Computer Support Blog

In the quest to make digital music a viable business endeavor instead of just a cool idea, there have been many businesses and websites that have already come and gone.  While digital music pirating has been a huge issue for most of the services that have failed, rapidly changing hardware has been a serious issue as well.  One quarter, the dominant digital music device is an MP3 player, the next it is a smartphone!  Failure to adapt the digital music service to the new technologies has sunk some of the digital music services distributing digital music files over the Internet.  Spotify is deeply invested in making sure that does not happen.  For that, they have Oskar Stal!

Oskar Stal is the Chief Technology Officer of digital music distributor Spotify.  As Spotify developed as a website, but prepared to take its service international, the company sought a CTO who had extensive experience with mobile operating systems.  Without a CTO who knew the ins and outs of various mobile platforms, Spotify could not take their business to the next level.  Having been employed at mBlox, a company deeply invested in mobile transactions and the technical interactions between mobile platforms, Oskar Stal rose to the top of Spotify’s list of desirable candidates for the position.

Oskar Stal’s resume is more extensive than simply working for mBlox, though spending eight years as the Director of Development in the technical department at that company was the weightiest factor in Spotify hiring him.  Fortunately for Spotify, Stal was exceptionally interested in the position; he was already impressed by how much Spotify had accomplished without someone as experienced at the top of their development branch!

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The music industry, which has spent the decade since they effectively sued Napster out of business, has watched their market shrink for years.  The business leaders within the music industry blamed digital downloads of music, specifically pirated downloads, for the steady decline in revenues.  But 2011 showed some interesting trends in the music industry which suggests that the executives may have simply been grossly impatient with their emerging market.

In 2011, for the first time ever, digital music sales grossed more money for the music industry than physical media (compact discs) did.  While the music industry claimed that digital music would outstrip physical media sales back when Napster was in operation, the decade between its demise and the reaching of this milestone suggests that the music industry did not know how to effectively exploit the new medium and sales path.  After all, if pirating music had been the sole problem with the music industry making money off digital downloads, as soon as Napster was shuttered and iTunes started selling digital downloads, the music industry would have met their goal of selling more digital downloads than physical discs.

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The Internet is a remarkably shifty place.  Like the most clique-oriented teenagers, the Internet is home to overnight successes and equally fast crashes in popularity.  The Internet is, in many ways, the ultimate medium for those who have short attention spans.  Perhaps that is why there have been remarkably few Internet music phenomena.  The latest celebrity in music to have gotten her start from exposure on the Internet is also, arguably, the one who has gained the most from her time as an Internet phenomenon.  That person is Rebecca Black.

Rebecca Black was thirteen years old when she became an Internet phenomenon with her song “Friday.”  ARK Music Factory produced the song “Friday” and its creation was a gift from Black’s mother to Rebecca.  When the video for “Friday” was released on YouTube, it languished for a month before exploding with popularity.  On March 11, 2011, “Friday” started picking up millions of hits and the song and Rebecca Black became trending topics on Twitter.  Despite having a vastly disproportionate number of “dislike” ratings by viewers, “Friday” became a legitimate Internet success when YouTube users downloaded the video over 165 million times. The video earned tens of thousands of dollars in royalties and revenue-sharing from advertising through YouTube.

But how did Rebecca Black become an Internet phenomenon and what did she do with her sudden celebrity?

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According to the IFPI Digital Music Report from 2011, the music industry is a 15.8 billion dollar industry.  In 2010, legal digital music downloads generated $4.6 billion.  That number, which represents 29% of the music industry, has a vast number of analysts reaching very different conclusions.  The report, which notes that the music industry suffered a 31% loss between 2004 and 2010, is enough to give audiophiles pause.

Digital music in the form of digital downloads – audio files traditionally found online – have been on the market for over fifteen years.  However, the music industry started more carefully tracking the market share of digital downloads in 2004, following the collapse of Napster.  The influence of digital music in the marketplace has only increased; since 2004 the value of the digital music market increased 1000%!

Even with the convenient access to music that digital music affords its listeners and the lower production cost digital music offers producers, the music industry has seen widespread revenue losses.  Most in the music industry want to attribute the loss of revenue to pirated digital downloads.  Trends of pirating of digital music vary with every country, but some areas with less stringent intellectual property protections contribute more to the loss of revenue from pirating.  In the UK, 76% of music obtained online in 2010 was obtained illegally.  Industry experts estimate that digital music sales would be 131% greater if all piracy ended.

But the industry analysts may be making too many stretches in blaming digital music piracy for the industry’s woes.  The Digital Music Report attributes the 12% drop in global Top 50 concert revenues to pirating.  That connection may be a false one.  There is no evidence to suggest that those who pirate music either were attending concerts before they became music pirates or are less inclined to attend concerts once they begin pirating.  A much more likely factor contributing to lower concert attendance is the global financial crisis which has left many without the disposable income to spend on attending concerts.

Moreover, the report acknowledges that at 30% of their revenues, the music industry invests more heavily than any other entertainment sector in marketing and A&R (artists and repertoire, which is essentially talent scouting and artist development).  The report and analysts are quick to blame music piracy as the overwhelming cause of 31% drop in the value of the music industry since 2004.  Again, this is a simplistic view.  In that same time frame, pop music has all but died, replaced by rap, hip-hop and R&B on most Top 40 stations.  It is just as likely that the A&R sector of the music industry radically misjudged what music customers would pay for as it is that the piracy of digital music has precipitated the loss of revenues.

New services like Google Music continue to bolster the legal propagation of digital music downloads; there is no corresponding A&R avenue to so vigorously promote new, quality artists.

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