Business models in the digitalized recorded music industry

Abstract

This thesis studied digitalization in recorded music industry by investigating how the business models in the industry have been disrupted, while simultaneously examining what is the economically sustainable outlook for recorded music industry from the viewpoint of the business models. Digitalization of music has led to a major devaluation of music as a commodity. This has resulted in a total alteration in the business models, power balances and value creation in the industry. Furthermore, academic literature regarding music industry is scarce. Healthy music industry should be in everyone’s interests. This thesis used primarily the qualitative research method. Main data was collected from six interviews and was backed up by financial data. Scope was narrowed down to major record labels and artists, given their central position in the industry. Empirical sample is skewed towards the record labels and should be noted in assessing the results. Regardless, the thesis provided valid and interesting outcomes.

Empirical results indicate that the business models have changed in many ways due to digitalization. Customer value proposition is now about delivering the best artists, instead of records. Profit formulas rely increasingly on streaming revenue as physical and digital purchases continue to decline. Formerly important key processes and related key resources, distribution and production, have given way to artist management, promotion and intellectual capital, not least because music is now mostly consumed in digitalized access-based manner. Ergo, among many digital innovations, peer-to-peer networks have been the most disruptive to recorded music industry, strongly contributing to the alteration of business models. Results on the economically sustainable outlook for recorded music industry were mixed. The view of major record labels was positive. The companies are financially well-off with business models in line with the sustainability practices. Their dependency on Spotify is likely to relieve as more serious competitors in on-demand streaming emerge. Value Gap is expected to get closure as laws on EU-level are currently being prepared. The side of the artists is more negative. Their income is generally low, payments are non-transparent and working conditions can be unfair. This grievance should be addressed for recorded music industry to remain healthy and sustainable. Market movements of international technology companies like Apple and Amazon, who already have their streaming services, present a question mark for the future. Backed up by huge financial resources, their actions could disrupt the whole music industry. This possibility should be considered when stakeholders in recorded music industry plan the future.