Research on Online Music Business Model Innovation: A Case Study of Xiami Website

Transcription

1 Research on Online Music Business Model Innovation: A Case Study of Xiami Website ZHANG Zheng, KE Xinsheng School of Economics and Management, Beijing Jiaotong University, Beijing, , China Abstract: The emergence and development of online music has caused tremendous changes in the music industry chain, making music industry progress as well as bring some problems at same time. Among them, the business model change is turning the world upside down. Therefore, it is a new and big problem that constructing the new business model. Based on the industrial chain theory, through analyzing the business model of Xiami Websit, this paper explores and constructs the new strategy of business model. Keywords: Online music, Business model, Industry chain, Innovation strategy 1 Introduction The emergence and development of the online music will also herald major changes in the music industry. Annual Report of 2013 Chinese Online Music Market shows that as of the end of 2013, the number of China s online music users reached 450 million and online music market revenue 7.41 billion yuan, with an increase of 63.2% over Among them, the online music market reached 4.36 billion yuan, compared with 2012 growth of 140%. Mobile music market reached 3.05 billion yuan, compared with 2012 growth of 13.3%. Although the overall development of the network market is good, the business model and other issues still hindered the development of China s online music industry. From the perspective of industry chain, this paper analyzes the impact of the network to bring music to the music industry, and analyze the Xiami Music network s business model on this basis, to provide a reference for the future of online music business model innovation and reform. This paper refers to online of music is a broad online of music, including online music (spread via the Internet) and Mobile music (spread through the mobile communication network) two. 2 Overview of Changes in the Status of the Music Industry Industrial chain is a concept of the industrial economics, the idea first came from western classical economist Adam Smith s labor division of judgment. His famous needle is a vivid description of function of industrial chain. With the development of related technologies, the traditional music industry chain gradually developed into the network music industry chain. 2.1 Original music industry chain The original music industry business model is realized through the sale of the original coin jukebox and sounding doll. Later, with the development of economy and technology, the legal status of the music copyright is clear. The traditional meaning of familiar music industry has gradually been formed. The traditional music industry chain can be divided into three levels: The upper reaches of the production of the publication, the middle reaches of the replication production, and the downstream distribution sales. Under the traditional music industry structure. The record companies occupy the absolute dominant position, and their basic business model is the same. The first signed artist promising large number, to obtain these artists songs of the copyright and distribution rights; and then through the packaging production, the use of company has marketing means and perfect marketing channels will record to consumers. In this project the record company, the absolute dominant is mainly reflected in three aspects: (1) The content source: The record company to get the copyright and issued the song right through the 355

2 signing of music, then control and get the source of the industrial chain of content. (2) Distribution channels: Record companies often through into the record distribution, vertical integration behavior and retail channels, gained control of the record of sales channel. (3) Marketing channel: Various publicity media record company subordinates through media group to influence music tastes and preferences of the public. 2.2 Online music industry chain Generation of online music changed the music production, distribution, circulation and consumption patterns as well as to promote music products out to film, tape, or CD-ROM as a carrier presence, and mainly for the traditional model of the flow through tangible physical distribution channels. Instead, digital, intangible online music via the Internet and wireless network delivery to consumers. The emergence and development of online music to traditional music industry has brought great changes, spawned a new industry chain, as shown in Figure 1. Figure 1 New music industry structure The emergence of online music makes new music industry chain integration, which spread through the Internet, mobile communication networks and other wired or wireless channel mode, but also formed the production, dissemination and consumption patterns unique piece of music, but also in many ways had a changes. (1) Changes in the form of music products Music albums and tapes change from the carrier into a kind of digital audio files in the era of online music. Music files are generally stored in a computer database or storage products,the physical space it occupied is negligible. It reduced the manufacturing costs and storage costs,even eliminate them. In this situation,it directly reduces the price of music products. (2) Changes in the way of music product sales In the traditional music product sales, the record company product sales through distributors, distributors, retailers and other businesses ultimately entities music products for sale to consumers. But in the online music era, they use the way of selling music and films into the company through a network of digital music sold to consumers. In this way it leads to the traditional way of selling publishers, distributors and retailers gradually lose their effect. (3) Changes in consumption patterns of music In the traditional way of music consumption, each album or tape contains lots of songs, in order to get their favorite songs,consumers need to accept the record company bundling behavior, to pay for all of the songs. In online music era, the songs are downloaded in the form of singles, consumers can only buy 356

3 their favorite songs. This consumption of music product reduces the cost to consumers. 2.3 Changes in the music industry s impact on the music business model Changes of business model in the music industry chain has brought new influences. (1) Music content is the core competitiveness Convenient network improves accessibility between consumers and music, consumers do not need accept the songs which record companies bundles with the good songs. The songs that cannot cater to consumers stomach will lose market. Therefore, the quality of music content will be the key to make profit in new business model of music. (2)Changes happen in business model Online music has converted the traditional music industry into the IT industry, since then, the music industry has produced many new profit model. (1) Single sales model. In this mode, music products are authorized to music products provider by musicians or record companies, with fixed royalty fees paid as a guarantee by music products provider, in the meantime, they take certain percentage of sales revenue of music. (2) Advertising sharing model. This profit model aims at increasing the number of registered members of the site, user traffic, user hits and other data through providing free online music downloads and other services to users by licensed music service providers, so that they can attract advertiser and obtain the corresponding advertising revenues. Then the music service provider and record companies or musician get revenues proportionally. (3) Cellphone ring tones mode. In this model, the mobile phone users should pay mobile operators to download their favorite music as mobile phone ring tones. Then the mobile operators and record companies get their own revenues proportionally. As the model of downloading online music singles has not been successfully implemented in China, mobile phone ring tones has become China s largest music platform which charges. (4) Online music value-added services. This model is new in recent years and occupies a certain share in the digital online music market. The main representatives are online karaoke, studio and Green Diamond Member Services of Tencent QQ. Value-added services includes high-definition video viewing and uploading, ad filtering. (5) Other revenue model. Affected by foreign itunes + ipod model, part of the terminal equipment manufacturers practice this model in order to succeed, such as the Nokia Music Store --Ovi Store. 3 The Business Model Analysis of Xiami Music The change of the music industry chain requires a new music business model to match with. Although the successful online music business models are still scarce, there have been rather successful models after the continually exploring of many music companies. The Music Taobao mode of Xiami Music has attracted more and more attention. 3.1 The business model architecture The business model of Xiami Music is to use the P2P user distribution model and taste matching engines to attract users, which leads to the all-win of music sites, record providers and users. It can be summarized as the P2P + SNS + Share + Virtual currency + E-commerce model, that is, to share and get benefits by users downloading from the platform and sharing the benefits with the albums. Clearly, Xiami Music s business model is like the concept of music Taobao, and its business model framework is shown in Figure

4 Figure 2 Business model of Xiami Music In fact, Xiami Music is like a musical C2C e-commerce platform logically instead of a music website. In this mode, independent musicians and record companies can publish copyrighted music on the site, which is generally 0.8 yuan for each, for users to download. At the same time, singers and record companies may name their own price. And each user can share music with P2P mode, you can earn Xiami coins as well (virtual currency that Xiami Music uses). 3.2 Analysis of operating strategies As is shown in Figure 3, through the study of the business model of Xiami Music, we can make the following analysis of the operating strategies for Xiami Music: (1) Understanding the status of C2C platform of online music. They locate their position with the role of the operator of the online C2C business platform and integrate upstream and downstream resources of the music industry chain. And then it will provide users of downstream industry chain with high quality, large quantity, diverse music products, to stimulate consumers desire of buying online music and finally complete complex value delivery process of the online music industry value chain. (2) Determining the main business, providing personalized, high-quality products and services. Xiami Music regards online music business platform as its main commercial operation, and it provides online sales platform for independent musicians and record companies. Meanwhile, Xiami Music lays emphasis on the quality of music, providing users with free trial and paid download services. In addition, according to the different needs of users, Xiami Music also offers Xiami Loop, studio, advertising and other services, expanding the income sources and profitable way of it. (3) Developing and nurturing a service mode of online music service business platform to expand the way of moneymaking. It used online music platform to integrate the upstream and downstream resources of industry chain, and optimizes the business processes towards industrial chain. Xiami Music launched a B2C, B2B, C2C, C2B and other forms of various music services, forming a diverse profitable way, including retailing, derivatives, advertising, online music activities, and it developed a marketing mode of free and charge which is based on time-based, quantity-based, privileges and so on. It provides the online vertical trading services and wireless music events for web music platform operators and the music content providers, cooperative companies and customers. (4) Conducting online, wireless integrated operational services. The company attracts customers to participate by integrating partners and customers resources of platform, reasonably coordinating online business platform, conducting wireless music activities or projects and optimizing business processes. It makes it possible to share music and information wirelessly and to synchronize them combined with online music downloads music events and wireless music spread. Another way is to create rich online 358

5 content and products in the form of music combined with ring tones of radio chain to comfort the customers and make them enjoy multiple services, aiming at the accumulation of users using the platform. And these ways will also expand the influence of the platform, improve customer stickiness and thus promote long-term development for the platform. 3.3 Analysis of profit model The operating strategies of Xiami Music determine that its profit model is not a single existence. It is necessary to match it with a variety of services. The profit model of Xiami Music can be divided into four parts. (1) A model of C2C trading and P2P sharing. Xiami Music charges independent musicians and record companies for platform-using fee by building an e-commerce platform for online music, while possessing the revenue of music downloads. The price for each song is 0.8 yuan. Independent musicians have the right to make a price independently, and each independent musician and record company is like the owner of a platform. The Xiage (client of Xiami Music) uses P2P transmission mode. When other online music download songs read the data in your computer, you will get the corresponding sharing download revenue based on the amount of data you uploaded. The sharing revenue is: dowloaded flow *0.2 yuan. This profit model allows musicians to get the maximum benefits and it total flow of a song greatly encourages the creation of music and increases the production of music content. (2) Advertising model. Xiami Music attracts advertisers to advertise to obtain the corresponding advertising revenues by using the data of registered membership, user traffic, clicks and so on, which is superior and owned by the platform itself. (3) The VIP mode of Xiami Music. Online music users can purchase the month service to become the VIP of Xiami.com and every VIP privileges according to their class. For example, a discount of downloading songs, free auditions of high-quality songs, free trial of virtual props and so on. (4) A revenue sharing model of mobile operators. Xiami Music gets into earnings by providing high-quality music to mobile operators. 4 Online Music Business Model Innovation Strategies 4.1 Music content is the core of online music business model The emergence and development of online music, the traditional music industry chain gradually to online music direction, consumers can be more convenient, faster and cheaper to get music products and services; but because of bundling disappear, consumers are more likely to get music, making music consumers quality requirements increase, unpopular music will no longer have a market. In the era of online music, the core music and record companies still continued to launch popular songs and popular singer, and successful music business model will need to do this to create the right environment. 4.2 Companies should segment customer needs, and cultivate the habit of user fees Earnings online music industry is ultimately paid by the consumer to use can be realized. Online music era music industry chain downstream consumer demand for music is the sum of integrated services and a variety of interests including music products, including the coexistence of multiple services, forming a complex set of musical needs. Segment customer needs, provide diversification, personalized music products and services, is a multi-faceted music meet consumer demand, improve customer stickiness guarantee. Is to ensure smooth online music industry value chain objective requirements, an important factor in the online music business model innovation cannot be ignored. Business model innovation should be paid from the culture of users accustomed to rely on as the basis for the law to replace the statutory permission of the copyright owner to promote musical works, phonograms, paid in line with its business model is formed between the online music service providers 359

6 and consumers system, building meets the needs of network users pay online music system, improve the online music service provider status as profit body. 4.3 Market should establish a reasonable income online music distribution as soon as possible Ministry of Culture issued the 2011 Annual Network Music Development Report shows that the income of the online music market size of 380 million yuan in 2011, the wireless music market size of 2.4 billion yuan. Remove the record companies; music websites to extract profits, profits ultimate music copyright holders can get only 3% -5%. The revenue generated by profit hits, downloads and other music copyright holders because there is no clear way of income distribution, so they are difficult to participate in the distribution of benefits. 4.4 More concerned about the online music market 2013annual report of online music market shows that revenue growth of the online music market is mainly reflected in the rapid growth of online entertainment sector. As of the end of 2013, China s online entertainment market revenue reached 3.67 billion yuan, accounting for 84% of the online music market size. Converged networks and online music performances, effective music, performers and online music users together, increasing the consumer experience, reducing the huge operating costs. At the same time as the online music business model innovation, to develop a new effective ideas. 5 Conclusions Online music business model innovation necessary official Chinese online music industry s survival environment to reality is not divorced from the reality-based environment in order to have a viable business model and feasibility. Xiami Music business model is a good attempt. Not only because the user free spending habits, but also because of lack of a successful business model, slowed down the development of China s online music industry. And because of resources and environment, the industry owned enterprise itself there are differences, the existing business model template cannot be directly applied to the music industry in a corporate online. Therefore, the ability to conduct business model innovation, choice to meet the characteristics of online music industry business model is that we should primary consideration. Foundation: Supported by National Key Technology Research and Development Program of the Ministry of Science and Technology of China (2013BAH66F01-02) and National Culture and Technology Promotion Program of the Ministry of Culture of China (OTO Service Platform Research and Application Demonstration of Integration of City Culture Resources and Tourism Service Form). References [1]. Yao Qi, Yi Ke. Situation Analysis of Online Music. Music Exploration (4): (in Chinese) [2]. Adam Smith. The Wealth of Nations. Commercial Press. 2007: 6-10 [3]. Rui Mingjie, Wu Jingfei, He Dajun. MP3 Technology and the Evolution of the American Music Industry. China s Industrial Economy (2): [4]. Hou Linqi. Explore the Online Music Industry Value Chain. People s Music (Review Version) (6): [5]. Zhou Hui, Li Hui, Li Guanghui. Elements of the Business Model and Value. Academic Exchanges (7): [6]. Xiong Qi. Payment System for Future Models of Digital Music Exploration. Intellectual Property (7): [7]. Xiami Music Website