What the Ad Business Could Learn from the Music Business

12.17.2013|Boelter Lincoln|,

This week, the leading music streaming service Spotify announced that their users could now listen to Led Zeppelin and also get free access via mobile devices. This is just the latest transformation of the music business, which has seen it’s business model turn sideways over the past five or ten years. First we saw sales of CDs virtually disappear as consumers moved to downloading MP3s. Now purchase of MP3 downloads have fallen off the cliff. Outside of a very small number of mega-stars, musical artists are finding they cannot generate substantial revenues by selling music.

The majority of music lovers now don’t necessarily feel they need to own music as the entire library (almost) of recorded music is instantly available via Spotify, YouTube and the other streaming services. Most consumers under the age of 25 (traditionally the core consumer of music) have never actually ever bought music. It is a foreign concept to them. “Huh, why should I pay money for music? I get everything I want, instantly and for free?”

This does not mean that people are not releasing new music for sale. In fact, the quantity of new music released every week dwarfs what was released twenty or thirty years ago. Anyone with a laptop and a few microphones can record themselves and be available for their friends, family and friends to buy, or listen to on iTunes, CD Baby, YouTube, etc. However, recording studios have disappeared in droves as the process has now gone DIY (do-it-yourself.)

While more music is being recorded and sold, the vast majority that is released fails to get any attention or sell. In 2011 there were approximately 870,000 albums released. Of these, 513,000 sold less than 10 copies and another 251,000 sold less than 100. On the other end, only 400 albums accounted for more than 31 percent of all sales. The majority of all real business is very concentrated around only a few major players. 88 percent of all music recorded and released is almost totally ignored by the public.

So, in the music business we are seeing that; 1) digital streaming has eliminated the need to purchase content, 2) the production of content has gone do-it-yourself, and, 3) an overwhelming majority of the content that is produced is not noticed. One positive note, artists who specialize in a specific niche category (e.g. Afro-Cubana, Dance Trance, EDM, Yoga/Meditation) and are smart marketers can now reach their specific target audience.

But, what does this have to do with the ad business?  The music industry is the proverbial “canary in the coal mine” for any business model that is based on creating content.  In the advertising agency world, we have either already seen, or will see:

  1. Most of the business being controlled by only a few players. As an example, more than 85 percent of all media that is purchased in the US is done by only 5 agencies. Leaving the remaining 19,995 agencies (approximately) to fight over that remaining 15 percent media buy.
  2. More and more content (ads) will be produced on a DIY basis by the client.
  3. It will become harder and harder for smaller agencies to gain the ear and attention of potential clients.
  4. Those agencies that establish a specialty (specific vertical or service) will reach their target and thrive.

Moving into 2014, the smaller, smarter and more nimble agencies will thrive and prosper by establishing a specialty that matches with their experience, expertise and passion. Just like the music labels have sadly found out – doing the same old, same old does not sell anymore.