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Marketing Strategies for Low-Income Customers Essay

Good old fashioned rock ‘n’ roll could be dead. If a mobile phone ringtone in the shape of the vocalizations of the animated Crazy Frog dominates the billboard charts for months on end, then it could well signal the death knell for the industry, and how it operates. If this ubiquitous amphibian’s aurally annoying song, converted from a mobile phone ringtone, outsold even mainstay acts such as Oasis and Coldplay, why should music companies invest millions in cultivating fresh musical talent, hoping for them to be the next big thing, when their efforts can be beaten by basic synthesizer music?

The industry is facing a number of challenges that it has to address, such as strong competition, piracy, changing delivery formats, increasing cost pressures, demanding pri-madonnas and changing customer needs. Gone are the days when music moguls were reliant on sales from albums alone, now the industry trawls for revenue from a variety of sources, such as ringtones, merchandising, concerts, and music DVDs, leveraging extensive back catalogues, and music rights from advertising, movies and TV programming.

The music industry is in a state of flux at the moment. The cornerstone of the industry—the singles chart—has been facing terminal decline since the mid-1990s. Some retailers are now not even stocking singles due to this marked freefall. Some industry commentators blame the Internet as the sole cause, while others point to value differences between the price of an album and the price of a single as too much. Likewise, some commentators criticize the heavy pre-release promotion of new songs, the targeting of ever-younger markets by pop acts, and the explosion of digital television music channels as root causes of the single’s demise. The day when the typical record buyer browses through rows of shelves for a much sought-after band or song on a Saturday afternoon may be thing of the past.

Long-term success stories for the music industry are increasingly difficult to develop. The old tradition of A&R (which stands for ‘Artists & Repertoire’) was to sign, nurture and develop musical talent over a period of years. The industry relied on continually feeding the system with fresh talent that could prove to be the next big thing and capture the public imagination. Now corporate short-term thinking has enveloped business strategies. If an act fails to be an immediate hit, the record label drops them. The industry is now characterized by an endless succession of one-hit wonders and videogenic artist churning out classic cover songs, before vanishing off the celebrity radar. Four large music labels now dominate the industry (see Table 1), and have emerged through years of consolidation.

The ‘big four’ labels have the marketing clout and resources to invest heavily in their acts, providing them with expensive videos, publicity tours and PR coverage. This clout allows their acts to get vital airplay and video rotation on dedicated TV music channels. Major record labels have been accused of offering cash inducements of gifts to radio stations and DJs in an effort to get their songs on playlists. This activity is known in the industry as ‘radio payola’.

Consumer have flocked to the Internet, to download, to stream, to ‘rip and burn’ copyrighted music material. The digital music revolution has changed the way people listen, use and obtain their favourite music. The very business model that has worked for decades, buying a single or album from a high-street store, may not survive. Music executives are left questioning whether the Internet will kill the music business model has been fundamentally altered. According to the British Phonographic Industry (BPI), it estimated that 8 million people in the UK are downloading music from the Internet—92 per cent of them doing so illegally. In 2005 alone, sales of CD singles fell by a colossal 23 per cent.

To put the change into context, the sales of digital singles increased by 746.6 per cent in 2005. Consumers are buying their music through different channels and also listening to their favourate songs through digital media rather than through standard CD, cassette or vinyl. The emergence of MP3 players, particularly the immensely popular Apple iPod, has transformed the music landscape even further. Consumers are now downloading songs electronically from the Internet, and storing them on these digital devices or burning them onto rewritable CDs.

Glossary of online music jargon

Streaming: Allows the user to listen to or watch a file as it is being simultaneously downloaded. Radio channels utilize this technology to transmit their programming on the Internet.

‘Rip n burn’: Means downloading a song or audio file from the Internet and then burning them onto rewritable CDs or DVD.

MP3 format: MP3 is a popular digital music file format. The sound quality is similar to that of a CD. The format reduces the size of a song to one-tenth of its original size allowing for it to be transmitted quickly over computer networks.

Apple iPod: The ‘digital jukebox’ that has transformed the fortunes of the pioneer PC maker. By the end of 2004 Apple is expected to have sold 5 million units of this ultra-hip gadget. It was the ‘must-have item’ for 2003. The standard 20 GB iPod player can hold around 5000 songs. Other hardware companies, such as Dell & Creative Labs, have launched competing devices. These competing brands can retail for less than £75.

Peer-to-peer networks (P2P): These networks allow users to share their music libraries with other net users. There is no central server, rather individual computers on the Internet communicating with one another. A P2P program allows users to search for material, such as music files, on other computers. The program lets users find their desired music files through the use of a central computer server. The system works lime this; a user sends in a request for a song; the system checks where on the Internet that song is located; that song is downloaded directly onto the computer of the user who made the request. The P2P server never actually holds the physical music files—it just facilitates the process.

The Internet offers a number of benefits to music shoppers, such as instant delivery, access to huge music catalogues and provision of other rich multi-media material like concerts or videos, access to samples of tracks, cheaper pricing (buying songs for 99p rather than an expensive single) and, above all, convenience. On the positive side, labels now have access to a wider global audience, possibilities of new revenue streams and leveraging their vast back catalogues. It has diminished the bargaining power of large retailers, it is a cheaper distribution medium than traditional forms and labels can now create value-laden multimedia material for consumers.

However, the biggest problem is that of piracy and copyright theft. Millions of songs are being downloaded from the Internet illegally with no payment to the copyright holder. The Internet allows surfers to download songs using a format called ‘MP3’, which doesn’t have inbuilt copyright protection, thus allowing the user to copy and share with other surfers with ease. Peer to peer (P2P) networks such as Kazaa and Grokster have emerged and pose an even deadlier threat to the music industry—they are enemies that are even harder to track and contain. Consumers can easily source and download illegal copyrighted material with considerable ease using P2P networks (see accompanying box).

A large number of legal download sites have now been launched, where surfers can either stream their favourite music or download it for future use in their digital libraries. This has been due to the rapid success of small digital medial players such the Apple iPod. The legal downloading of songs has grown exponentially. A la carte download services and subscription-based services are the two main business models. Independent research reveals that the Apple’s iTunes service has over 70 per cent of the market. Highlighting this growing phenomenon of the Internet as an official channel of distribution, new music charts are now being created, such as the ‘Official Download Chart’.

Industry sources suggest that out of a typical 99p download, the music label get 65p, while credit card companies get 4p, leaving the online music store with 30p per song download. These services may fundamentally eradicate the concept of an album, with customers selecting only a handful of their favourite songs rather than entire standard 12 tracks. These prices are having knock-on consequences for the pricing of physical formats. Consumers are now looking for a more value-laden music product rather than simply 12 songs with an album cover. Now they are expecting behind the scenes access to their favourite group, live concert footage and other content-rich material.

Big Noise Music is an example of one of the legitimate downloading sites running the OD2 system. The site is different in that for every £1 download, 10p of the revenue goes to the charity Oxfam.

The music industry is ferociously fighting back by issuing lawsuits for breach of copyright to people who are illegally downloading songs from the Internet using P2P software. The recording industry has started to sue thousands of people who illegally share music using P2P. They are issuing warnings to net surfers who are P2P software that their activities are being watched and monitored.

Instant Internet messages are being sent to those who are suspected of offering songs illegally. In addition, they have been awarded court orders so that Internet providers must identify people who are heavily involved in such activity. The music industry is also involved heavily in issue advertising campaigns, by promoting anti-piracy websites such as www.pro-music.org to educate people on the industry and the impact of piracy on artists. These types of public awareness campaigns are designed to illustrate the implications of illegal downloading.

Small independent music labels view P2P networks differently, seeing them as vital in achieving publicity and distribution for their acts. These firms simply do not have the promotional resources or distribution clout of the ‘big four’ record labels. They see P2P networks as an excellent viral marketing tool, creating buzz about a song or artist that will ultimately lead to wider mainstream and commercial appeal. The Internet is used to create communities of fans who are interested in their music, providing them access to free videos and other material.

It allows independent acts the opportunity to distribute their music to a wider audience, building up their fan base through word of mouth. Savvy unsigned bands have sophisticated websites showcasing their work, and offering free downloads as well as opportunities for audio-philes to purchase their tunes. Alternatively major labels still see that to gain success one has to get a video on rotation on MTV and that this in turn encourages greater airplay on radio stations, ultimately leading to increased purchases.


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