Music industry must respond to shift in demand

Napster heralds great opportunities. The music industry will fail to expand unless companies respond to customers’ needs by improving services.

The US music industry and a number of artists are suing six-month-old Internet start-up Napster for copyright infringement.

Napster allows people to swap digital music files – which are invariably pirated – on the Net free. It claims to have more than 10 million subscribers and many pundits have heralded its arrival as sounding the death knell for an industry that has refused to move with the times.

In fact, the opportunity Napster presents is as great as the threat.

The Net and other new technologies such as mobile phones provide a great opportunity to increase the value of what on a global scale is a fairly small market. Rather than viewing the new economy as a threat to traditional CD sales, the music industry must understand how consumer demand has shifted to new distribution channels.

Services such as Napster introduce people to new music and create product awareness and brand loyalty. Record companies could be missing a trick if they don’t believe this will produce sales.

Moreover, US research company Webnoize reports that more than half of the 73 per cent of US college students who use Napster are willing to pay a $15 (&£10) a month subscription fee for a better quality, more reliable version of the service. This should be a win-win situation.

Another model is the exchange of music for detailed user profiles that can be leveraged for other commercial services.

Positioned correctly, Napster and its ilk can be developed commercially to benefit copyright owners and increase the value of their artist brands. Such services will sit alongside many others that employ new technology to meet the needs of different customer segments, at different prices. This could range from audio-on-demand delivered through the ultimate “celestial jukebox” to closely matched content programs streamed to car hi-fis.

The most exciting aspect of the new economy is that companies are no longer bound by simple product sales. Through two-way interaction, they can learn far more about customer needs and deliver improved audio experiences that have far greater perceived value.

So before lamenting the demise of the recording industry, we must remember that the innovation of such services will drive growth in what will be an exciting space over the next few years.

Richard Hinchliffe is head of corporate strategy at digital music distributor Startle

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