dx3 Technologies Ltd.

Many millions of pounds are being spent every day by film studios, music labels and independent production companies to produce high quality entertainment content. These companies have invested even more money in developing the physical distribution infrastructure to make sure this content can be easily bought by the consumer. However the consumer’s adoption of the Internet and the subsequent developments that have made digital content ubiquitous and easily available have led to a strange conundrum. In a market where product demand is rising, the price of the product is rapidly falling. Indeed a large proportion of the target consumers are unwilling to pay anything for content that they believe is available for free. How can the content producers make a return on their investment?

The advent of mobile technology and its proprietary content formats provided some possibilities and new revenue streams have emerged in the form of mobile music, mobile TV and related services. However the rapid convergence between the online and mobile sectors means that even the future of these revenue streams must be in doubt. Ask a young person in any major emerging market where they would buy their digital music and the confused look in their eyes immediately reveals their belief that you are clearly not the brightest crayon in the box! They get it online for free and side-load it onto their mobile phones of course. The danger signs are clear and will persist as they grow up with the assumption that content is free. (It is estimated that 20 music tracks are downloaded illegally for every legal track download - Digital Music Report - 2008)

While all entertainment sectors - music, film and TV - are being affected, it is of course the music industry that is at the front-line of the changes. It is being forced to re-examine its core business model. There is no question that consumers value music and indeed consumption of music across many formats is growing including of course digital

“23% of people use the internet to download music from a free source” (source: Nielson/Net Ratings).

“30% of people in Britain download or stream film and TV content every month” (source: Olswang).

The industry continues to change as it tries to find new ways of protecting copyright owners. However the time-frame and success of these changes is very unclear and could go the way of the DRM initiatives or bypassed by new technology. Perhaps more importantly there are business models emerging that can take advantage of the current consumer trends. Given the emotional value of music, the impulse-buy nature of the product and the celebrities associated with music, there is a clear opportunity for brands, agencies and marketeers to work much more closely with music content to achieve their objectives. The power of digital content and its inherent advantages of developing a more interactive, direct response based relationship with end consumers will prove very interesting in the mobile and online sectors. After all, it is not just the music industry being forced to re-examine its business practices, the traditional advertising models are also under threat but that’s another viewpoint.

Anu Shah, dx3