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Music Industry Research

In: Business and Management

Submitted By rikibobbyy
Words 2134
Pages 9
Research Memo

Date: October 16, 2013
To: Prof. Hastings
From: Riki Kotaka
Subject: How do music companies address the issue the music sales has been declining?


Music is essential for our lives, however it is difficult for those who get involved with music industry to make a profit. Music industry has been shrinking since 1999 when Napster, pioneering music file share service, was founded [1 McCormick]. In 1990’s when the music sales were at the peak, the total global music revenue was around $30 billion, but the one in 2012 was only $16.5 billion [2 Pfanner]. I did summer internship at Sony Music Entertainment in Tokyo for a month. I’ve participated in some meetings to consider marketing plans for musicians. One main reason of the sales declination is an illegal downloading. Although laws prohibit illegal downloading, there are still massive illegal downloading websites on the Internet. However, global music sales in 2012 increased for the first time since 1999, and the number of songs downloaded illegally was declined to 210 million in comparison to 1.2 billion in 2008. [3 Sherwin] It seems that music companies finally found some efficient ideas to overcome illegal downloaders.
Do music companies actually increase their profits? And how did music companies start adjusting the situation? The purpose of the research paper is to figure out the main reasons why music sales finally increased, any differences to market music products and if the situation of music companies and musicians has improved or not.


* Development of Music Stream Services Rather than regarding Internet as a “main virus” of sales declination, music companies use digital media to expand their business. Launch and growth of music streaming services, mainly Spotify, has caused significant loss on illegal downloading service. Before launching Spotify, iTunes service by Apple dominated on the legal online music market. Since it costs around $ 2.50 per a song, people prefer to download songs for free somehow.
People feel it less to demand illegal downloading after Spotify was launched. Although you are not a paid subscriber, you can still listen to music. Also, it is easy to find songs you want, and the sound quality is quite close to iTunes. Spotify’s revenue in 2012 became twice as the one in 2011. The main revenues of Spotify are from paid subscribers, advertisements put between songs for non-paid members. For musicians and copyright owners, they pay certain money by each play.
However, Spotify also has some significant negative parts. The main part is some musicians’ frustration towards their royalty system. Thom Yorke, an English musician and a vocal of Radiohead, claimed “I wouldn't necessarily say that streaming is detrimental to new artists, but I question why the majors are so supportive of a business model that is so clearly unsustainable in the long term.”[4 Colletti] and boycotted to send his songs to Spotify. Although Spotify weakened illegal downloading, it is not efficient business for musicians as well. For each play, artists can get paid only half-cent [4]. Some musicians regard it as an “unsustainable” business [4].

* YouTube Music Branding
YouTube is one of the biggest advertisement platforms for musicians nowadays. YouTube used to be considered as an obstruction of making music sales. Some random people uploaded music videos or MP3 files without any permission, and people downloaded the files by using some illegal software. Music companies just try to delete videos posted on YouTube without permission. However, lots of music companies or musicians themselves have launched their official channels and post high-quality music videos. Since then, the number of unofficial music videos posted has decreased because people obviously more prefer to watch high-quality official videos. Currently, half of top 100 most-viewed YouTube channel by categories are a musician [5 Eordogh]. Also, they can advertise songs by paid promotions that come up to right-hand upper corner on the page or play before videos you actually choose to watch. The most successful marketing advertisement by using YouTube would be a case of Gangnam Style by PSY. The official music video has become the most viewed YouTube video, passing Baby by Justin Bieber. So, why did a song of the Korean pop star suddenly become a trend all over the world? PSY’s label, YG Entertainment, targeted world widely on him. What they did was that they increase the number of view counts of the video systemically by preparing a lot of computer keeping playing the video, and people could see the video under the list of popular videos. Since the music video was catchy and funny, it successfully attracted people all over the world. [6]

* Jay-Z - Samsung Partnership
Music companies address the issue by some unique marketing plan. Jay-Z, one of the most popular rapper over the world, released a new album this July. He teamed up with Samsung, and the new album had been distributed for free for the first million android users who downloaded an app. The app started a service three days before its official release date. This is a part of the $5 million marketing deal between Samsung and Jay-Z. Basically, the business was that Samsung pays $5 per an album so that Jay-Z made $5 million profit before none of listeners bought the album. As a result, he sold 527,000 of copies in the first week and topped on the Billboard album chart [7 Sisario]. Although a lot of people purchased the app, the business was criticized from some points. First, the app had a security issue. Fake app makers targeted the app, and many consumers got troubled with them. It was also criticized in terms of privacy issue. The app required purchasers for sending their personal information such as their ages, their phone records, or even their SNS information, which are not related at all to get the album.

* Japanese “Idol Group” CD Marketing Plan If you take a look at foreign countries’ marketing plan other than Gangnam Style case, you can still find some interesting marketing plans to increase music sales. Although a population of Japan is less than half of one in United States, Japan has one of the largest music market sizes by countries, sharing a quarter of total global music sales [8 Swarts]. In Japan, physical formats such as CDs are still the main factor of music sales even though CD sales keep decreasing in rest of countries. All of top 5 songs in CD single chart in 2012 are AKB48 (*1)’s songs. AKB48 is a girls “idol” group, consisting of more than 80 girls all of who are between 13 and 24 years old. Idol groups are Japanese specific type of group of teens and twenty’s attractive and cute members and are considered to be a part of Japanese culture. AKB48 has so many core fans of either group itself or specific member, mostly man.
Their innovative marketing plan to increase music sales is to put a ticket for their handshake events in CD package. When you shake hands with them, you can also talk to them for around ten seconds. A tricky part of the system is that you can shake hands only once with one member with one ticket but also can shake hands as many as the number of CDs you purchase. For example, if you buy two CDs and get two tickets, you can either shake hands with two members or twice with one member. This system matches a feature that each of their fans is core. Some of their core fans spend $10,000 (equal to 1,000 CDs) on buying CDs not to listen to music but to actually “reach” them. This unique marketing increased the number of fans, and none of musicians can sell CDs more than AKB48 currently, and a lot of idol groups start selling CDs in their way. Also, real musicians also start combine some bonus such as DVDs or photo books with CDs, that is, they sell CDs with some advantages at the fixed price. Actually, a price of CDs has not changed since 15 years ago.
Some music fans though feel uncomfortable for the system. Basically, idols are more likely to attract people by appearance or characteristics than songs themselves or skills as singers, so they think it is unfair that they dominate the CD ranking over “real” musicians last a few years. They are on the top in the ranking not because their songs appeal people but because of the tickets. Also, it is not uncertain if the marketing method could be applied to other countries since Japanese pop culture is quite unique and different from others.

Key Points

* Music streaming services such as Spotify rifted up the music sales last year, which was the first time since 1999. Also, they have been decreasing people’s intentions to do illegal downloading. However, some famous musicians complain about the royalty systems to distribute profits to them. * YouTube is currently a significant advertisement place for music companies.
Not only videos but also paid promotions on the right corner of the pages are used as well. * Music companies applied some unique and new marketing plans to increase their sales. Jay-Z formed a partnership with Samsung and made a marketing plan which is to distribute apps to listen to his new album to their users for free. Also, Japanese idol group, AKB48, distributes a ticket for the hand-shaking event with CDs and made dramatic sales increase on their CD sales. Conclusion, Recommendation Global music sales increased last year, and people don't do illegal downloading as much as they used to. Yet, you have to still consider saying music companies and musicians earn as much money as they should do. Music companies still keep trying to make people to spend more money on music product and improve the situation. We need to be more respectful for all the people involved with music and protect one of the most entertaining contents by ourselves.


*1 AKS. (2011, May 27). AKB48 Member. Retrieved from

[1] Neil, McCormick. (2013, February 28). Digital music sales will not save the industry; The music industry might be excited about a tiny upturn in global sales figures thanks to singers like Adele, but it's time to get real, says Neil McCormick. The Telegraph. Retrieved from

[2] Eric, Pfanner. (2013, February 27). Music sales bring hope for industry's recovery;
A business sideswiped by digital revolution sees first growth since 1999. The International Herald Tribune. Retrieved from
[3] Adam, Sherwin. (2013, July 17). Music and film industries winning war on piracy, says report. The Independent. Retrieved from

[4] Justin, Colletti. (2013, July 31). Spotify Payouts Revisited – How Much Does it Pay Now and How Much Should Artists Demand? Sonyscoop. Retrieved from

[5] Fruszina, Eordogh. (2012, December 24). What Gangnam Style’s 1 Billion Views Say About Modern Society. ReadWrite. Retrieved from [6] PSY no GENTLEMAN no YouTube maketing ga mono sugoi. [ How good a YouTube marketing for Gentleman by PSY is] . Japan. Retrieved from

[7] Ben, Sisario. (2013, July 18). Jay’Z’s ‘ Magna Carta’ Soars to No.1. The New York Times. Retrieved from

[8] Alan, Swarts. (2013, July 3). Why Japan’s Music Industy is Booming … For Now. Billboard. Retrieved from * Strengths
I would say that the strongest point of the paper is the material I have found for the research. There are some points to achieve the purpose of the research paper which is to find out the current situation of music companies. Although the topic is not academic, I could have included four points on the findings.

* Weakness
The weakness point would be a conclusion and recommendation part. Since there is not a clear solution to improve the situation, I cannot include any recommendation with the strong provident on the paper.

* Grade and why
Hopefully I could get a grade between A and B. I followed the format it should be and could include a lot of finding to identify the current music industry. The thesis is also clear enough.

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