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technological advancements in the music industry in the last 20 years has
transformed the way music is produced, distributed and consumed, altering the
overall structure and demand for music.  The
turn of the 20th century, saw the transition of physical to digital allowing
artists and recorded companies to engage with consumers in a way never seen
before. The industry once dependent on CD, cassettes and vinyl sales, has been
virtually superseded by digital innovation with streaming being the primary way
people consume their music. The whole music industry from producers to artists
have had to adapt their business strategies to market their music.

 

Technology
has always played a fundamental role in the music industry throughout the
generations, from the phonograph
invented in 1887 by Thomas Edison, providing a necessary platform for the
development of music. In 1888, Emile Berliner invented the LP record which was operated
on a Gramophone, revolutionizing the way music was listened to. Throughout the 1950’s competition
in the industry began to formalise, especially with the arrival of the magnetic
tapes and the magnetophone.  In 1963, the
‘compact cassette’ player was invented by Philips, which was inexpensive to
purchase, and enabled better recording. This coincided with the growth of popular
genres of music and led to an increase
in the demand for pre-recorded cassettes.  

 

The compact disc
(CD), which was developed, by Sony and Philips in 1980s, was the first step in
the industries shift to digital technology. In 1998 CD sales reached 850
million units compared to 200 million units in 1989, which had a detrimental effect
on cassettes sales falling to 175 million units from 450 million units in the
same period. This further emphasises that music enthusiasts are keen to engage
with the latest technologies and the Digital Revolution began in the 1980’s
with the demand for music escalating worldwide. Up until the 1990, the music industry
was dominated by a few oligopolies known as the ‘The Big Five’; including Sony
and Universal Music. They controlled 75% of the market share worth more than
$23 billion through both the production and distribution of recorded music leading
to an increase in music recorded worldwide in the 1960 to 1970.

 

However, the
advent of the internet, coupled with the easy availability of downloading
software affected the big five market share which relied heavily on physical
distribution. This led to the wide spread of piracy and gave consumer the
ability to produce perfect copies of music files. The piracy industry in 2001
was worth around $4.3 billion of which 40% of CDs and cassettes where thought
to be pirated copied (IFPI, 2001). The launch of the music sharing service
Napster in 1999 was a major turning point in the music industry transitions
from analogy to digital which accumulated a user base of around 80 million(   ). However, in 2002, recording companies for
copyright infringement shut down Napster.  This only opened up the industry to more piracy
sites emerging. In 2002, the number of music downloads increased rapidly from
500 million to 900 million.  Music
companies knew it was too late to revert back to CD sales with an ever changing
industry and so in an attempt to limit further fall in sales, set up online
site where music could be purchased. However due to high subscription cost,
there was not a widespread usage. It was only when Apple announced iTunes in
2003, alongside the iPod as “the worlds best and easiest jukebox software” that
the legal distribution of music was made possible.  Jay Berner, IFPI chairman said “is proof that
if its done right, music lovers want to get music in a way that rewards the
artists and creators- that is, by paying for it.”(IFPI) Pandora was the first largest
music service in 2005, which pioneered the digital revolution.

 

Online streaming
has become the main way in which music enthusiasts consume and listen to music.
 After the music industry suffering years
of decline in revenue, 2015 was a turning point, with growth revenue from streaming
increasing by 45.2%, continuing through in 2016 to 60.4%. (IFPI.) By 2016, Streaming
has surpassed a fundamental milestone with more than 212 million users in the
streaming market and of these, 112 million are paid subscribers. (IFPI,2017).

Spotify is a
10-year-old music streaming company with over 70 million paying subscribers and
around $3 billion in revenue (Garton, 2017). Spotify is an online streaming
services which offers free access for registered users to more than 30 million
songs (Spotify). It has become the largest streaming service within the music
industry, reaching a staggering 140 million active users which has been valued
at over $8 billion (Spotify). Spotify users can either subscribe to a premium
version where customers can experience offline listening, elimination of
advertisement and unlimited access on multiple devices. However, the free
version which is supported by advertisements is also offered in order to create
a large customer base and entice new users.  This is reinforced by Daniel EK who is
Spotify’s founder “more than 80% of our subscribers started as free users”.

However,
Spotify needs to ensure that there is a right balance between premium and the
free version. In 2015, a third of Spotify revenue came from subscribers,
accounting for more than 1.9 billion while 220 million from advertising, according
to Music Business Worldwide. While this is a staggering percentage of paying
users, Spotify will want to attempt to encourage more of their free users to
their premium account through various strategies. This is a gradual process
with more artists and more genres coming on board with Spotify which will add
greatly to its appeal to the music enthusiast and give more reason to subscribe.
In 2014, Spotify introduced a student and family subscription for users which
was another strategy in order to appeal to a wider audience and different age
group.