01/13/2015

Music: an industry moving through and beyond digital disruption

Huw ThomasAuthor: Huw Thomas, Partner, PwC UK

When I sit down to actively listen to music, I much prefer the warmth, depth and resonance of new vinyl to the thinner, tinnier sound I get from MP3s on the go. A lot of music fans feel the same way.

So, does this make us analogue dinosaurs in an increasingly digital world? Not at all. In fact – as this video blog explains – the music industry is now heading in our direction, as it moves through and beyond digital disruption to restore, not just its profitability, but also the pre-MP3 sound quality that we all remember so fondly.

Blazing a trail for other industries

In achieving this transformation to its post-digital form, the music sector is blazing a trail to reconfigured revenues and audience engagement that other sectors may look to follow - and not just within entertainment and media. Put simply, just as music was the first segment to encounter the full force of digital disruption, so it looks set to be the first to re-emerge with a value chain fully reinvented for digital.

Not many people were forecasting this outcome a decade ago, when music suddenly found itself in the front line of digital disruption and disintermediation. From Napster to iTunes to Pandora to Spotify, music was the sector tasked with pioneering the pathway to digital revenues, as other sectors looked on with a blend of trepidation and shock.

Darkest hour before the dawn…

The factors that put music at the forefront of digital migration included its relatively small filesizes and readily-available content formats. Whatever the drivers, for several years the effect on revenues turned music labels into masters in managing marginal decline – as shown by the revenue data in our Global entertainment and media outlook

But now, there’s light at the end of the tunnel. Over time, the music majors responded by adapting to digital sales while retaining the physical distribution that still accounts for the majority of sales. Now their focus has moved to a deeper digital media transformation that allows cost effective, responsive and deeply creative audience engagement, along with ‘anytime, anywhere’ distribution direct to consumers through mobile apps.

…with apps lighting the way forward

Why are mobile apps the answer? First, they’re universal. Second, they tap easily into high-bandwidth broadband access. These two factors are already shifting consumers’ preferred means of accessing music from buying downloads to paying for streaming services instead. And third, with music driven increasingly by video, apps can create a great immersive experience for video and audio together. As common app interfaces become available on more devices, people will find that a familiar app interface is always within reach, or at least earshot.

So, what better way to distribute music? And the impact of this new digitally-engineered model will be felt right across the industry. Content creation, distribution and consumption will be democratised. Artist apps will roll out, bringing the label, artist, manager, or other content owner closer to the value of the consumer relationship. We may see a growth in independent specialist labels, like those in the 1950s and 1960s, run by people with a passion for particular genres and the ability to discover talent. And crowdsourcing may become an increasingly viable way to fund global campaigns by independent artists.

Back to a future of creativity and profit

Coming back to where I started, this digital transformation is also great news for me and vinyl-loving music fans. The roll-out of super-fast broadband will enable streaming and other digital music services to regain the warmth and depth of vinyl, while combining it with the crystal clarity of CD. So, tinny MP3 will be upgraded to an experience that’s both much higher-quality and also more readily available.

The result: audiences will find their imaginations recaptured and love of music reinvigorated through deeper, more meaningful experiences. And the rights owners that remaster and distribute music direct to consumers through apps will make significant gains. Put simply: a win-win for music consumers and also for creative companies and artists.

For other sectors facing digital disruption, the music industry used to look like a warning-sign of impending doom. Suddenly it’s a beacon, illuminating the path to profitable, high-quality experiences beyond the initial traumatic digital disruption.

 

 

Huw leads PwC’s Digital Media Transformation group and major client initiatives across the global entertainment industry, specialising in technology and operations transformation initiatives with music, broadcast TV and digital distribution companies. Huw has over 25 years experience of leading global transformation programmes, and also in M&A integration.

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