Attitudes of Polish Record Labels Towards the Digital Music Market

Attitudes of Polish Record Labels Towards the Digital Music MarketThe compact disc serves as the technological basis for all the mentioned above products.One of the reasons why most of the Polish record labels are skeptical about new digital musictechnologies is their inability to categorize music files as albums or compilation albums. Thefact that music files are released as tracks, which are not always bundled into albums, andcan be bought by customers as per item, seems to be a serious concern for the labels. If aconsumer cherry-picks only three tracks from 12 songs long album, labels perceive it not asthree tracks sold, but nine tracks not bought (interview number 9).Only these firms which describe themselves as netlabels declared that their main productis a music file. It is difficult to estimate the exact number of netlabels, as there is no cleardefinition of a netlabel. Generally about 10% of the firms which took part in the researchtreat music files as the main preferred audio format. Most of them employ the “free music”business model – they distribute music files for free and treat it as a promotional vehicle,which helps artists get listeners’ and media attention and also helps them to earn moneyfrom other sources (e.g. concerts or music publishing) (interview 5).Distribution: selling tangible products in virtual storesPhysical distribution of compact discs is a key element of the traditional music business model.Many small record labels are unable to organize efficient physical distribution of their products,which is often the main reason for their market failure. The demand for music products isvery unstable and hard to predict, which makes uncertainty the most characteristic featureof the music business (Lewis, 1986). It is estimated that only one record in every nine is ahit, while the other eight generate loses (Hesmondhalgh, 2002). Consequently, the retailersare very careful when choosing which products they sell. Small record labels rarely haveenough clout to make their products widely available, thus they should be the first to employnew business models, which give them more control over the distribution chain.In the music business, choosing a distributor is important not only from an economic butalso an ideological point of view. The most powerful distributors are affiliated (or are a partof) major record companies. Record companies, which manage to distribute their productswithout employing major-label distributors are called independent record labels. Such firmsdistribute their products by themselves or employ independent distributors. The distinctionbetween major record companies (or these labels which are affiliated with majors) and independentrecord labels is an essential part of “creativity and commerce” discourse, whichis important to many fans, musicians, journalists and scholars in various genres of popularmusic (Negus, 1995). They believe that independent record labels, which have no ties withmajor record companies, give musicians more artistic freedom, tend to be less bureaucraticand exploitative (Lee, 1995). Even though the history of popular music shows that in manycases this was not true (Hesmondhaldh, 1999), there is a general belief that “doing-it-yourself”- recording and selling music without the support from major record labels – democratizespopular music and has a positive impact on the quality of records (Lee, 1995; Hesmondhalgh,1999; Moore, 2007; Strachan 2007).Consequently, there are at least two arguments why smaller record labels should be interestedin introducing new forms of distribution via the digital music stores: a) often it is easierto sell digital files than to convince traditional retailers to sell niche products; b) selling musicon the Internet means reaching listeners in a more direct way and it brings the record labelscloser to the “doing-it-yourself” ideal than any other form of traditional distribution.Nevertheless, data collected in the survey shows that Polish small and medium record labelsseem to prefer traditional distribution channels (table 3).ECONOMICS AND ORGANIZATION OF ENTERPRISE 2/200943

Attitudes of Polish Record Labels Towards the Digital Music MarketTable 3. Distribution channels employed by record labels which took part in the research. Respondents couldchoose more than one answer.Distribution channelPercentage of firms whichdeclare usingthis distribution channelMajor record labels’ distributors + chain stores and supermarkets 21.8%Independent distributors + chain stores and mom and pop stores 41.4%Label distributes records individually to chain and mom and pop stores 28.4%Label sells physical records directly via its own website 71.3%Label sells physical records via various Internet stores 44.8%Label sells physical records via artists’ sites 31.0%Label sells digital files via digital music stores (pay-per-track model) 17.2%Other 5.75%Source: Gałuszka, 2007.As we can see, only 17.2% of record labels declared that they sell their music in the formof music files via digital music stores. On top of that, only a very small percentage of theirproducts is sold this way (less than 1%). Although these numbers may seem neutral, it shouldbe noted that Polish records sales have been significantly declining in the last few years,which should motivate record labels to look for compensation in the digital market. Unlikethe American and some of the Western European markets however, the sales of physicalproducts have not been replaced with digital sales (Polish Society of Phonographic Industry,personal communication, 8 May, 2008). Although it may be argued that there are externalfactors which prevent labels from entering the digital music market, the research shows thatthese factors are not critical. As we can see in the table 4 none of external arguments againstselling digital files (broadband penetration, music piracy, etc.) dominate the answers.Despite all the skepticism about selling digital music files, Polish record labels are quite activein selling compact discs over the Internet. As we can see in the table 3, 71.3% of recordlabels declared that they sell compact discs via their own internet site. 23.0% of the firmsdeclared that it is the most important means of selling their music, while for 47.1% it servesas a complementary distribution channel. The possibility of using firm’s internet site to sellrecords is especially important for small labels, which have difficulties in finding traditionaldistributors. Therefore, it cannot be stated that Polish record labels are generally skepticalabout selling music using the Internet. They are active in selling compact discs and ratheravoid selling music in the form of digital music files. Interviews carried out during qualitativepart of the research suggest that the most probable reasons may be the following:1. Major and medium independent record labels in Poland are afraid that a fast growthof digital music distribution might cannibalize CD sales, which would then result in thedisintegration of existing distribution networks (interview 7, 9 and 10). Having their owndistribution networks is perceived as one of the ways of maintaining big labels’ advantageover small independent record labels and any possible new players in the recordingbusiness. Consequently, big record labels do not want to fully engage in the developmentof digital music distribution.ECONOMICS AND ORGANIZATION OF ENTERPRISE 2/200944

Attitudes of Polish Record Labels Towards the Digital Music Markettechnological environment at all. As it was mentioned earlier, Polish record labels are quitehappy to use the Internet to sell compact discs. The Internet is also widely used for promotionalpurposes.There are two main differences between traditional music promotion and its promotion viathe Internet:1. In the traditional music promotion model, before the customer can even listen to the record,the music passes several stages (Negus, 1996) as oppose to the Internet, where it canreach the customer directly. The elimination of gatekeepers means a much easier anddirect contact with individual listeners, which also means that marketing communicationbecomes much more decentralized. It seems to be especially beneficial to small recordlabels which have no chances of promotion using television or mainstream radio.2. In the old music promotion model, the record companies promote “an awareness of theexistence of the album, as opposed to knowledge of its content” (Hull, 2004, p. 185),whilst Internet music promotion is based on both - content (music) can be easily presentedto customers (e.g. on the label’s web site, MySpace, etc.) before they make adecision about paying for it. Whereas in the traditional music promotion model, the startof all marketing communication begins with a question of “how to present the music topotential customers?”, now it is rather “how do we convince them to buy the music, oncethey have listened to it for free?”.Although one may have the impression that it is easier to plan and realize music promotionon the Internet than in traditional media, the results of the research show that Polish recordlabels have varying opinions about it. On the one hand, they believe that music promotionon the Internet is much more accessible to labels of any size, on the other hand, drawinga mass-consumer attention to the music is much more difficult on the Internet, as there aremore artists competing for it.Record labels, which took part in the survey, were asked to: a) evaluate the effectiveness ofvarious forms of music promotion, using a scale from 1 (useless form of promotion) to 5 (avery good form of promotion), b) declare which forms of promotion they utilize.The most interesting observation is that traditional media promotion is described by labels asthe most efficient, but compared to promotion on the Internet, it is less often used. Promotion,which utilizes television (in form of music videos broadcasting) is perceived as a very goodform of promotion: 4.35 in the case of using free-to-air TV channels and 4.00 in the case ofmusic television channels, but is not widely used: respectively by only 27.6% and 28.7% of therecord labels. There is at least one main reason for this: it is relatively difficult, especially forsmall record labels, to convince the television stations to play their videos. As the productionof music videos is expensive, some record labels (21.8%) claim that it is pointless to investin it, especially if a firm knows that the chances for having their videos aired by the televisionstations are low. Another 23.0% of the record labels claim that they do not use music videosas a means of promotion but they are considering doing it in the future.The situation is not so obvious in the case of radio airplay, which is both regarded as a verygood form of promotion (4.08), and is quite often used (64.4%). This can be explained, ifwe take into account that for years, radio airplay has been used as the main form of musicpromotion (Lathrop & Pettigrew, 1999; Hull 2004) and it usually does not need as manyadditional investments as music video does.It is also worth noting that marketing communication forms, such as – radio airplay, concertsand music videos – which are considered to be very effective, are characteristic only for musicpromotion. Commercials, which are a standard tool of promotion for most other industryproducers, are regarded as neither a very good (3.18) nor very popular (26.4%) form of musicECONOMICS AND ORGANIZATION OF ENTERPRISE 2/200946

Attitudes of Polish Record Labels Towards the Digital Music Marketpromotion. Similar observations can be also found in music business literature – music advertising(that is both commercials and other forms of paid advertising) is considered expensiveand may be perceived by customers as “hype” (Lathrop & Pettigrew, 1999, p. 179).All of the above mentioned means of music promotion are realized through a traditional media(airplay, music videos, interviews) or directly (concerts); additionally, they can also be realizedthrough the Internet. The promotional use of record labels’ or artists’ internet sites (as declaredby 75.9% of the firms which took part in the research) is rated as the most popular means ofpromotion, however, it is described as being significantly less efficient (3.57) than promotion,which utilizes traditional media. Internet sites are widely used for music promotion as theyare easy to start and cheap to run. However, record labels realize that it is much easier toreach a large audience through television or radio than it is with an internet site.Polish record labels claim, that they primarily use their own internet sites for “general promotionalpurposes” (declared by 85.1% of these labels, which run their own website), “tocommunicate with music fans” (63.2%), “for business purposes” (43.7%). During interviews,respondents representing small labels emphasized that a website is a universal tool and canbe used, not only for promotion, but also for records distribution (interview 1, 2).Other internet based means of promotion are used quite often, but are not really appreciatedby the record labels. Exact numbers are presented in table 5.Table 5. Music promotion in Poland.Form of promotionEffectivenessevaluation relatingto this form ofpromotion(scale 1 to 5)Percentage ofrecord labelswhich declareusing this form ofpromotionTraditional radio airplay 4.08 67.4%Promotion through free to air T.V. channels (music videos) 4.35 27.6%Promotion through music television channels (musicvideos)4.00 28.7%Interviews with artists on radio or television 3.76 58.6%Articles and interviews with artists in specialized musicmagazines3.89 67.8%Articles and interviews with artists in other press 3.18 47.1%Commercials 3.18 26.4%Outdoor advertising (billboards, posters) 3.08 32.2%Concerts 4.40 73.6%Promotional use of a website (label’s or artist’s) 3.57 75.9%Internet radio airplay 2.39 47.1%Interviews or live internet chats with artists via internetportalsMaking music files available for promotional purposes viainternet portals3.11 41.4%2,66 32,2%Making music files available in peer-to-peer networks 2.15 10.3%Other forms of promotion 10.3%No answers/insufficient data – 6.90%Source: Gałuszka, 2007.ECONOMICS AND ORGANIZATION OF ENTERPRISE 2/200947

Attitudes of Polish Record Labels Towards the Digital Music MarketFor bigger companies, internet promotion is only complimentary to promotion through traditionalmedia. For small record labels internet promotion is often the only means availableto them, so they exploit it to the maximum, even if they do not believe it is really efficient. Itmust be emphasized that promotion in the Internet is accepted even by these record labels,which are very skeptical about selling their music in the form of digital files.ConclusionsIn the last few years Polish music industry has faced a significant fall in the sales of musicrecorded on compact discs. Although the trend is the same for most music markets, in manycountries record companies try to meet customers’ demand and offer them digital music files.A successful implementation of new music business models by record labels in other countriesraises a question: is there anything that Polish music industry is doing wrong?The empirical data collected for this article shows, that Polish record labels are quite activein promoting their music over the Internet, which is often the only widely available medium,especially for small, specialized (niche) labels. The Internet is also perceived as a good placeto sell music, as long as the products sold are compact discs. This leads to a conclusionthat Polish record labels have no problem with using the Internet to distribute their products,but with accepting a change of sound carrier, that is the form in which their music reachescustomers.It seems that conservative attitudes of Polish record labels towards digital music marketare partially based on rational reasoning. Even though this was not widely declared duringresearch (table 4), record labels realize that broadband penetration in Poland is relatively lowand levels of music piracy are relatively high, which for some time may slow development oflocal digital music market. My argument here is that although these obstacles should not beignored, at the same time they should not prevent Polish record labels from trying to preparefor implementation of new business models in the future. About 90% of record labels whichtook part in the research represent traditional music business model and less than one fifth ofthem, apart from selling compact discs, offer their products in the form of digital music files.While there may be arguments against radical shift from compact discs to digital files, morePolish record labels should consider offering compact discs and digital files simultaneously.Taking into account that costs of offering digital music files are low and that examples fromother countries show that this market will grow, entering digital music market is not a veryrisky move. These record labels which do not want to sell digital files, may consider implementationof free music model (or like Magnatune combination of elements of traditional andnew business models). As it was mentioned earlier, history of recording industry suggeststhat small and medium labels (such labels were taking part in my research) should be thefirst to adopt new technologies. At the moment however it looks like most of Polish recordlabels are still mentally in compact disc era, which in my respondents’ opinion gave recordlabels better control of their businesses (especially in the case of compact discs sold vialabel’s website).Finally, there are a few labels (about 10% of my respondents) which have already implementednew business model. It is important to note that all of these firms were started veryrecently and all of them implemented “free music” model from the beginning (that is theywere never engaged in releasing compact discs). Hence, it may mean that it is easier toimplement new business model if a company does not have any experience in traditionalrecording business.ECONOMICS AND ORGANIZATION OF ENTERPRISE 2/200948

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