Generally, music is not a sector of the economy that is directly influenced by political decisions. Public funding does, however, affect the support of diversity in music. The music industry has been demanding from the government to introduce some strong legislation that curbs piracy. Some laws can affect how a company operates, its costs, and consumer demand. One important legal factor for music development and distribution companies concerning downloadable music is the customer’s right to copy the purchased music.
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Recording Industry Association of America (RIAA)(2-1) is an organization that advocates on behalf of the US recording industry.
Economic Factors:
In 2007, the amount of music purchased by US consumers increased by six percent. This surge was due to a rise in legally purchased digital music which accounted for ten percent of the total music sales in the US. The largest demographic of digital music purchases was from customers between the ages of 35 and 50, increasing it by 5 million dollars.
This increase sparked the growth in the digital music industry
However, the increase in sales could not compensate for the large drop in revenue from the decline in CD purchases. There was a net ten percent decline in total music spending from $44 to $38 per capita. Estimates show that over one million US consumers exited the CD market in 2007, with the majority of those consumers being teenagers. That year, 48 percent of teenagers did not purchase CDs, compared to 38 percent of CD sales they contributed to in 2006.
Social Factors:
In the early 2000s, various changes were visible in the society which affected massively to the music industry.
These changes were mainly a result of technological advancement along with changing customer preferences and increasing spending habits. They started to spend more on music equipment like portable music players and walkmans instead of music content like CDs. As a result, the industry took a major hit in terms of total revenue. Consumers were finding the digital version of music more convenient compared to the physical version. Additionally, the digital version was cost-effective (free in most cases) and had fewer transaction costs due to which a huge share of market demand inclined from CDs to MP3s.
On the contrary, entertainment options were increasing for consumers and so the music industry has to compete with the alternate sources of entertainment as customers have a fixed amount of time devoted to leisure.
Technological Factors:
Technology is the key ‘PEST’ factor influencing music in the early 21st century, and its influence crops up in every chapter of this report. The 2000s brought digital music downloading and revolutions in consumer behavior towards recorded music, as detailed later in this report. The MP3 format enabled any internet-enabled device to share music and Apple Inc has come to dominate trends with its iTunes, iPod, and iPhone technologies, letting consumers create and share their music collections.
The 2010s have moved one step ahead of downloading towards online/offline music streaming. Users now have the luxury to choose from millions of songs with a click on the smartphone’s screen. Popular streaming giants are Pandora, Spotify, Apple Music, and YouTube Music among others.
Pest Analysis for Spotify:
Political Factors:
Political factors have not played a large role in Spotify’s music streaming service in the US, but some countries like China and Turkey have banned or restricted Spotify. On October 11th, 2018 US President, Donald Trump, signed the Music Modernization Act (MMA) into law which is the music copyright law for this digital era of music. Before the MMA, artists struggled to earn royalties from streaming services for the distribution of their music, especially Spotify due to its issues with the management of music rights. This simplified how streaming services like Spotify paid musicians and helped musicians earn higher royalties. It did, however, threaten the profitability of Spotify. However, music streaming services have helped revive declining revenues in the music industry caused by the decline in CD sales and illegal music downloads.
Economic Factors:
The UK is Spotify’s biggest market considering the number of monthly active users accounts for 37% of the market, and they account for 32% of the North American market. Due to the low unemployment rate in these areas, consumers use their high spending power to subscribe to Spotify’s premium services.
At the same time depending on different consumer segments, all may not be able to pay a fixed amount for the subscription of its premium services which may hinder the company’s growth.
Social Factors:
There is a constant shift in music trends over time due to the rapid change in consumer preferences. Spotify has theits enormous task of providing continued value to its users to retain them as customers. The greatest asset of Spotify is it’s music suggestion algorithm which takes music its users listen to and selects new music from its library of millions of songs and gives them suggestions. With increasing access to smartphones and the internet, consumers have a great variety of different entertainment choices. Due to the fixed amount of leisure time users have they have to select between different entertainment applications. Spotify not only competes with other music streaming applications but also hasto to compete against different entertainment providers such as video streaming applications like Netflix and YouTube.
Technological Factors:
The increasing use of smartphones and the internet has contributed highly in shiftingtheand of music sales from physical records, CDs, to online music streaming services. Spotify, taking advantage of this fact has emerged as a market leader with the most number of paid subscribers today. Other giants like Apple (Apple Music,2015) and Google (YouTube Music, 2017) are attempting to overtake Spotify. The popularity of Apple’s loyal fan base is the biggest threat to Spotify at the moment. Brand loyalty could lead Apple users to subscribe to Apple Music versus Spotify. Apple has also created an Android app for Apple Music to attempt to compete in the Android market as well. To compete in this environment and overcome this challenge Spotify has branched out beyod other forms of audio entertainment such as podcasts. They have begun signing exclusive deals with podcasts that have large audiences to attract the listeners of those podcasts to their platform.
– I have corrected it up to here, RR
What have we learned from this analysis?
The key challenge faced by the music industry since 2007 is the rapid technological advancement that gave rise to a completely different revenue stream for the industry.Previously the major source of revenue for music was from CD sales, but as file sharing file-sharing services became accessible, people began to illegally download music. As a consequence, the industry suffered a great decline in total revenue due to music piracy. Pirating music was more convenient and cost-effective for music consumers. This quickly resulted in digital music downloading becoming very in tune and turn hurting sales.
That changed few years later after numerous protests by the dying music industry and new laws were enacted that preserved the integrity of industry. The Copyright Act (1976) was updated several times in response to these advances in digital technology including the Audio Home Recording Act (1992) (to implement a royalty payment system and serial copy management system for digital audio) and the Digital Millennium Copyright Act (1998) (which provided a license to the online service provider for non-interactive webcasting of sound recording).
Spotify and other streaming platforms were launched around 2011 and instantly became popular with both music artists and the consumers. Thus consumers moved from illegally downloading the ‘mp3’ versions of music to subscribing to music streaming services. Hence, the dropping revenue of the music industry 3was almost restored after a decade in 2017 and new revenue steam came to pass.
The musiclifestyles industry is one of the core sources of entertainment for consumers. As it directly influences people’s lifestyle, the demand for new and different types of music has always been high. What changes are the sources of that music for people? Earlier songs came in a form of CDs while now they are packed more conveniently in a smartphone. The entire demand now has been shifted from physical recorded forms of music (CDs) to digitally recorded forms of music (MP3 Streaming Services). Technology stands responsible for this shift in trend and the decline in CD sales.
