The technological development which have introduced mp3-technology, and the widespread of broadband internet connection have had a large effect on the traditional record labels sales and profit. The record labels simply have not been willing our able to adjust to the new digital reality.
In the new digital age, everyone with basic knowledge of computers and an internet connection are able to find and download any music they like, at no cost. The traditional recoding industries answer to this development have been to pursue legal actions that ultimately ignore the realities of today's market The traditional business model of the record industry is based on labels putting up the millions necessary to produce, package and market a hit act, and then keeping most of the profit generated from record sales to themselves. While leaving the lower margin concert, merchandise and music publishing to others. But as record sales decline in the new digital age, it is necessary to look into a new way of doing music business Even though the major companies finally have entered the digital era in some sense, and (since 2003) is licensing their music for sale through the internet, it is still proving to be hard to compete with "free" music offered through peer-to-peer file sharing services. Soon the record industry will come to realise that trying to sell over-priced CD's and digital tracks to people who have online access to all the music the want anyway, is like trying to sell snow on the north-pole.
Executive summary
So the question is, whether the music business is unhealthy, to which the definite answer is no. Never before have people consumed as much music as they do today. So the music business is doing better than ever, it is the record business that is out up step with reality. They simply refuse to accept and adapt to reality, which is the reason revenue and profits are declining. According to economic theory prices should equal marginal cost, and since its "free" to make another million digital copies of a song, the price for digital music should be set at zero. It might sound like nonsense to produce music, and give away for free. Indeed some of the people we have talked to think it is (among others Jakob Deichmann who is CEO of Warner Music Denmark). But none the lees it is what we propose.
MMG Music Group (MMG) is based on a new business model, embracing the digital era, accepting reality, and building on the opportunities available today. Instead of a record company, MMG is a music company, aspiring to internalise the positive externalities created by the production and promotion of music. MMG combines the functions of a record label, management company, publisher, and merchandiser into a single entity. Maximizing the revenue potential by including touring, publishing, and merchandising in the mix, MMG can try new creative marketing approaches that leverage freely distributed music to drive other income streams. The artist's brands will drive the business, and the economics will make the financial risk more tolerable and the return on investment more predictable. Instead of betting on a traditional 10-to-1 recording model that requires the huge success of CDs sales for a few artists to work, the New Century business model can work on much lower volumes by spreading the risk across multiple revenue streams
This model increases the potential return on investment for each artist signed by aligning the interests of the artist, manager, label, and publisher into a single entity that splits all revenue sources. Therefore MMG will compared to traditional record companies, have a larger incentive to invest in marketing and promotion of the artist. This is a unique opportunity for both the artists and the company to build a strong, lasting marketable brand, without conflicts of interest. Since what is good for MMG, is also good for the artist (at least in financial terms) and vice versa.
MMG will at first focus on the hip-hop genre, which is the fastest growing, and most influential music-genre worldwide. What is especially attractive about hip-hop is the cultural phenomenon. The music is a part of a culture that includes its own unique style of clothing and accessories, which are leaving a major mark on today's fashion industry, even people who do not identify with the music wear hooded sweats, baggy pants and caps. And since MMG is determined to make their money on the positive externalities streaming from production and marketing of music, it is a opportunity just waiting to be exploited.
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