrace new trends and consumer needs. I recall one occasion a couple of years ago when I was running an international study looking at pricing for digital music content. Discussing the emergence of DRM-free music (digital music with no built-in restrictions on how users can play, copy or share it), the client in question stated that it was not company policy to discuss this issue – even confidentially within the bounds of a research study. This is the sort of stance that results from the erosion of historically successful business models. It didn’t last. Eventually DRM-free was included in the study, and is now something of an industry standard.

Research revival
The current economic downturn has been a wake-up call to the music industry, and research is playing an increasingly important part in the search for new business models to deal with new paradigms.

The current economic downturn has been a wake-up call to the music industry, and research is playing an increasingly important part in the search for new business models

In order to address the challenges music companies face, there has naturally been thinking around what lessons can be learned from parallel sectors – most notably FMCG companies like Procter & Gamble and Reckitt Benckiser where research and understanding customer needs are at the core of their business. Music industry clients are now starting to approach research in a similar way.

Music labels are turning to new methodologies such as online communities (most notably EMI’s yoursoundcheck.com) to evaluate the potential for new artists, and panels have been successfully established for track testing, such as PopScores from Entertainment Media Research. Music labels are looking for brand measures to exploit links with commercial partners, identify opportunities to have their music used in advertising through sync deals, and leverage brand value in new ways.

The current trend is a move toward research that holds the artist and the music itself at the centre, and which then seeks to understand attitudes and behaviours among the fan base. Music is the product, whether it’s consumed for free, streamed with advertising, offered as a paid-for download or bought on CD in a shop. Understanding the value of the artist and their music, and exploiting that value, is ultimately how music labels can innovate successfully.

Furthermore, organisations such as UK Music, set up last year to represent the collective interests of the UK music industry, are using research to think ahead about business models and revenue generation – research to support the innovation process.

The rise of research on music is something of a cultural change for an industry founded on gut instinct and artistic feel (has Simon Cowell ever commissioned a market research project?) but research will play an increasingly important role in helping the industry face the challenges the digital revolution throws at it.