The Effect of Social Media on Music

The social web has changed the way people listen to, share and interact with music. Sites like Last.fm, Muxtape, Radioheadremix and iMeem put the user at the helm. They allow us to share, interact, distribute, collect and rework music.

There are already plenty of great posts out there about what Radiohead has been up to. As well as NIN.

And Mashable has an amazing list of 90+ online music and audio sites.

What I want to discuss here is the effect of all of this stuff on us as individuals and the effect it's had, or could potentially have in the music business.

Music Discovery
Let’s start with the music discovery. Prior to the social web our options for discovering new music were limited. There was the radio, and the friends and family that we saw on a regular basis. People who were serious audiophiles knew the right record stores to go to, the right clubs to check out emerging artists, but your average Joe did not have access, or care enough about it to go out of their way to find it. The social web has allowed everyone to share, rate, recommend, discover and exchange music. The social web is a few to few environment; friends are influenced by friends more than anything else.

Music discovery on the web happens in a variety of ways:

Browsing - users browse through music based on the genre and artists they like
Stumbling - users "stumble" down paths based on behavioral targeting "people who liked X also liked Y"
Peer to Peer - users can send and receive recommendations to each other
Social groupings - your friends liked X

Live Performances
Then there's the impact social media has had on the discovery process in terms of live performances. With sites like Upcoming.org and Last.fm users can see which shows their friends are going to, and which ones they might like based on their musical tastes. You can figure out what everyone is doing, listen to the music online if you've never heard it before, and buy a ticket.

Interactivity and Collaboration
How about the way we interact with music? It used to be that we purchased an album, maybe made mix tapes or CDs and that was about it. Services like Muxtape allow users to make online mix tapes of their favorite songs and share them. Most social music sites are based on play lists that users can create and share with their friends. Radiohead took it one step further with the release of their single "Nude" in which they allowed users to purchase the tracks separately, make their own remix, upload it to radioheadremix.com and share with their friends. This was brilliant on Radiohead’s part, they not only sold each of the tracks for .99 on iTunes, increasing the revenue from the single, they engaged their audience in a relevant way, leveraged them to drive traffic to the site, and got an incredible amount of coverage from news organizations and blogs. People were participating with the Radiohead brand. They were spending their time carefully crafting remixes and rallying their friends to vote for them on the website. I love this concept of including your fans in the creation and improvement of your art and music. User-generated contests are a great way to build momentum and engage with fans.

Purchase
This all then leads to music purchase. Online purchases are influenced by friends and peers more than anything else, by a large margin. That's what makes social media so pivotal given the surge in digital downloads. Apple just announced that iTunes is now the number one music retailer in the US, with 19% of music sales occurring there. Amazon.com accounts for another 6% (I’m surprised it’s that high) and then you’ve got all of the smaller guys, leading to an overall paid digital download business that accounts for 30% of all music sold.

Take a look at this recent study by Enders Analysis:

Now What?
The music industry doesn’t quite seem to know what to do with this. If the projections are right, though digital purchases will continue to climb, they will not entirely make up for the loss of physical album sales. This is largely due to the fact that users tend to buy one or two songs rather than a whole album, and also availability of free music.

And yet, it’s a phenomenon that is obviously going to continue to grow and can’t be ignored. What I don’t understand is why more labels and artists aren’t jumping in with both feet and harnessing the power of the social web. Use word of mouth and social to build a community around the artist. Make up for the losses by creating new or modified revenue streams that may well surpass the old model. Limited edition high-ticket collectors' items for example, live performances, even live performances streamed into multiple locations at once where people can interact with each other from location to location and even interact with the artist. What about ad revenue from online video? It’s not a huge profit center yet, but it’s getting there. Why not wrap that into user-generated contests? Have users create videos, upload them, send their friends to the videos to vote for them, run ads on the videos that generate revenue for the artist while all along building social buzz, word of mouth and achieving a viral effect.

There's also the fact that digital distribution means lower costs in terms of shelf space, physical goods and distribution. Then there's warehousing, shipping, speed to market, all expenses that will decrease as digital distribution increases. Also, positioning music to take advantage of natural word of mouth is less costly than traditional advertising and marketing, and often much more effective. So perhaps the cost-savings of adopting an online social music model will help offset the decrease in revenue from album sales.

The sooner the music industry stops trying to cling to old models that don’t work and starts getting imaginative about the possibilities the better. I'm sure there are lots of people who know way more about this than I do, I'd love your feedback, please comment.