Creative Destruction In the Music Industry

I am a very happy Spotify Premium customer.

Everyone talks about Spotify  like it’s some type of new social media driven discovery engine, spreading new music through our networks like a happy virus of connectedness. I think that description hurts them because that’s not what makes Spotify great and it’s not what’s innovative.

I keep my account unhooked from my social profiles and I pay them ten bucks a month.  In exchange, I get cross-platform access to almost every song I want to hear, whenever I want to hear it.  As my friend Aaron Mandelbaum will confirm, I’ve been searching for this product for years but the previous attempts never quite got it right.  There’s not really any secret sauce here – what makes Spotify great is the same thing that makes Dropbox and Evernote great.  It just works every time across every device.

People talk about how the iPod and iTunes changed the music industry forever.  That’s true, but I believe that Spotify is the future of the music industry – the newly connected consumer doesn’t even think about ‘buying’ music.  The game is over, and ubiquitous access [and maybe curation] is the product when it comes to recorded music, the rest is just window dressing.

I started my career in the music industry and I can say that the oligopoly of record companies, despite having every opportunity to do so, could never have created Spotify. It’s almost tragic. On demand, cloud-based music’s inevitable success can be explained with Clayton Christesen’s framework in The Innovator’s Dilema.

The industry machine  was able to keep up with sustaining technologies.  For the changes from the vinyl record -> the 8-track -> the cassette tape -> CD, the industry  had no problem keeping up because the product and the economics were still the same: a bundle of tracks [and a small market for singles], delivered as a compliment to a device [e.g. a record player].   Sure, there was a little shakeup with cassette tapes because you could record with them, but that was a little bump in the road.  For the most part, the same players were able to keep up and drove innovation that improved the quality of the listening experience.

The first bullet wound came in the form of the iPod. MP3 players had been around for a while before the iPod [I had an Archos Jukebox in college], but it was a fringe market because they all sucked.  They truly sucked. The main market was still rocking CDs, buying them at Tower Records and playing them in their Sony CD players and discmen.

The iPod took MP3 player technology to the next level and it captured the market, but the really disruptive  innovation of the iPod was the integrated delivery system.  There was an ecosystem in place before Apple came into the picture.  There were record labels [content creators and marketers], cd manufacturers, distributors, retailers and device manufacturers.  Apple wiped everyone off the map with the iPod /iTunes system except the labels, who had to play ball or risk being shut out of the consumer market.  Only an outsider could have done this.

The second bullet, cloud-based music delivery systems, came in a similar fashion, albeit faster.  For a few years, there were products like LaLa and Rhapsody, but all of these services were a pain to use or lacked content.  The tipping point, in my opinion, came with the penetration of mobile smartphones. As soon as we had phones that acted like computers, we started to want to access our content across devices and Spotify built a great product to do it.  They beat out Apple for the U.S. market and they’re continuing to innovate [their iPad app is just awesome].   I can’t envision another disruption in the recorded music part of the industry, but who knows?

It’s been interesting thinking about how the music industry has evolved.  When I read Mary Meeker’s 2012 Internet Trends Report, I became inspired to think about how other disruptions are going to play out, and which companies are at the greatest risk.  I’m going to try to post a few predictions in the coming weeks.

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4 thoughts on “Creative Destruction In the Music Industry

  1. Well written. One important aspect to not forget is that the labels failed to learn from their own mistakes! De-bundling of the albums started with the labels and came long before iTunes. Remember single hits on cassettes? There’s a reason that only lasted a hot minute before being pulled from every Sam Goody in the mall. Not to date myself but yeah, I bought Paula Abdul’s ‘Straight Up’ and “Kokomo” from the hit movie Cocktail… so what? What are you gonna do about it?!?

    • That’s a great point – if you look at the difference between film and music, I think the key difference is the solidarity of the industry. They’ve managed to avoid the same devaluation of their product.

      Ah, singles. They drove Paula Abdul’s career.

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