Right now I am writing a report on how music streaming services affect online music consumption habits. I have conducted a survey in Norway with 332 respondents (all students). I am about to start with my analysis of the survey, but thought I should keep you guys updated on my project angle (fyi I have removed all references in this post):

Historic perspective on music consumption

During an industry event in the early 90s, the now late record company executive Maurice Oberstein pointed out that the music industry practically was “giving away master tapes”. Oberstein was talking about the sale of CDs in a time when everybody was too busy counting cash to listen to what he had to say. Unfortunately for the record industry Oberstein was right.

The history of popular music is by far a history of developments in media and technology. Radio and the gramophone came into peoples home followed by the record player and the cassette deck. With the cassette tape came the ability of copying music as well as the social sharing of mixtapes and listening to music on the move (the car stereo and later the walkman).

With the introduction of the CD in 1982, music recordings changed from analogue to digital. The invention of the compact disc also underlined how the sale of music really was an issue of format change. The CD combined both portability and high audio quality. With this format change, the consumers of music not only started to buy CDs instead of vinyl records and cassettes; they updated their record collection with digitally remastered CD versions of already owned albums. For years, the recording industry was truly successful with a business model where you record and repeatedly sell music that people want to hear on preferred physical media.

With music being digitized and the emergence of the Internet, digital compression techniques came along. The birth of the MP3 provided a breeding ground for Napster (1999) and peer-to-peer (p2p) networks. For once the format change was not staged by the music industry. Digital compression techniques were simply developed by scientists, government agencies and computer hackers. Sharing music on this new digital format, which was not owned and controlled by the right holders, was obviously considered a crime. And the criminalization of sharing (known as piracy) has, for more than a decade been the biggest challenge for the music industry. However, many consumers and music fans experience illegal filesharing as the liberation of music. With even higher broadband connection and further development of compression techniques, we are now experiencing streaming services becoming more widespread as a substitute to physical formats and maybe also MP3 files.

Illustration photo: Arnbjørn Marklund

How does music streaming services affect online music consumption habits? Comparing Denmark with Norway.

Today, more than 10 years after the first launch of Napster, legal music streaming services are becoming accessible all over the world. However, what’s interesting here is that Denmark up until now has lagged behind with only one commonly known legal service available, TDC Play, which is only available to the people who subscribe to the company’s broadband, cable or mobile services. This stands in great contrast to neighbor country Norway, where streaming services have been available for more than a year (Spotify since October 2008 and Norwegian competitor Wimp since the summer of 2009).

Although Spotify is not yet available in Denmark, this is about to change as Wimp has recently launched in Denmark through Telenor (April 15, 2010). It is also important to mention that the Danish library will launch a music streaming service July 1, 2010. The IT and music industry is also speculating if Apple is about to launch “iTunes in the cloud”. That assumption is based on the Apple acquisition (and closing) of the web based streaming service LaLa. Rumor also has it that Google is planning to launch a music streaming service this fall, while it is realistic to presume that Spotify eventually will launch in Denmark in the very near future.

This overview shows that there is no doubt that the music market has developed into what Jeremy Rifkin (2001) describes as “The World of Access”. It is therefore realistic to assume that the music industry will experience an economic shift where access is more important than ownership. From an online marketing perspective it would therefore be highly relevant to look into how streaming services might affect music consumption habits, and how we can expect it to affect consumer behavior in Denmark.

It is with this market perspective in mind my main research question is:
How does music streaming services affect online music consumption habits and how can we expect such services to affect consumer behavior in Denmark?

Why is this relevant?

My main goal is to be able to point out how streaming services affect music consumption habits, and that way say whether or not such services will be a good thing for the music industry in Denmark (or in general for that matter). The argument against launching streaming services (mostly Spotify) in Denmark has for the most part been based on fear of low royalty payments to right holders (composers). This argument is fronted by KODA, the Danish Performing Rights Society. It is however pointed out by Chief Economist at PRS, the UK equivalent to KODA, Will Page, that it is important to look at legally available streaming services as “legal venues” that drives traffic from “illegal venues” such as Pirate Bay and Mininova. That way it is possible to say that streaming services will rather function as an important step to fight piracy than lead to a devaluation of music and decrease in royalty payments. At the same time the supporters of streaming services are convinced the business model will be economical beneficial in the long run.

Another argument that speaks for streaming services is that there, despite the fact that few of already available services are being used, seems to be a demand for certain music subscription services in Denmark. This might seem a bit confusing as I at the beginning of this report claim that TDC Play is the only commonly known legal service available. In this assertion it is important to outline the expression “commonly known”. There are more services available, in fact there are quite a few, but as previous research shows, TDC Play is the only legal service, which is commonly known. Yet it seems to be far from satisfying for Danish music consumers.

Services in use in Denmark.

The above image shows services which are in use in Denmark today (Octover 2009). The graph is based on previous research done by the undersigned and three other students at ITU (as a research project in Media and Communication). The research showed that 32% are using a subscription service in Denmark. It also shows that 43% of the people using a subscription service download less pirated music after they started using one. The interesting part is however that about 80% of those who do less pirating, either use a service that is not legal or legally available in Denmark (the majory use either Spotify or Grooveshark).

I have now spent the last couple of months diving into how this is different in Norway and  that way say something about how we may expect such services to affect consumer behavior in Denmark (if Spotify launch today, how will consumers act a year from now?)?

…I will make sure to post the final report by the end of the summer.