Business model

When music went digital, new business models emerged in the industry as listening habits
changed radically. This forced the operators to think of the future, and especially future ways of
making money with music. When consumers are given an opportunity to realize themselves and
their dreams and to share them with others, this satisfies their need to be an active party on the
musical scene. The Idol format, music games and social networking around music have shown
that there is a huge potential for a service like ours. People are interested in creating music and
distributing it, which is an essential part of the Music 2.0 trend," says Veli Palevaara, marketing
director of SongHi Entertainment.

Business model is based on selling subscriptions, virtual items, and ads. •  SongHi is global
format; regional roll- outs to be done in partnerships with record labels and/or media companies.
•  Market demand based on continuing growth on the social media space, and structural changes
in people’s music consumption patterns. Commercial Launch on June 1st, 2010 Beta available
now at www.songhi.com

After last week's post in my ongoing series about the economics of non-scarce goods, where I
discussed the ridiculousness (economically speaking) of saying you can't compete with free, a
friend emailed me to make an interesting point. He suggested that despite the common wisdom
many of us have suggested, the entertainment industry's business models aren't actually obsolete.
What is obsolete is what people think the industry's business model is. And, the worst thing is
that the people most guilty of this are the industry execs themselves

hen it comes to the entertainment industry, that may be exactly the case. We've been arguing that
there are plenty of business models that don't involve actually selling the content, but involve
selling other, related products that are made valuable by the content. In fact, that's what both the
music and the movie industry already do. Everyone may think that you're buying "music" or
"movies" but that's very rarely what you're actually buying. You're buying the experience of
going to the movies. Or the ability to have the convenience of a DVD. Or the convenience of
being able to listen to a song on your iPod. And, in many cases, it's not just one thing, but a
bundle of things: the convenience of being able to hear a song in any CD player, combined with
a nice set of liner notes and the opportunity to hear a set of songs the way a band wants you to
hear. It can be any number of different "benefits" that people are buying, but it's not the "movie"
or the "music" itself that anyone is buying.

So the problem isn't that the industry's basic business model is obsolete -- it's just that everyone
thinks they're actually selling music or movies, and that leads them to do stupid things like put
DRM on the music to take away many of those benefits, or making the movie-going experience
that much worse by treating everyone like criminals. What they're doing, and why it's hurting
them, is that they're actually taking away the features that they used to be selling -- and missing
out on opportunities to sell other benefits as well. So while we may still point out that the basic
business model is obsolete, it may be more accurate to simply say that it's the understanding of
the business model that's really out of date.
The video game industry is excellent example of an evolving sector with a successful history of
quickly adapting to new consumer trends and behaviours in order to constantly realise new
revenue opportunities. Similarly, the music industry has been greatly impacted by evolving
consumer habits, and as we move away from the historic business model of selling a physical
format, we can leverage several valuable lessons offered by the video game industry example.

Lesson 1: Consumers like to be social while they are entertained

The video game industry went from selling consoles with multiple controllers to networked
games to purely multiplayer universe games to games that integrate into social networks (you go
social first, then plan the game). The music industry also needs to make this transition.

While concerts, clubs, mixtapes and other social outlets have historically been a part of a music
fans life, the current environment necessitates ingraining social aspects into the actual music
itself. Consumers want to share, discover and connect as, or even before, they listen to music.
Today’s “albums” in the form of music apps need to allow consumers to connect with the artist
as well as with other fans and give them the ability to instantly, easily share the music they love.
We are making strides in this direction, but the more aggressive we can be in not just socialising
music, but monetising the social features, the more successful we’ll be as an industry.

Lesson 2: Consumers like to personalise their entertainment.

First, video games sold add-ons. Then they let consumers build their own add-ons. Now, they
allow you to design your own character, make in-game purchases and drive story lines for a truly
personalised gaming experience. Music has sometimes allowed some remixing or karaoke and a
few bands allow taping of concerts, but that is as far as personalisation has gone…until now.

Artists and labels are just now starting to let consumers personalise tracks through mixing or
create new tracks through sampling. This fits into the natural desires of consumers – to
personalise what they love and to help contribute directly to the artist (yes, including providing
the artist with samples). Moving in this direction can not only create more opportunities to sell
music, it can create new opportunities to sell the same music multiple times in the form of
different personalisation apps.

Lesson 3: Consumers want to gain status through competition.

Michel Reilhac, Head of Arte France Cinema, makes the point that the gamification of life is all
about status.  If you can gamify an activity, you can feed both the social and competitive nature
of people by giving them a new social status.  There’s no reason we can’t do that for music on an
every day basic.  Instead of simply telling friends about this great new song one heard, a person
can tell them how your remix of that song was highlighted by the artist…thus elevating ones
status.

How to leverage these lessons?

Today’s fan wants more than just a track. They want a participative, personalised experience in a
social environment.  This is something they had in the analogue world as they listened to LPs
with friends…and now they are seeking it in the digital world. But, as an industry, we can take it
farther and create more opportunities as fans that are socialising around music in networked
environments can also conduct transactions in these environments.
Success isn’t just a matter of respecting what your customer wants, but also anticipating what
they’ll want in the near future. How long would the video game industry have succeeded if
innovation stopped with Pong?