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Philip G. Moscoso , IESE Professor, University of Navarra, Spain

Let the music play

Tue, 23 Feb 2010 10:07:23 +0000 Published in Cinco Días (Madrid)

A few days ago I met a former student who is in the music business. "I'm sick of working in a business that no longer makes money, looking at how to cut costs all day long," he told me. The next day, when I turned on my iPod at the gym, I thought about the problems in his industry.

The experts say that the problem is illegal downloads on the Internet, but if people were less piratey, would my old student smile again? Today, just like 10 years ago, one can turn on one's computer and listen to any song later. The difference is that a decade ago you used Napster and it was illegal, while now you use Spotify or Yahoo Music, completely legal services.

If someone downloads a song from iTunes for $0.99 they are not a pirate, but it has implications for the industry. Many parts of the traditional value chain are at risk. CDs and physical stores no longer need to be manufactured. Many work jobs are lost. In the internet age, one can buy a single song. Any provider offers a selection of titles that no physical store could hold and you can sell songs in Spain with no infrastructure.

Fortunately, the industry and some legislators are beginning to learn from past mistakes. The fight against illegal downloading costs money, attention from managers and judges, and in some cases has only generated bad press. The new approach three-notice system that has been adopted in some countries, in which those suspected of illegal distribution are first warned, and if they do not cease their activity their connections are slowed or even disconnected, seems to yield better results.

The core topic is to extract value from the possibilities offered by the digital era. An important issue of customers value the sound quality, the certainty that behind the name of the file is really what they are looking for, that the process of searching, downloading and management of the files is comfortable, or that other users make recommendations, etc. But this does not detract from the need to think of new ideas for charging for merchandise, beyond financing via advertising or charging per unit. Sweden and England show that improvements in the value generated for customers have been more efficient against illegal downloads than traditional legal actions.

Finally, leveraging the main competitive strength of record labels, discovering and promoting new artists. Those who manage to drive demand continue to play with an advantage. It's all about being creative to generate value for customers and monetize it appropriately.