Digital Music Distribution

[pic] MASTER OF MANAGEMENT UNIVERSITY OF GADJAH MADA 2009 Marketing Strategy For Digital Music Distribution within the scope of Indonesian music industry | | | | |Course |: |Marketing Management | |Lecturer |: |Prof. Dr. Basu Swastha Dharmmesta, MBA. | Submitted By: Julianto Hiliansyah (08/279840/PEK/13299)

Abstract Music industry has grown to a new level, digital distribution. Compared to conventional distribution, digital distribution is much more effective and efficient, for musician, record label and customers. However, in Indonesia, the system hasn’t support such phenomenon. Only ring back tone (RBT) is the only digital business that grows rapidly. But digital distribution is not just RBT. To support this system more comprehensive, musicians, record labels, government and customers has to be involved. It has to be done to maintain the Indonesian music industry.

Keywords: music, music industry, digital music distribution, musician, record label, RBT Introduction Music has always been a part of people’s life. For some people, music is a way to express their mind and feelings. With or without expression of word in a song, still we can feel the emotion of the song, whether it is expressing love, joy and happiness or full of anger, sadness, heart-breaking and melancholic feelings. While other people listen to music just to entertain themselves. The beauty of melodies and harmonies in a song laid comfort in our ear drums and pleasure in our heart.

Our feet jolts and our fingers flick following the beat of the music. While our lips humming the words, following the lyrics of the songs, as if we are the singer him or herself. That is how music affecting our everyday life. The word music is derived from Greek word, “mousike”, means the art of Muses. Muse is one of the nine ancient goddess in Greek mythology who inspires learning and arts (Wikipedia, 2009). Other definition, music is (1) an art form using melodious and harmonious combination of notes, (2) laws of this, (3) composition in this art (Collins Concise Dictionary and Thesaurus, 1994).

From those definitions, we can define that music is an art form whose medium is sound with its elements – melody, harmony, rhythm, tempo, dynamics and sometimes with lyrics – composed into a form of song. Long ago, people enjoy music by listening to the radio or to a cassette. Musicians record their album in a cassette and widely distributed. Radio station could broadcast their songs and listeners can enjoy it from home, car or other places. People can also listen to their favorite musicians’ songs by buying the cassette.

Of course people can also copy the songs from the cassette, but that would be illegal. Nowadays, The latest technology are CDs and MP3 files, makes it more compact and easy to collect. We can buy a CD – mostly contains 10 to 20 songs – and listen to it in a CD player or by using computer. But MP3 files can be included more than a hundred songs in a CD. That’s because MP3 files has smaller file size and able to be inserted in a MP3 player, cell phone even computer and laptops. People don’t always buy the songs they want.

Because of small-size file and easy to transfer, people can share songs among friends. Just copy-paste from computer to computer using flash disk or CD, sending from cell phone to cell phone via Bluetooth or infrared, or even from computer to cell phone or vice versa. There are also websites that provide people who access it to listen to music, buy music (albums or songs) and sharing music. This kind of activity is described as digital distribution, which means music is widely distributed around the world through internet. Distribution can be transactional or sharing files.

It seems that this kind of activity or business is replacing the conventional way of music distribution, which is selling records through store. In Indonesia, digital distribution business is starting to develop. Music publishers, recording companies and consumers are already aware of this phenomenon. Music downloading is familiar in consumers’ life, whether buying music from the internet or sharing music. But the most familiar one is RBT, Ring Back Tone. Almost everyone in the country use cell phone and almost every cell phone has RBT, it is quite a fad actually.

This is one of the largest business in music industry and music publishers and companies are aware that establishing cooperation with telecommunication provider is important. This business is one of the highest income in music industry. Research Question This paper discusses about the marketing strategy for digital music distribution system, more specifically in Indonesian music industry. It discusses about: • How is the latest condition in Indonesian music industry? • What are the differences between conventional way of distribution and digital distribution? How is the effective marketing strategy for digital music distribution in Indonesia? Most of the journals used as source explain in general scope of industry or in the US music industry. To relate it with Indonesian music industry, sources from magazine articles is featured as perspective and case sample. Discussion II. 1. Music Industry Major and indie label Generally, music business can be divided into 2 types; Major label and Indie Label. Major label is large companies with large scope of business and distribution channel, which publish record of a musician and distribute the record.

In Indonesia there are ten biggest companies of major label, Aquarius Musikindo, Dian Pramudita Kusuma, EMI Music Indonesia, Musica Studio’s, SonyBMG Music Entertainment Indonesia, Stora Adhiswara, Trinity Optima Production, Universal Music Indonesia, Virgo Ramayana Records, and Warner Music Indonesia. Samsons and Peter Pan are among the musicians who are under the management of major label companies. Music sales through major label approximately gained to Rp. 657. 6 billion (SWA, 2008). The scope of business and distribution is determines the income of the business.

The business scopes of major label are record selling through stores, RBT, soundtrack in movies and advertisement, merchandise selling, and royalty gained from any contracts between musicians and other companies. Target market of major label is at least within a nation. It can be world wide but because of the quality of the music, difference in music taste and genre, especially in language, major label only distribute it to surrounding countries of Indonesia. Indie label is similar to major label, however indie label has smaller scope of distribution and the business is not as large and various as major label.

Mostly musician that joins an indie label is because of their idealism of a music. While major label mostly only contracts musician with songs that is widely accepted in the market, defined as mainstream music/genre, indie label prefers to manage musicians with unique music, high skills in music instrument, creativity, sounds and music sense, strong characteristics in its music. Those core competitions of musician are the ammunition to penetrate the market. They believe that people are not always like to hear easy-listening music, but also great song with high skill, unique and strong characters.

Those people are the target market of indie label. It has smaller scope but mostly strong loyalty gained from the relationship between label, musician and market. Aksara Records, FFWD, Rottrevore and Demajors are some of the indie labels in Indonesia. Indie label has also different way of record selling. Instead of selling records through music stores, records are sold through clothing distribution store (distro), in a music show by building stand in the venue, or other places with potential market along with merchandises of the musician. Usually indie label made contract to share profit from the sales.

Merchandise selling is one of the highest income of indie label musician. T-shirt and other clothing, pins, stickers, guitar picks or any other unique stuff are the items which usually sold. RBT is not much of the business in indie label, even there are also indie label that sells RBT – cooperating with telecommunication provider – such as E-motion and Republik Cinta Management. Movie soundtrack is also one of the business of indie label. But not advertisement, because the songs that usually used as soundtrack of an advertisement is song that is familiar and well known by almost everyone.

Promotion and sales are not always the work of the label but musicians can be highly involved in the business. Business scope of indie label is not as large as major label. Although there are also indie label musicians that can reach overseas in music shows and record sales. It depends on with which company does the contract are bounded. The bigger the company, the bigger opportunity the musician can get. For example, Koil’s cooperation with Jack Daniel’s resulting opportunity for Koil to join other international musicians who are under the contract with Jack Daniel’s to perform in music shows in several cities in America. pic] Picture 2. 1. Indonesian music industry (adapted from SWA magazine, June 2008) Other music business Other components besides RBT that support the music industry are TV, radio and music shows. TV programs such as Inbox and Dahsyat are critical to music industry, especially in promotion. Normally, musician that get the chance to perform in those programs are musician that just released a new album or single and that album or single is a “blast”, and also very famous musician with enormous fans. TV has more influence in a music promotion rather than radio because TV can reach an entire nation even in small village.

But neglecting radio is a mistake, because radio is still a good medium of promotion. Music shows or concert can be a source of income for musicians but the other objective is promoting the musician directly to the eyes of the market. Promoters and event organizers are the parties that mostly held music shows. Music instruments business is also one of the business in music industry. It is not supporting directly to the music condition but it supports musicians for their instruments and equipments needed. Instruments and sound equipments are also needed by event organizer for music shows and recording studios, from amateur to professional.

Music instruments and sound equipments is kind of a “weapon” in music business. Quality of the product determines the quality of the sounds. Some mostly used and trustworthy brands are Ibanez, Fender, Yamaha, Behringer, Marshall, Peavey, Roland, Korg, Zildjian, Tama, Shure, Zoom, and many others. Some stores sells imported items, but some also sells local brand items, even custom-made instruments. Mostly custom-made instruments are guitars and basses, the reason is to get the sound musicians wanted and comfort in playing those instruments, and also the uniqueness of the instruments. [pic] Picture 2. 2.

Comparison between legal product of local records and international records The condition of music industry For the last five years, music development in Indonesia is quite satisfying. Indonesian music has become the host in this nation, record sales of Indonesian musicians is higher compared to international musicians (imported songs), the market segment has reached 85. 8% in 2007 (SWA, 2008). There are a lot of musicians emerged adding new color to the industry and new choices to the market. But the quality is still questionable. Quality of the songs, records, and musicians is jeopardized in order to get along with the music trend.

Even though the trends is a cycle that might be changing in years or decades but most of music observers, practitioners, directors, producers and musicians said the same that music quality in this country is declining. Some music practitioners have opinion that the reason of many musicians emerging but some with poor quality is because of digitalization of music. Everything can be instantly created and manipulated through computers. The ease to access, download and upload music through internet is also contributing to the problem. Digitalization is what is happening in the world.

Musicians have to be able to join in and use this as instrument to extend competitive advantage of the music. It also opens the opportunity for wider distribution. [pic] Picture 2. 3. Business value of Indonesian music industry (SWA, June 2008) Other phenomenon in this business is piracy. The business value is extremely high than other business in music industry. But this business is killing musicians and labels. The guilty ones are not always the ones who is doing piracy, but also market. The reason this business occurs is because there is a market that demand it.

People want to have CD album or songs with lower price but with no concern of the quality. It is true that people can freely choose which to buy. The main problem is that musicians and labels wants to sell albums and songs for a living, but some people find the price tagged for those albums and songs is too high so they turn to pirated albums and songs. This problem has to be solved as quickly as possible, involving musicians, labels government, and law enforcement. Other than killing a legitimate business of other parties, it also creates bad image of this country. Year |Legal Records |Pirated Records | |1996 |77,552,008 |23,068,225 | |1997 |67,356,071 |112,835,989 | |1998 |41,658,674 |137,209,167 | |1999 |64,464,951 |181,505,780 | |2000 |52,502,569 |240,084,555 | |2001 |44,031,698 |290,813,051 | |2002 |34,273,974 |363,516,314 | |2003 |35,835,865 |356,245,987 | |2004 |39,766,475 |331,308,768 | |2005 |30,032,460 |359,204,966 | |2006 |23,736,355 |385,701,129 | |2007 |19,398,208 |443,556,298 | Table 2. 1. Comparison of sales between legal records and pirated records, in unit (Rolling Stone, March 2008) II. 2. Distribution system Conventional distribution system As it was mentioned before, one of the ways to distribute music is the conventional way. To transfer creativity and “art” of the musician to consumers, parties that connect between them is needed.

Musicians can give a demo record to a label and if label sees this musician and music as a potential product and worth selling, then musician and label could meet each other to make an exclusive contract. Sometimes there is also division of the label which searches and recruits potential musicians. A&R (Artist and Repertoire) is the division which has the duty to “discover” potential musicians. Record label and recording company is different. Recording company is a company where musicians can record their music professionally with high quality after they signed up with a certain record label. This activity involves producers and music director who play important role in recording sessions. Record label’s activities are mostly in marketing of the musician especially in promotion and distribution.

Record label can also manage the musician, it depends on the contract between them. We can describe the duties and activities of a record label by breaking down the marketing mix of record label. Product; musician and their talent are the product of record label. Price; record label can set how much selling price of a CD or cassette album. But price tagged for a CD or a cassette is almost the same with every record. Normally the price for a CD or a cassette is between Rp. 15,000 to 25,000. However, CD and cassette selling is not the only items that have to be priced. Any agreement between musician and other parties such as merchandising, music shows, soundtrack, advertisement, etc. are “priced” by the record label but open for negotiation. Promotion; the main promotion objective of record label is responsible to promote the new released album or single of the musician. But promoting the musician to other parties can be also a responsible of record label. Place or distribution; because of records made are CDs and cassettes, record label distributes the products through music store/retailer. Although all of those terms depend on the contract between musician and record label, how far record label involve in the business of the musician? [pic] Picture 2. 4. Industry market structure in conventional music distribution Digital music distribution

What categorized as digital music distribution are transaction albums or songs through online service, whether through internet – downloading songs or albums and paid through credit card or other account – or through cellular operator – RBT and downloading songs or albums using cell phone. Websites that provides internet users to buy music and songs are iTunes, [email protected] com, MSN Music, Napster, Yahoo music, etc. Those websites sell music and songs with average price per song, 99?. |Provider |Price per song |Price per album |Subscription price | |Apple iTunes |99? |$9. 99 for most albums |None | |Buy Music @ Buy. com |99? , select songs 79? |$9. 9 for most albums |None | |MSN Music |99? |$9. 90 for most albums |None | |Napster |99? |$9. 95, with select albums at |$14. 95 per month | | | |$6. 95 |Access to entire | | | | |collection | |Yahoo Music |99? to burn a CD |NA |$4. 99 per month | | |79? ith subscription | |Access to entire | | | | |collection | |Walmart. com |88? |$9. 44 |None | |eClassical. com |49? to 79? |$5. 99 to $7. 99 for |None | | | |compilations | | Table 2. 2. Digital music providers’ current pricing practices Besides websites that provides transactional music download, there are also websites supporting digital music distribution.

Instead of providing transaction, these websites provide services for promotional activities. There are websites that enable web users to upload their videos such as Youtube. com, to promote musicians video footage including video clip. Networking websites such as Facebook. com, Friendster. com, and Myspace. com enable web users – in this case, musicians – to create profile about themselves and included in their profile; videos, songs and music. But most of the video, songs and music are only able to be listened to, not able to be downloaded. These websites are used as a fans site, to interact with their fans and create bond and loyalty of the fans.

Any musician can create their own site there, musicians from major label, indie label or even unsigned musicians. Online radio broadcast is can be an instrument of promotion as well. There are also websites providing web users to create their own radio station online such as Jetcast. com and web users can broadcast whatever songs and music they want, including their own music and songs. There are also websites that the buying-selling transaction is conducted through internet. Catalogs of the albums or songs are displayed in the website, showing profiles of the musicians and sometimes cut-version of their songs as a sample. Orders and payments are made through internet. However, the product received by customers is not in digital format, but hard copy.

It means that CD albums ordered by customers are delivered directly to their home. Other important website that musician should be aware about is their own website. It give more personal experience to consumers and fans. Service provided within thee website should be able to compete with other existing website as mentioned before. [pic] Picture 2. 5. Industry market structure in digital music distribution system In Indonesia, this digital music distribution is not well developed. Infrastructure, information and education about the technology are not ready yet to support such system. The only service that has existed and sustained is ring back tone (RBT).

Cellular operators have provided this kind of service to their customers. Cooperation and agreements with record label and musicians has been established well. This results good quality of service provided by cellular operators and responded positively by customers. Profit gained by cellular operator approximately billions of rupiah only from RBT. Asia covers 25% of digital music distribution, although mostly from RBT, not online transaction. Some music practitioners commented that sooner or later, people are going to realize that they are paying to buy music which is not listened by themselves. This might led to declining of RBT and maybe extinction.

Musicians and practitioners are questioning, after RBT, what’s next? The condition of the music industry is at the edge. Legal CD and cassette selling dropped because of piracy and new trend of digital music service. Then if RBT as one of digital music service is gone, what is left for the music industry. There might be no one wanted to be musician, many record labels might run out of business, many people might loose their jobs, and even companies related with record labels and musician might loose one of their source of income. It’s a domino effect, systemic failure, causing damage from one to another. One of the solutions is to get along with the trend that’s happening around world.

Turning to digital music distribution more comprehensive and totally is an option. However, business players in digital distribution are still not much enough. The main players are Im:port, Equinox DMD, Digital Beat Store and Indigo. From those four, only Im:port and Equinox DMD that already sell music through mobile and online. Both of them have operated since 2006. Im:port is supported by one of the biggest cigarette company in Indonesia, A Mild Sampoerna. Major and indie label musicians, even unsigned musicians are welcome to join in Im:port. Equinox is actually a English book publisher, but then expanded its business to digital music distribution.

Equinox distributes albums and songs of major and indie label musician who joined Equinox through iTunes. Equinox also promotes through weekly podcast to international music market. Equinox is targeting Indonesian people who live abroad. Digital Beat Store sells music through online and kiosk which also sell music digitally. Same as Im:port and Equinox, Digital Beat Store welcomes major label, indie label and unsigned musicians. The only requirement is the music fits with its standard in quality of sound and final mixing. Marketing Strategy for Digital Music Distribution in Indonesia We can take a look at strategies of some musician in distributing their albums and songs. Those strategies are quite unique, creative and innovative.

First example, Koil band, distributed their latest album, Blacklight Shines On, free charge through DeathRockStar website, even free CD as bonus attachment from Trax Magazine. How are they possible to do that? It is because they are sponsored by a whisky company from Tennessee, Jack Daniel’s. What Koil gets from this sponsorship is they are given the opportunity to do global tour in bars and cafes in Southeast Asia especially Indonesia, Singapore, Malaysia, Thailand, Vietnam and Philippine from May to December 2007. So, this strategy is purely promotional, it is not targeting for sales in short-run. But having the chance to promote to other countries is very potential. This could expand their market in long-run. Other quite innovative strategies are done by Rocket Rockers and Naif.

Rocket Rockers, which is assigned to an indie label, created unique way of selling their albums. Instead of buy album get free merchandise, they sell clothing and merchandise with their CD album as bonus. Of course they already prepared with financial calculations to avoid losses, but the way to distribute it is quite creative. Meanwhile, Naif sells their latest album in a flashdisk. Customers has to buy the flashdisk to buy Naif’s album. The competitive advantage of this strategy is customers can use the flashdisk for other purposes besides listening to Naif’s songs. The first thing before creating marketing strategy is to know the target market.

In digital distribution in Indonesia, the target market is Indonesian people who live in Indonesia and abroad. We can analyze the target market for its opportunities, and the result is opportunities provided by the target market is very large, opportunities are open cross countries, worldwide. Because target market is open worldwide, threats occurred is not only from local competition but also internationally. Preparing to fulfill opportunities and facing threats is significant. The weakness of local business players in digital distribution is less competitive in information system. Also, there are no contributions from them to educate local consumers to start aware of this new technology.

Business players in digital distribution have to provide sophisticated online system to support transactions made. We can break down the marketing mix of digital music distribution to define the strategies that can be applied. Product The advantages of digital distribution are: 1. Reducing cost for inventory While conventional distribution requires store and warehouse CD and cassette stocks, digital distribution only requires large capacity of hard drive to store files. This will greatly reduce inventory cost which means price can be lowered. This is the advantage that can be gained by record labels. 2. Better product characteristics CD is quite compact.

CDs sold in stores are in albums, it means that customers have less flexibility to choose which songs they want. But in digital distribution, customers are able to choose which songs they want to download, whether it is an album of a certain musician or compilation of songs. The product characteristics are more easily reproduced, transferred, searched, stored, and modified (Jesse C. Bockstedt, et al, 2006). This can be competitive advantage that can be offered to customers. Products sold in digital distribution have to be expanded. RBT is still a potential product, so record label and cellular operator has to be able to maintain the market condition. Besides providing better service and quality of product, new service might come in handy. Price

Distributors like iTunes, Yahoo Music, Napster, etc. , have almost similar price. We can adapt the pricing strategy for local selling. Digital Beat Store priced songs sold through its network for Rp. 5,000 per song. But selling through internet has global scope, which means distributors have to consider currency. This currency issue can be solved from these options; which is much better? Pricing all the songs in dollars as a common currency or differentiate currency between local buyers and international buyers? Pricing in dollar is quite fair because everyone will buy in the same price. But exchange rate of currency has to be considered for the local customers.

This involves the role of government to ensure better exchange rate. On the other hand, differentiate price for local and international is also quite fair to local customers. But problem might occur if foreigners buy songs through local network. This can be their advantage considering rupiah is lower than dollar. Promotion Record label, musician even government has the responsibility to educate local customer about how the system works. Because if customers don’t know how the system works, and finally decided not to do anything about it, then the one who could suffer from loss is record labels and musicians. Relying the business on RBT only is not enough. What if the business saturated?

What other alternatives do record labels and musician finally have? Although some cellular operators are feeling a little optimistic for mobile content industry including RBT. The reason is because they predicted that cellular customers will increase and it could raise more market revenue including in RBT. Promotion strategy for digital distribution is not so different with conventional distribution. Music shows and other interactive activities that involve musicians and their fans could be considered as promotion. However, because digital distribution involves more online activities, online promotion has to be more aggressive than usual promotion.

Ads banner, websites and other promotional kit for online has to be optimized. Even non-online promotion has to lead to digital distribution. Place/Distribution Digital music distribution creates one-stop shopping environment. Customers can search songs they want. Customers can also choose what to buy, one song, compilation of songs, or album of certain musician. Payment can be done at the exact time when decision to buy the music has been made, then buyers can download the music they chose. Those activities can be done in a website and it only takes a few minutes. It is a very easy and quick transaction. • How is the latest condition in Indonesian music industry? What are the differences between conventional way of distribution and digital distribution? • How is the effective marketing strategy for digital music distribution in Indonesia? Conclusion • Music industry in Indonesia is nearly defeated by piracy and digital distribution. Instead of confronting digital distribution, musician and practitioners has to be able to join the competition more comprehensive and well prepared, in the system it self, for the players, government, and customers knowledge about the technology and system. • Conventional distribution and digital distribution should have support each other. But now, it seems that digital distribution became trend in music distribution. Indonesian musician and practitioners have innovative ways to promote and distribute their music, for example Koil and Rocket Rockers • From marketing mix, strategy for digital distribution can be define: • Price; deciding how to fairly price and to cope exchange rate issue • Product; digital music has much better competitive advantage than CDs and cassette • Promotion; education about the system of digital distribution is significant in order to support digital distribution system • Place; digital distribution creates better business environment for customers, which is one-stop shopping Reference www. equinoxdmd. com www. cdbaby. com www. digitalbeatstore. com www. importmusik. com www. myspace. com www. youtube. com Bockstedt, J. C. , Kauffman, R. J. , Riggins, F. J. , The Move on Artist-Led Online Music Distribution: A Theory-Based Assessment and Prospects for Structural Changes in the Digital Music Market, International Journal of Electronic Commerce, M. E. Sharpe, Inc, 2006. Hidayat, T. , Bait Baru Industri Musik Indonesia, SWA Magazine, June 2008. Oberholzer-Gee, F. and Strumpf, K. The Effect of File Sharing on Record Sales: An Empirical Analysis, Journal of Political Economy, The University of Chicago, 2007. Musik Indonesia Hari Ini, Rolling Stone Indonesia, March 2009. Putranto, W. , Masa Depan Industri Musik, Rolling Stone Indonesia, March 2008. Tu, Y. and Lu, M. , An Experimental and Analytical Study of Online Digital Music Sampling Strategies, International Journal of Electronic Commerce, M. E. Sharpe, Inc, 2006. Appendix www. digitalbeatstore. com [pic] www. equinoxdmd. com [pic] www. importmusik. com [pic] ———————– Indie Label Cellular Operator Major Label MUSIC BUSINESS Movie Soundtrack Music Producers Music Shows Starring and Soundtrack for Ads Music Store ASEAN Market Other Channels