Currently the music industry is undergoing a rapid industry transformation.
Over the last twenty years technical advancements have significantly altered the way in which consumers interact with music worldwide.
The distribution shifts from specialty shops to mass-market online retailers are transforming both the consumers and producers behaviour throughout the music experience.
The behavioural shift is causing a devaluation of the music industry or more specifically the value of music content.
The digital music industry introduces new revenue margins which are having an impact on all players within this industry especially the distributing companies.
The music industry is now faced with advanced and complex distribution systems which also have begun to dissolve the traditional music revenue streams within the industry.According to the music trade body International Federation of the Phonographic Industry (IFPI) global digital music sales doubled in 2006 to € 1.5 billion in trade revenues and therefore represents 10 percent of world music sales.
In 2006 the recorded music sales on the European market was approximately € 5.4 billion.
The European digital sales correspond to approximately € 308 million in trade revenues and € 444 million in retail value.
The customer segment thus far has been made up by early adopters and the consumer behaviour centres around trials and impulse purchasing behaviour.
The two main distributing channels have been characterized as online and mobile and the homogenous European markets have adopted to the digital music distribution channels very differently.The mobile music value chain consists of a wide range of companies and the industry trend shows that industry players are trying to converge with other companies in order to grab a larger share of the value chain.
Nevertheless the music distribution chain is far from transparent due to the constant development of new digital distribution partnerships and business models.
Music is already identified as a key enabler within the mobile entertainment portfolio and all of the major operators on the European have strategically embraced the new digital music distribution channel.
The business model that currently has gained most momentum is subscription based services, which is the fastest growing business model in the industry.
Some companies argue that in order for the digital music distribution to reach a mature state consumers must have adapted to the subscription models.Content owners are also pressured by industry substitutes like illegal file sharing and IFPI estimates that over 20 billion songs where illegally downloaded in 2005.
In return the music industry has introduced several closed DRM systems, non-interoperable by design.
This environment has created a complex landscape for consumers and content distributors and also other stakeholders.
As much as this technology serves a purpose for the music industry there are great risks of restricting the customer usage.In order to reach consumers within the new digital distribution channel, large investments must be made in support and management systems.
This has opened up the industry to new digital distributing actors that are entering the market and are beginning to take a central role in the supply side of this industry causing the value chain to expand.
As the value chain keeps expanding the competitive environment is increasing.
More companies are demanding a share of the revenue which place pressure on the traditional music industry revenue sharing model.
In the end without long-term sufficient ROI any entity will have difficulty in sustaining profitability.
It is in our belief that the music industry will continue to evolve in the next decade and the traditional business landscape we see today will become something of the past.