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BUDAPEST BUSINESS SCHOOL FACULTY OF INTERNATIONAL MANAGEMENT AND BUSINESS INTERNATIONAL BUSINESS ECONOMICS COURSE SPECIALISING IN INTERNATIONAL ENTERPRISES AVANS HOGESCHOOL INTERNATIONAL BUSINESS SCHOOL BREDA BUSINESS ADMINISTRATION COURSE WHICH FACTORS LEADING TO DECREASING SALES IN THE MUSIC INDUSTRY CAN BE INFLUENCED BY ONLINE MARKETING TOOLS? Prepared by: Kata Fohl TABLE OF CONTENTS Executive Summary ..................................................................................................... 2 Introduction................................................................................................................ 4 Part 1: Research.......................................................................................................... 5 1.1 Rationale........................................................................................................ 5 1.2 Situational Analysis.......................................................................................... 6 1.3 Theoretical Background ...................................................................................12 1.4 Conceptual Model ...........................................................................................15 1.5 Research Design.............................................................................................18 1.6 Research Results ............................................................................................21 1.7 Conclusion and Recommendations ....................................................................24 Part 2: Practical Work .................................................................................................27 Part 3: Additional Theoretical Background ......................................................................33 3.1 Marketing and Arts .........................................................................................33 3.2 Computer-mediated Communication, Hypermedia and Interactivity .......................33 3.3 Shift in Today’s Marketing Communications Model...............................................34 3.4 Integrated Marketing Communications and Online Marketing ................................36 3.5 The Importance of Direct and Online Marketing...................................................37 3.6 Benefits of Direct and Online Marketing .............................................................38 3.7 Online Marketing as the Fastest Growing Form of Direct Marketing ........................39 3.8 Ways of Conducting Online Marketing................................................................40 3.9 The Future of Online Marketing – The Concept of Web 3.0 ....................................46 Bibliography ..............................................................................................................49 Appendices ................................................................................................................52 Appendix 1: Questionnaire ....................................................................................52 Appendix 2: Analysis of the Questionnaire Results ....................................................54 Appendix 3: Analysis of the Sell-A-Band Website and the Concept Behind It .................58 Appendix 4: Sell-A-Band Interviews........................................................................61 Appendix 5: Analysis of Facebook Marketing Activity .................................................64 1 EXECUTIVE SUMMARY This report examines the problem of copyright infringement through illegal downloads on today’s music market and intends to discover methods with which this phenomenon could be rolled back or alternative solutions to support economically harmed artists could be more well-known. For this reason, a research constituted by the distribution of a questionnaire, the analysis of a website, in-depth interviews with experts and targeted online promotional activities was conducted during my five-month internship at Monkey Music, an independent Austrian music label dealing with the thorough marketing of artists. As the first step of this research, the problem of illegal downloading was identified and examined in detail. Recent economic data about the music industry was collected, on the basis of which a conceptual model was set up. In this model, five variables having an influence on the problem of copyright infringement and decreasing music sales were identified, namely: technology advancement, Internet usage, economic rationality and prices, regulation, and culture. Since it was found that the first four variables could not be influenced in the frame of the research, further attention was paid only to culture. In connection with this factor, two hypotheses were set: illegal downloaders might change their behavior if they were better educated about the harmful effects of copyright infringement, and the number of live performance visitors could be increased with the help of targeted online promotion. These hypotheses were tested with various research methods with an unfortunately low internal and external validity due to the anonymity of online data collection. As one part of the research, a questionnaire examining Internet usage and downloading behavior, providing information about the illegality of file-sharing and testing the respondents’ willingness to change was distributed. The results of this questionnaire showed that the initial hypothesis of influencing infringers’ behavior by informing them about its illegality and harmful effects might be wrong: pure information is unlikely to change this behavior, and probably more radical steps are required. Another part of the research was the analysis of the Sell-A-Band website, a platform for donating money to musicians online. Together with the interviews made with three music industry experts, this analysis showed that online donation is not popular and not well-known enough, partly due to the fact that it is weakly promoted. According to the results of the research, when supporting a music group, people prefer attending live concerts or buying merchandise products to donating money to them. This preference for live performances was further indicated by the third part of the research, when live concerts of a music group marketed by Monkey Music were promoted with small contests in social media. Although users’ responsiveness appeared relatively low to these contests at the end of which they could win free concert tickets, these online marketing activities had an inevitably positive effect on the popularity of Monkey Music, and bearing in mind the fact that they did not require any financial resources, they were worth the effort. 2 They also indicated that the hypothesis about increasing number of live concert visitors and users’ responsiveness to online marketing might be correct. Based on the results of this complex research and the professional experience and knowledge gained at the company during the internship, the following recommendations were made: • Instead of selling CDs and encouraging illegal downloaders to buy CDs, today’s record labels and music companies should turn away from this traditional form of distributing music. Record labels should offer exclusive packages in the form of a CD together with an extra DVD about a live concert, with a poster about the band, or with a coupon for special online downloads or merchandise products. It is possible that more CDs would be purchased on today’s music market, if a higher value was attached to them. • Based on this above described concept of exclusivity and on the experience gained at Monkey Music, the production and promotion of traditional vinyl records could be advantageous in the future. Since CDs in themselves have become obsolete and uninteresting in the competition against other data carriers, the music industry may experience the return of vinyl records. Based on the sales statistics of Monkey Music for example, traditional records combined with modern technology can have a relatively great consumer base. • As for Sell-A-Band, although the website is not convenient for its original aim (exploring new talents is nearly impossible, since financial targets are rarely reached), it might be useful at a later stage of an artist’s career and should be applied when a sufficient fan base is already provided. For financing smaller projects, video shootings or the recording of a new album Sell-A-Band can be a helpful tool, if enough attention is drawn to the website. • Organizing simple, trendy and interactive online contests on a regular basis to advertise live events might significantly help artists and music companies. Although the research indicated that music consumers’ behavior and perceptions about illegal file sharing can barely be influenced, online marketing tools might have advantageous effects on another segment of consumer culture: live concerts can be effectively promoted with their help. That is why increasing attention should be paid to online communications and to maintaining a closer relationship with fans through the Web. This report contains a detailed description of the above mentioned research steps and results, and provides additional information about the practical work performed at Monkey Music and a strong theoretical background about online marketing. Although the problem examined in it is definitely too complex to be solved with the help of this research, this report can still provide useful information and a few interesting facts about today’s music industry. 3 INTRODUCTION This report concentrates on the effects of the high proportion of illegal downloads in today’s music industry and examines the extent to which infringers’ behavior might be changed and to which their attitude towards alternative methods of supporting artists can be influenced. For this reason, a part of the research described in this report is constituted by online marketing activities on Facebook, one of the most popular social media websites nowadays. Besides that, this research was conducted with the aim of gathering information and gaining an overall insight into the functioning of the music industry as well, that is why the distribution and analysis of a questionnaire, the monitoring of the Sell-A-Band website, and personal interviews with music professionals about the possibilities of online donations in today’s industry also constituted a great part of the research. During the research, the five-month internship done at Monkey Music, an independent Austrian music label proved to be of great help. To test whether visitors of live concerts are responsive to targeted online promotion, small contests to win free tickets for the concert of Bauchklang, a music group managed by Monkey Music were organized on Facebook. Simultaneously, these contests had the aim of increasing the popularity of Monkey Music as well. The company assisted in the organization of these lotteries, and also provided professional help and knowledge in the analysis of the Sell-A-Band website, a platform for online donations to music groups. The distribution of the questionnaire was also facilitated by Monkey Music, through the company’s extended network of music lovers and business partners; however, the greatest and most important input to this research proved to be the practical work done during my internship. Thanks to the fact that my everyday tasks performed at Monkey Music were very diverse ranging from administration and inventory control until promotion, management and event organization, I gained a professional insight into the functioning of today’s music industry and a strong basis of practical experience and professional knowledge in this field. This report contains the detailed description of the above mentioned research methods and a great amount of theoretical information as well. In Part 1: Research, firstly the problem of illegal downloading is discussed and demonstrated with the practical analysis of the present state of the music industry. A small theoretical background about the functioning of this industry is also provided, followed by the description of the model based on which the research was conducted. Part 1 is closed by the description of this research, the analysis of its results, and the recommendations of the researcher based on them. Part 2: Practical Work contains a brief description of the tasks which I performed at the company during my internship. Part 3: Additional Theoretical Background contains extensive theoretical information on online marketing, which constituted a part of the research activities. Finally, the Appendices are constituted by detailed analyses of the research results and the interviews made about Sell-A-Band. 4 PART 1: RESEARCH 1.1 Rationale The aim of my research in the field of arts promotion and online marketing is to examine the economic effects of the wide-spread usage of online channels on artists, especially musicians and all other members of the music industry. Recently, music industry players have been faced with the problem of losing a substantial amount of their income because of the easy access to their products which is provided by the Internet. As a frequent visitor of concerts and a dedicated music lover, I consider myself involved in this situation. I chose this topic because I find the relationship between arts and business interesting, and I agree with Hans Abbing’s words related to this. Hans Abbing, artist and economist, lecturer at the Erasmus University in Rotterdam says: “The economy of the arts is exceptional. Although the arts operate successfully in the marketplace, their natural affinity is with giftgiving, rather than with commercial exchange. People believe that artists are selflessly dedicated to art, that price does not reflect quality and that the arts are free” (Hans Abbing 1). My objective with the help of this research is to reach a desired situation, the definition of which I formulated as “fair economic treatment of artists and their works.” Fair economic treatment can be defined as an ideal situation in which artists receive a sufficient amount of remuneration in return for the efforts and costs they dedicated to their works. This situation would resemble the purchase and sale of usual consumer goods, involving producers on the one side selling their artistic products at a price that includes their profit margin as well, while customers on the other side would pay that price and enjoy the benefits that the given piece of art provides. Thus the assumption mentioned above regarding the gift-giving affinity of arts would be replaced by a commercial point of view, and all market players of the music industry would partake in their deserved benefit of sales of copyrighted music. This way, my research will concentrate on the problem of illegal file sharing on the Internet and the application of this medium in favor of the arts, by introducing new ways of online arts promotion at Monkey Music. Illegal file sharing is an important term in this case, and can be defined as the downloading and uploading of copyrighted materials from a peerto-peer network (“What makes some downloading illegal and some legal?”). Other definitions, such as that in line with the Canadian regulation for example, state that downloading of these materials is legal, and only uploading activity should be in the central focus of lawsuits (“When Is Downloading Music on the Internet Illegal?”). In my view, most of those consumers who use peer-to-peer softwares for file sharing are already aware of the fact that peer-to-peer programs defined as “a convenient way to share public domain music, audio, images, documents, and software programs over the Internet” have recently changed, and besides public domain materials, the proportion of copyrighted materials is increasing continuously (“P2P file sharing: Know the risks”). Users of peer-to-peer programs deliberately download given softwares which allow them to connect to computers of other 5 users (peers) online and download their files (“Filesharing”). That is why I prefer the first definition of illegal file sharing, and consider downloading of copyrighted materials just as illegal as the uploading of those. In line with this definition, downloading is only legal when the person from whom the files are received has a permission from the copyright owner to further distribute the given material. In order to change this present situation, in which Internet can rather be considered as an enemy of artists, the objective of my research is to discover different means of online marketing which can be used to increase the income of music industry players. Consequently, my research question can be formulated as: what factors leading to decreasing sales in the music industry can be influenced by online marketing tools? 1.2 Situational Analysis The Problem – Decreasing Sales in the Music Industry; Examples from Britain and the US In these days, many voices in the music industry claim that Internet piracy has reduced sales of legitimate CDs and that illegal downloads have become a substitute for legal CD purchases (Peitz and Waelbroeck 71-79). Since the launch of Napster, the first widely adopted file sharing service in 1999, the sources of unauthorized music to download for free from the Internet have proliferated. According to Professor Stan J. Liebowitz, “when a downloaded copy is a good substitute for a purchased original, there is little reason for the listener to purchase the copyrighted work unless the continued use of a copy provides some disutility due to, say, the possibility of being punished for violating the law or the guilt from not supporting one’s favorite artists. This substitution effect can only work to reduce the effective demand in the market facing the seller of sound recordings, and can only harm the financial position of the sound recording companies” (Liebowitz 15). Thus economic effects of this phenomenon on artists are inevitably negative, resulting in lack of remuneration for their works. Indeed, since the end of the 1990s, the trade value of music sales in the UK, for example, has fallen by 25% (“The Impact of Illegal Downloading” 1). According to an article published in the Guardian in May 2009, at least 7 million people used illegal downloads in Britain, costing the economy billions of pounds and thousands of jobs. Shared content on one network was worth about £12 billion a year according to the research commissioned by the Strategic Advisory Board for Intellectual Property. In the article discussed, David Lammy, minister for intellectual property, says: “illegal downloading robs our economy of millions of pounds every year and seriously damages business and innovation throughout the UK.” While creative industries provide about 8% of British GDP, as early as in 2004, digital copying of their products already resulted in the estimated loss of 4,000 jobs. 6 Number of paid vs illegal free music downloads (millions) Paid downloads Illegal free music downloads 0 200 400 600 800 1000 Source: “Cost to British Economy of Free Downloads is Revealed” Interestingly, according to the estimations of the International Federation of the Phonographic Industry there were 890 million illegal free music downloads through filesharing in the UK in 2007 compared with 140 million paid downloads. This puts unauthorized access at a ratio of six to one, before offline sharing like disk burning is even considered. This ratio is likely to increase, since the SABIP report indicates that music downloading had “become part and parcel of the social fabric of our society despite its illegal status”. It claimed that 70% of those aged 15 to 24 did not feel guilty about downloading music for free from the Internet and 61% of the age group did not feel they should have to pay for the music they listen to, according to a survey (“Cost to British Economy of Free Downloads is Revealed”). A survey conducted in the US in 2007 came to similar conclusions. This study claims that the US economy lost 8.7 billion USD annually due to piracy and is based on the assumption that around 20 billion illegal downloads took place worldwide during one year, and 66% of the downloaded content was US recorded music. Besides these figures, it is assumed that one fifth of these downloaded songs would have been purchased in a legal way if piracy did not exist. From these figures, it was concluded that 49,337 jobs had been lost due to piracy, of which 18,649 belonged directly to the sound recording industry and 30,688 accounted for other US industries. Considering concrete monetary loss, 1.87 billion USD was claimed to be lost by US workers in annual earnings. Of this, 771 million USD would have been earned by workers in the sound recording industry or in downstream retail industries, while 1.11 billion USD would have been the remuneration of workers in other US industries. Consequently, US federal, state and local governments were found to lose a minimum of 293 million USD in tax revenues per year (“New Study: Illegal File Sharing Costs the US $8.7 Billion Annually”). Such enormous figures, even if they are not perfectly accurate, indicate that the problem of illegal file sharing deserves greater attention worldwide. 7 Other Sectors and Market Players Involved in this Issue As it is mentioned above, it is the sum of creative industries which are economically hurt by illegal file sharing. This issue affects not only the music industry, but also those market players which provide videos, movies, games, books and different pieces of art to the public. As it is depicted on the graphs below, the value of both the European music and video and movies and entertainment markets has decreased for five years, and growth figures, indicated with the blue line and scaled in negative terms on the right side of the graphs, have been continuously negative. According to reports of Datamonitor issued in June 2009, in Europe both the music and video and the movies and entertainment segments' revenues have considerably decreased since 2004, and this tendency is likely to continue in the future. The ease of switching for consumers, due to wide spread illegal file sharing, creates a buyer's market and puts suppliers at a disadvantage (“Movies & Entertainment in Europe” 9-13). Similarly, e-books, which can be read for free on the Internet represent a potential threat for publishers, making the publishing industry also involved in this issue (Greco 38). Concentrating on the music industry, it can be stated that all members of the channel between the musician and the final end user are hurt by illegal file sharing. Starting with the artist creating a piece of art with commercial value, other market players such as sound engineers and recording studios are involved and interested in the future success of that given piece of art. After them, companies dealing with the publishing of music labels and managers responsible for the promotion of artists are also concerned about sales figures. Finally, music stores offering the records of musicians for sale and organizers of live performances are also interested in selling the highest possible amount of CDs and concert tickets. Looking at the problem this way indicates that many players have to face the fact that the music market is dominated by inequality, where demand is well satisfied, but suppliers are not rewarded for their performance and their costs can be covered only with more and more difficulties. 8 Besides channel members suffering from the negative effects of illegal file sharing, there are parties involved in this issue who support and try to protect these players. Governments in association with specialized organizations such as the Music Publishers' Association, World Intellectual Property Organization and local copyright offices try to fight this problem and work on a stricter and more effective regulation on intellectual property rights (“What is WIPO?”). As an important step, the Digital Millennium Copyright Act was signed into law by US President Bill Clinton in 1998, which implemented and strengthened the effects of two World Intellectual Property Organization treaties, namely the Copyright Treaty and the Performances and Phonograms Treaty (“The Digital Millennium Copyright Act of 1998”). One decade later, in February 2009, the Legal Affairs Committee of the European Parliament agreed on the extension of copyright term for music recordings from 50 years to 95 years from the first publication of the given song (“Music copyright to be extended to 95 years”). Such steps among many others also indicate the importance of this issue, and can be considered good initiatives; however, so far they alone have not been able to reverse the negative growth figures in the music industry. Reports Written about this Issue During the past few years, many studies were written which examined the relationship between illegal file sharing and decreasing music sales and most of them suggested that online channels influenced sales in the music industry negatively. A few of these studies are briefly introduced in this section. The first is The Effect of Napster on Recorded Music Sales: Evidence from the Consumer Expenditure Survey written by Seung‐Hyun Hong, Stanford University, USA in 2004. This study quantifies the changes in household expenditure on recorded music in the USA and blames Napster for 33% of the decline in spending on music in 2000. In the same year, David Blackburn of Harvard University, USA, published his paper Online Privacy & Recorded Music Sales, in which he concluded that file sharing reduces sales for well‐known artists relative to unknown artists, and such an impact becomes increasingly negative as popularity grows. Based on industry data from the IFPI World Report in 2003, Peitz & Waelbroeck (USA) analyzed 16 countries in their empirical study The Effect of Internet Piracy on Music Sales, and found that music downloading could have been responsible for a 20% decrease in global music sales between 1998 and 2002. Rochelandet and Le Guel from France investigated the behavior on peer-to-peer networks of more than 2,500 households, of which 74% stated that they had downloaded via peer-to-peer. In P2P Music Sharing Networks: Why Legal Fight Against Copiers May Be Inefficient they concluded that “copying behavior is negatively correlated with the willingness to pay for an original when a copy is available”. In 2006, Alejandro Zentner used 15,000 responses to a consumer mail survey in seven European countries, and suggested that peer-to-peer usage reduced the probability of buying music by 30%. In his study Measuring the Effect of Music Downloads on Music Purchases, he also estimated that music sales without illegal downloads would have been 8% higher in 2002. 9 Professor Stan J. Liebowitz (University of Texas at Dallas, USA) discussed this issue in several papers. In 2006, File‐sharing: Creative Destruction or Just Plain Destruction? contained an evaluation of the impact of other factors on decreasing album sales, such as competition from DVD, format replacement cycles, prices and so on, but file‐sharing was still cited as the key factor. In the same year he wrote the study How to Best Ensure Remuneration for Creators in the Market for Music? Copyright and its Alternatives jointly with Richard Watt (University of Canterbury), in which he covered the economic theory of copyright as a remuneration and incentive for creativity, and analyzed the associated literature, especially with regard to the effects of copying music on the legitimate market. He concluded that most of the studies previously written in this field had found “some degree of negative relationship between file‐sharing and sales of sound recordings.” Two studies were published by Jupiter Research (UK) about music industry losses and future opportunities in 2007 and 2009. The study Music Industry Losses based on a consumer survey with 1,000 UK respondents concluded that online music piracy was likely to cost the UK music industry 1.6 billion GBP between 2001 and 2012; and in 2007, online music piracy resulted in 159.2 million GBP of foregone spend. The Analysis of the European Online Music Market Development and Assessment of Future Opportunities was based on face to face interviews with 5,000 people from five different European countries, which resulted in the conclusion that “the markets with the highest incidence of music peer‐to‐peer are also those with weakest per capita music spending.” Although this list of relevant studies is far not complete, there is only one more paper that is mentioned in this section. Interestingly, Ups & Downs – Economic and Cultural Effects of File Sharing on Music, Film and Games, a study commissioned by the Dutch Ministries of Education, Culture and Science, Economic Affairs and Justice in 2009, also established the link between the fall in sales and downloading, but claimed this was offset by improved consumer welfare. Based on this point of view, consumers end up with a net benefit due to the fact that they can acquire more music at low or even zero cost (“The Impact of Illegal Downloading” 2-8). However, this consumer welfare does not help the supply side of the market, which continues suffering from the negative effects of illegal file sharing. Falsifications Organizations supporting music sharing are constantly attacking the statistics on which artists’ claims are based. According to for example peer-to-peer file sharing software producers, it is obvious that the music industry loses some money due to Internet music file sharing, but finding the exact amount lost due to music downloading is not a simple task. Indeed, a few studies can be found which indicate no adverse effect of file sharing on music sales. Probably the most well-known among these papers is the study of Oberhulzer & Strumpf from 2004. The Effect of File Sharing on Record Sales stated that “downloads have an effect on sales which is statistically indistinguishable from zero”. Similarly, Tatsuo Tanaka 10 (Keio University, Japan) came to the same conclusion in the paper Does File-sharing Reduce Music CD Sales in 2004, stating that little evidence had been found which could show that file sharing reduces music CD sales in Japan. Finally, in 2009, the BI Norwegian School of Management prepared a study called Consumer Culture in Times of Crisis, and conducted a telephone survey of almost 2,000 individuals. This research indicated that file sharers were more likely to have used paid download sites, 75 times compared to seven times of free sites (“The Impact of Illegal Downloading” 1). Besides illegal file sharing, other frequently mentioned reasons for declining sales are poor macroeconomic conditions, mismanagement and bad business decisions, growing competition from other forms of entertainment such as video games and DVDs, and the fact that the number of new releases greatly exceeds the number of releases that are played on the radio (Oberhulzer and Strumpf 24). In other words, only an extremely small percentage of music gets airplay today, and thus reaches the consumers effectively. This way, consumers are simply not being exposed to the same amount of new music they were years ago (“Illegal Music Downloading: Look at the Facts”). Based on this, it is important to point out that illegal file sharing is not the only variable influencing music sales. Although the relationship between file sharing and decreasing sales is probably a cause and effect relation, thus more than simple statistical correlation, the other possible causes mentioned above should still not be overlooked. The studies listed above led to similar results in their field and were supported with clear evidence. However, when conducting research about an issue like this, doubts can occur about the honesty of respondents and the representative nature of the sample. Since most of the studies were based on face to face interviews, telephone surveys and mail questionnaires, there is a high probability that some respondents had forged their answers and had given false responses about their downloading habits because of the fear of being punished afterwards. That is why these studies and statistics can probably never lead to perfectly true results, however, it can still be stated on a simple logical basis that the possibility of free downloading attracts rational consumers and makes them choose free music files instead of expensive CDs. New Business Models and Distribution Channels to Tackle the Problem As it is described in the Digital Music Report 2009 of the International Federation of Phonographic Industry (IFPI), in order to tackle the problem of decreasing sales on its own, the music industry has recently transformed its business models and is now offering consumers an increasing range of new services with leading technology partners. The industry has shifted its approach from one based only on unit sales of music to “monetizing” access to music across a multitude of channels and platforms (“IFPI Digital Music Report 2009” 4). As a new means of music distribution, the digital music business internationally saw a sixth year of expansion in 2008, growing by an estimated 25% to 3.7 billion USD in trade 11 value. Digital platforms in 2008 accounted for already 20% of music sales, up from 15% in 2007. After that, in 2009, more than one quarter of record companies’ revenues came from digital channels, accounting for an estimated 4.2 billion USD globally. Recorded music is at the forefront of the online and mobile revolution, generating more revenue in percentage terms through digital platforms than the newspaper, magazine and film industries combined. Parallel with this, a new generation of music subscription services, social networking sites and new licensing channels is emerging. These were led in 2008 by services like Nokia Comes With Music, MySpace Music and a raft of partnerships with Internet Service Providers, such as TDC in Denmark, Neuf Cegetel in France, TeliaSonera in Sweden, Terra in Brazil and Sky in the UK. With the help of these, consumers can acquire tracks and albums in ways inconceivable a few years ago – from download stores, streaming sites, subscription services, free-to-user sites, bundled with their broadband or a mobile phone headset. Despite these achievements, the digital music business still faces many barriers to its growth, which include the lack of marketing by services in some countries, problems with publishing rights, consumer reluctance to make online payments and the complex challenge of creating services that are user-friendly to different consumer groups. As a few means to solve these problems, Thomas Hesse; president, Global Digital Business, US Sales & Corporate Strategy, Sony; mentions an attractive user interface, a strong value proposition and a clear marketing message (“IFPI Digital Music Report 2010” 5). Besides introducing new channels to access music, Digital Music Report 2009 also shows how the digital age is expanding the role of music companies in developing and marketing artists, and it outlines the progress being made internationally in getting Internet Service Providers to cooperate to curb mass-scale copyright infringement on their networks. 1.3 Theoretical Background This section is a brief introduction of the music business and how arts promotion fits into it, while the second subject covers the theoretical aspects of online marketing in detail in Part 3. Arts Promotion in the Music Industry Professor Dr. Peter Tschmuck, faculty member of the Institute of Culture Management and Culture Studies at the University of Music and Performing Arts Vienna, lecturer, and author of the book Creativity and Innovation in the Music Industry, gave a clear overview of the actual state of the music industry on one of his lectures in Vienna (“Copyright, Contracts and Music Production”). In his presentation, he introduces the functioning of the music industry as a whole with the help of the following flow chart (Peter Tschmuck 4). Based on this chart, according to Dr. Tschmuck, the music industry is based on a main value-added network and several support structures which help the successful and profitable functioning of the main network. My research will take place within the support structures; however, 12 proper knowledge of the main value-added network is also essential in this case. The Main Value-Added Network The main value-added network starts with artists and repertoire (often referred to as A&R), which often constitutes a separate division of a record label company that concentrates on discovering new talents and overseeing the recording process and the progress made by a given artist. This division works in close cooperation with the marketing department of a record label, and could be considered very powerful in the past, when A&R executives had significant influence on listeners’ tastes and preferences. Nowadays, with the emergence of digital music distribution, the maintenance of A&R’s influential role is questionable (“Artists and repertoire”). Pieces of a selected artist’s repertoire have to be made public in order to enter the phase of music production. Consequently, if an artist decides not to publish a song, and keep it for his/her own use, that given song does not represent a part of the value-added network, and is out of consideration for the further steps. Once a published song entered the music production phase, it is recorded and becomes available for the public. This recorded song may then be distributed online or in mobile ways and can also be performed live during concerts in front of an audience. This main value-added network described above shows how a song is born in one individual's mind and is made officially available for a considerable public at the end. This network based on pure artistic value can hardly be successful and profitable for all of its members without any support structures. The functioning of the network has to be organized and controlled, rights and obligations of parties have to be clearly defined, and once a song is recorded, it has to be introduced to the public in a way which arouses interest. Support structures are responsible for these tasks, among which online means probably have a constantly increasing importance. 13 Support Structures Artist management deals with the organization and control of the value flow through the main network. Managers of artists are responsible for adequate planning and timing, they take part in networking and lobbying, and organize proper financing as well. They share a mutual interest with the artists they manage, since they usually receive a certain percentage fee of the artists' revenues, thus they are motivated to organize as many successful live performances and album releases as possible. This way, managers guide the artists through this value-added network by providing everyday help and using a wide personal network, while property rights systems help artists in a more formal way. These systems serve the protection of artists by granting them exclusive rights to copy, distribute or adapt a given piece of art (“Copyright”). This form of protection of the rights of performers, producers and broadcasters contributes to the cultural and economic development of nations. As defined by the World Intellectual Property Organization, the purpose of copyright can be viewed as twofold: “to encourage a dynamic creative culture, while returning value to creators so that they can lead a dignified economic existence, and to provide widespread, affordable access to content for the public” (“Copyright and Related Rights”). Once artists' rights are protected, the given piece of art should be distributed and promoted successfully, which then benefits all members of the network. Phonograms are fixations of sounds and performances on a data medium, such as tape, CD or DVD. These phonograms are the tangible end product of an artist's performance, offered for sale to the public. Distribution of these phonograms happens through retail merchandise, furthermore, music merchandisers also design and distribute products that aim at popularizing a given artist or group of artists, such as T-shirts, posters, and all kinds of accessories (‘Music Merchandising and Management”). Finally, arts promotion, in this case in the form of online and multimedia promotion plays an important role in supporting artists, by using various advertising techniques. This support structure focuses on arousing public interest, generating sales, attracting visitors of live performances, and communicating actualities and new releases, so that the public stays informed and committed to a given artist. With the wide spread of the Internet, online promotion nowadays has a potential greater than ever before, and direct marketing of music becomes possible. Recent Trends and Theories Dr. Tschmuck also emphasizes the paradigm shift in today’s music industry, and makes several statements in connection with the changes taking place. He states that traditional production, distribution and reception routines are broken, and a new era of digital sales more important than record sales begins. This theory is supported by the tendency of decreasing record sales and a growing interest in digital distribution, described in the 14 Situational Analysis above. Keeping this in mind, it is reasonable to concentrate on live performances and heavily promote these events, since Dr. Tschmuck identifies the liveperforming sector as a boom segment nowadays. Finally, the professor also states that music recipients do not stay passive anymore, but start to participate in both the production and the distribution of music with the help of web 2.0 applications, which again emphasizes the continuously increasing importance of online channels in the music industry. Bearing these recent trends in mind, online promotion tools appear to be of great potential value in the communication between music lovers and artists. 1.4 Conceptual Model In order to conduct a meaningful research about illegal file sharing, independent variables which lead to the current problem need to be defined first. This conceptual model considers illegal file sharing as the dependent variable and concentrates on the following independent variables, which were identified with the help of the situational analysis: Technology advancement Technology is one of the basic elements of the current problem. The ever increasing number of illegally uploaded and downloaded records has its basis in the fact that technology enables users to commit illegal file sharing actions. Until an easy access is provided to peer-to-peer file sharing programs, users’ tendency to use these programs is likely to grow in the future. Continuous technological development resulting in higher download speed and greater storage space further facilitates illegal file sharing (“Illegal filesharing could cost £215 billion by 2015”). Obviously, until such technology was not given, the problem of illegal file sharing did not exist. With the introduction of Napster, the first file sharing service, the basic technology was created, which is likely to further exist and improve in the future, since creators of file sharing programs have commercial interest in developing and marketing their products; and a guaranteed demand for these products on the market is obvious. From the point of view of this research, technology advancement is considered as a variable which cannot be influenced and is expected to be present during and after the research as well. Wide-spread usage of Internet Internet usage can be considered a container variable, since many aspects such as user behavior, income, education, other leisure activities etc. have an effect on it. Besides that, this is again a variable that serves as a basis of illegal file sharing. Obviously, one without an Internet connection is not capable of sharing files illegally online and has zero chance to commit this crime, compared to an Internet user with a functioning connection. Once a user goes online, he is provided with the possibility of illegal file sharing. Given that the number of Internet users is continuously increasing, the number of records shared 15 illegally will probably also rise, which leads to the assumption that there is a positive correlation between Internet usage and illegal file sharing (“World Internet Usage and Population Stats”). It is not a cause and effect relationship, since Internet usage does not necessarily lead to illegal file sharing; however correlation between the two variables exists. Similarly to technological advancement, this variable cannot be influenced by any means during this research, and in fact, it should not be affected. Although technology and Internet provide the basis of illegal file sharing activities, they also make the use of online promotion tools possible, thus can be considered advantageous for the purpose of this research. Regulatory problems There is a lack of effective regulation in the field of intellectual property rights. As a container variable, regulation is again strongly connected to governmental issues, Internet Service Providers, courts, financial resources etc., which may limit or increase its effectiveness. In its present form, regulation on punishment of illegal file sharers is weak and appears to exist in theory only. Very few cases are dealt with by the court in this field and the end result of these cases is only rarely published in the media. This way, users of file sharing programs do not fear the consequences of their illegal activity, since regulation is unclear and seemingly ineffective. Filtering technology to tackle the problem of file sharing is not used widely, and Internet Service Providers do not support the idea of cooperation in taking action against infringers either, although governments would suggest that (“Government Response to a Consultation on legislative options to address illicit Peer-toPeer (P2P) file-sharing”). Unfortunately, these disadvantageous regulatory circumstances cannot be influenced within the frame of the present research. Economic rationality and prices Rationality in consumption inevitably leads to people downloading music illegally for free, if other variables are not considered. According to Professor Liebowitz, if a free substitute in the same quality exists for a given piece of music offered for sale, rational consumers tend to prefer the free piece to the other which has a price. If we take into account that the price of music CDs is increasing from time to time, similarly to any consumer good, the gap between the actual price and zero (a free copy) will be greater as well. This is likely to cause a further increase in the number of rational consumers choosing free access to music. Despite of the fact that major music industry players like Universal Music Group discovered the problem of this increasing gap and are trying to cut prices now, this strategic step is too late and is not likely to change users’ music consumption behavior anymore (“Years late, Universal cuts CD prices to combat poor sales”). Obviously, rationality cannot be changed in this case, and prices are likely to stay relatively high as well, given the production costs and the fact that all members of the music industry chain are expecting a share of the profit on the CD that is sold. 16 Culture Finally, the fact that users of peer-to-peer programs do not consider illegal file sharing as a crime also constitutes a part of the conceptual model, and is referred to as culture here (“Cost to British Economy of Free Downloads is Revealed”). Culture can definitely be considered a container variable, since not feeling guilty about an illegal activity can be dependent on family background, age, education, IQ etc. People are likely to consider illegal file sharing a normal everyday activity, in which they are not hindered by regulation or detailed education on the negative effects of their activity. As a part of this research, people’s perception about illegal file sharing and their values and habits concerning supporting artists may be influenced with online marketing tools. To sum up, if the question “why illegal file sharing exists and became so wide-spread” is put, the answers, and consequently the variables in the conceptual model, are: 1. Technology advancement makes it possible. 2. Wide-spread Internet usage keeps it alive and makes it even more common. 3. Regulation cannot fight it effectively, thus infringers have no fear of punishment. 4. Economic rationality and high CD prices make users prefer free (although illegal) substitutes. 5. Culture appears to accept and tolerate this illegal behavior of file sharers, causing no twinge of conscience of infringers. When these variables are depicted on a conceptual model, the graph is the following: Technology advancement Internet usage Illegal file sharing Economic rationality Regulation Artists’ income Culture Live boom segment 17 This conceptual model depicts how each of the five variables affects wide-spread illegal file sharing. Furthermore, technology advancement stimulates Internet usage by providing ever improving possibilities of browsing the world wide web, while Internet users’ expectations continuously encourage technology providers to develop their products and services, for example by increasing bandwidth. Such a mutual relation is present between regulation and culture as well: weak regulation suggests that a common overall culture will further tolerate illegal file sharing behavior. When this cultural attitude becomes commonly known, regulatory bodies are trying to fight it with new and improved means, which again will have an effect on people’s culture. As a result, two pairs of independent variables in this model are likely to affect and stimulate each other continuously. When looking at the dependent variable in this case, illegal file sharing leads to a significant decrease in music sales, hurting many industry players. As a result, instead of CD sales, live performances constitute a boom segment on today’s music market. This key role of live performances can be approached from the point of view of music business and can be viewed as a substitute for CD sales, while this live boom segment is affected by one of the independent variables, namely culture, as well. Taking into account the ever increasing number of music festivals and various events for which tickets are successfully sold for rising prices every year, there are reasons to believe that attending live performances constitutes a great part of people’s culture nowadays. The research will concentrate on the highlighted items, namely the problem of decreasing sales (artists’ income), and the solution of this problem by influencing people’s cultural attitude to illegal file sharing and by supporting live performances with online promotion, represented by broken lines in the model above. The model can be translated into two action hypotheses: a) If people are confronted with targeted and intensive online promotion, users can be responsive and interactive, and the number of live concert visitors is likely to increase. b) If users are better educated about the illegality of their behavior and the possibility of supporting artists in alternative ways, they are likely to change this behavior and let artists benefit from their activities. 1.5 Research Proposal To test whether the above listed two hypotheses are correct, a research will be conducted, which, in line with the concept of parsimoniousness, will only deal with the highlighted items of the conceptual model. Since technology, Internet usage, economic rationality and regulation can be considered exogenous variables in this model which cannot be influenced in the given context, it will be the users’ cultural attitude towards illegal downloading and their concert visiting habits which the research will concentrate on. These two factors will be targeted by online promotion tools and researched with the help of a 18 questionnaire, interviews and observation. Questionnaire Firstly, with the help of a questionnaire it will be tested if users’ cultural attitude towards illegal downloading can be influenced. People will be provided information about the illegality of their file sharing behavior and about the damage they cause. Facts and figures will be introduced in the questionnaire, and the respondents’ knowledge and attitude towards these information will be examined. Besides collecting general information and providing objective facts, the questionnaire will also concentrate on alternative ways of supporting artists. Users’ willingness to support their favorite artists this way will be researched with the help of the questionnaire. This way, infringers’ feelings can perhaps be influenced, by making them realize how they are acting against their favorite artists, and how they could help them instead. Analysis of the Sell-A-Band Website Secondly, another important part of the research will be the analysis of the Sell-A-Band website (www.sellaband.com), a platform for music lovers with the possibility of making online donations and supporting their favorite artists this way. PayPal donations are a free and easy way of collecting payments from the visitors of a website, which builds on the more and more wide-spread method of online payment making. When offering a payment on SellA-Band, users can directly transfer money to the given artist by simply clicking on a button on the website (“Donations”). Such donations are likely to be made, based on the fact that the usage of electronic payment methods and credit cards is becoming more and more common (“Credit Card Market: Economic Benefits and Industry Trends”). Once donations appear on the artists’ personal page on this website, significant conclusions could be drawn about the effectiveness of this fundraising method. In addition to pure observatory research, a few interviews will also be made about this idea, and pros and cons will be summed up based on them. Online Marketing Activities on Facebook Thirdly, in addition to simply publishing live show dates and locations on websites, live performances will be promoted with small lotteries on Facebook as a part of the research. Carefully monitoring users’ reaction and the number of people who take part in these contests will clearly indicate if this kind of promotion proves effective. Bearing in mind the fact (highlighted by Dr. Tschmuck) that users’ activity on online platform is increasing, participation in these contests with the aim of winning two tickets at the end can be expected to be high. The word-of-mouth effect of such online promotion is likely to benefit the artist and does not require any time-consuming efforts. Besides that, no significant financial resources are required for these promotion tools. The cost of online promotion methods can practically be zero, since only an opportunity cost has to be taken into 19 consideration, if we consider the time spent on online marketing activities, such as writing blogs and posting news on community sites. Internal and External Validity As for the internal and external validity of this research, there are reasons to believe that both will be low. The problem of such an online research is that the sample population cannot be known perfectly, thus it cannot be stated that the research results are true for the sample. For example, if a donation appears on a given artist’s account on the Sell A Band website, the researcher will never know the identity of the one who donated and his/her motivation behind the activity, which obviously lowers the internal validity of the research. Furthermore, the research will also have a low internal validity due to the fact that the respondents’ willingness to change their attitude towards illegal downloading will be tested with a questionnaire. They will receive information on the illegality and harmfulness of their behavior; however, the researcher will never know the motivational background of the respondents and will never be certain about the effect of the questionnaire. External validity will be even lower, since the research will concentrate only on a few artists, in a given country and in a given music genre, thus attracting a limited number of listeners. It cannot be stated that the same research carried out in a different country, with different artists and different fans would lead to the same results. External validity is highly dependent on how representative the researched population is. In this case, theoretical population considers all Internet users, all of which have the opportunity to visit a given artist’s website or a community web page. Naturally, it is not feasible to do a research in this population that is why the number of people researched should be reduced to an empirical population. Empirical population in this case consists of all those users who visit the given website which is part of the research. Their number can be known from website statistics, but their identity is represented only by the IP address of their computer, which does not contain any personal information. From this empirical population, a sample population will be selected; however, the number and identity of people is not defined by the researcher in this case. Sample population will consist of the users who donate to an artist or take part in community website activities, leave comments on blogs etc. There are reasons to believe that this population will be small and not representative of the empirical and theoretical ones. Operationalization and Measurability The problem of operationalization and measurability is clearly a weak point of this research and is a possible source of errors. Culture as a container variable cannot be measured in itself and users’ behavior and feelings cannot be perfectly understood by online marketing tools. Systematic errors, such as overweight of a gender or age group can also occur during the research. Furthermore, measurement effect is significant in this case, and results in the fact that the researcher may never know if the increased number of CDs sold 20 or of visitors of a website or of a live performance is the result of successful online promotion, or of some other factors. Only in case no other circumstances are changed can we be sure that people were influenced by online promotion, and even then it would be only a small number of people who took part in the research and whose behavior was changed. However, since we cannot guarantee such a perfectly constant environment, the end results of the research cannot be evaluated perfectly. It is only the feedback of users, e.g. comments on web forums, that can serve as a benchmark and can show if the company’s online actions are effective or not. Research Design An empirical-analytical research will be set up, concentrating on culture as a container variable, but not going into details with that. The research will be designed as follows: T1 T2 (time) O1 O2 (experimental group) X (action) O4 O3 (control group) T1 and T2 stand for two concrete moments in time, when results will be measured. O1 and O2 will be a control group, in this case a given music group, which will be examined at the beginning and at the end of the research. Live performance ticket sales and community website participation activity will be measured, and the results at T1 and T2 will be compared. In between, X actions will take place, such as posting news on community websites, inviting people to take part on various contests and other online promotion tools. Development and changes will be monitored in O3 and O4, a control group, in this case in another music group as well. No action will take place in this group, allowing it to function as a basis for comparison. Although the existence of a control group will not serve as a proof, since the experimental and the control group will not be equal, there are reasons to believe that the initial hypotheses of the researcher will be properly tested, and valuable conclusions can be drawn at the end of the research. 1.6 Research Results Questionnaire The questionnaire (in Appendix 1) which was filled out by 160 people between the age of 17 and 65 from more than 20 different countries had fulfilled its aim and led to meaningful results (for a detailed analysis, see Appendix 2). Although the group of 20-24 year-old European Internet users was slightly overrepresented, the overall demographics of respondents was diverse and representative, containing students, employed and unemployed people with varying levels of income. Taking the demographic data of respondents into account, it could be observed that Western-European Internet users with a higher income and of an elder age group preferred buying CDs and showed more willingness 21 to pay for their online music and film downloads. In general, this group of respondents stated to download films and music from official websites of labels/music groups and from webshops on a two-weekly basis or even more rarely. When respondents were asked to choose between buying CDs or downloading music from the Internet, this group contained more people who preferred CDs and they were generally price-sensitive, claiming that they would purchase more CDs if prices were lower. In contrast to this group, younger Internet users (mostly students or working students) with a lower income preferred illegal free downloads with the help of various file sharing programmes, stated to download music and films on a daily or weekly basis and showed no or low interest in purchasing CDs, even if prices were decreased. Nearly half of the respondents shared the above described characteristics of these users. When respondents were confronted with the illegality of file sharing, a clear majority was aware of the fact that the up- and sometimes downloading of copyrighted material is unlawful. Surprisingly, this majority decreased significantly, when respondents were asked if they agreed with this view: nearly 49% of people, especially younger illegal downloaders, were against the idea of viewing up- and downloading as a crime. This shows that people are well aware of the illegality of this behavior, however, they do not see it as a problem, and a majority (74%) of them is not afraid of the possible consequences (e.g. penalties), proving that regulation on this issue is ineffective and is not taken seriously. When talking about artists and their support, only 64% of the respondents said that they considered illegal downloading harmful for the artists, and an even smaller majority (51%) stated that they knew and accepted the negative effects of illegal file sharing on the overall economy. The need for more intensive and influencing communication of these negative consequences came clear from the results of the questionnaire, since a relatively low proportion of respondents had considered illegal downloading from the point of view of artists so far, in contrast to the pure unlawfulness of this behavior (of which a clear majority had already been aware). Unfortunately, the questionnaire showed that people’s opinion about illegal file sharing is not easily changeable, since 82.7% of the respondents said they would continue using illegal file sharing softwares even after becoming familiar with the negative economic consequences and the harmfulness of their behavior. This shows that the initial hypothesis about changing downloaders’ behavior cannot be that easily proved and informing infringers about the unlawfulness of their behavior does not have enough influence on them. Finally, when respondents were asked about the alternative ways of supporting artists, most people chose visiting live concerts and purchasing merchandise, which was in line with Dr. Tschmuck’s view about the live boom segment, while online donations were known and preferred by only a surprisingly small minority of respondents. 22 Analysis of the Sell-A-Band Website and Interviews The relative unpopularity of online donations in the music industry was supported by the results of the analysis of the Sell-A-Band website (see Appendix 3) and the interviews made on this topic (see Appendix 4). The three interviewees were a record label manager with 4 years professional experience (A), a journalist specialized in music (B) and a music promoter with 15 years professional experience (C). While A did not view Sell-A-Band as a real supporting opportunity and criticized its overall concept from more points of view, B and C generally applauded the idea. C had already used the website for donating money to some of his favorite artists, and helped two of them achieve their financial goals; however, he was not satisfied with the “after sales service” provided by the website. Besides C claiming that Sell-A-Band is not proactive and up-to-date enough, all three respondents agreed on one main weakness of the website and its concept: the complete lack of promotion and communication to users. This idea was supported by the results of the website analysis as well; although the concept of Sell-A-Band is well-created and exceptional, fitting into today’s online activities, it is not well-known enough and is not viewed as a real alternative in the present-day music industry. Probably due to the fact that it is weakly promoted in various online media and was advertised only once in television during the last four years (which is a clear sign of unacceptably weak marketing efforts), Sell-A-Band is known by a relatively small group of users who mean a considerable support to an extremely small percentage of artists registered on the website: only 1.34% of more than 4,300 registered bands has reached their financial target with the help of donators until 13 November 2010. This surprisingly small proportion of successful projects provides a reason to believe that Sell-A-Band in its present form cannot serve as a real alternative of raising funds for musicians. Unfortunately, there are only a few success stories, like that of Hind, a Dutch pop artist for example, who managed to collect a significant amount of donations in a very short period of time, thanks to the intensive promotion of the possibility of using Sell-A-Band and to the integration of this tool in the artist’s overall marketing communications. Bearing this example in mind, it can be concluded that motivating music consumers to support their favorite artists online is difficult but not impossible: with increased, proactive communication and promotion from both Sell-A-Band’s and the artists’ side, Sell-A-Band can be carefully integrated into the artists’ overall marketing concept and serve as an important supporting tool. However, in its present form, Sell-A-Band is in serious need of well-targeted promotion on online platforms dedicated to music. Facebook Marketing Activity Supporting musicians by attending live concerts proved to be a much more popular method (based on the results of the questionnaire and the analysis of online marketing activity on Facebook), even if people do not necessarily view concerts as a means of helping 23 their favorite artists. The small contests organized on Facebook with the aim of giving away a few Bauchklang concert tickets for free indicated that users have an interest in these concerts and they are willing to devote a few minutes of their time for such lotteries if they can win tickets for a live event (see Appendix 5). Disadvantageous from the point of view of this research, while advantageous for Monkey Music, both Bauchklang and its control group, Ginga (another music group marketed by the company) gave full house concerts in Austrian clubs during the research, that is why the effect of marketing activities on Facebook could not be clearly measured with the help of visitors’ statistics. However, these small online contests had a clearly measurable effect besides attracting live concert visitors: they helped increasing the popularity of Monkey Music by recruiting fans for the Facebook page of the company and thereby guaranteeing a growing public which can be reached with posts and messages on the online community website in the future. As it can be seen in Appendix 5, the number of Facebook users who like the page of Monkey Music (and this way can be contacted by the company) grew at an increased pace during the small contests, and the company gained nearly twice as many fans than the control group Ginga (172 to 89) during the research. The number of people taking part in these small contests and thus becoming a new fan of the page of Monkey Music was surprisingly low, compared to the total number of visitors of concerts (between 500 and 900 people) or to the number of Bauchklang fans who were aware of these games (more than 7000 people). However, it must not be forgotten that the promoted events were relatively small club concerts in different parts of Austria, which obviously limits the possible number of players, since many of them live in other countries of simply far away from the given event venue. That is why, bearing in mind that the publishing and controlling of these lotteries did not require more than 10 minutes each time a new post had to be written, the effect of this online promotion can be seen as advantageous and is worth the effort. 1.7 Conclusions and Recommendations To conclude the results of the questionnaire, it can be stated that illegal downloading in contrast to purchasing CDs is likely to be the dominant behavior of young Internet users nowadays and in the future as well. This consumer behavior can be hardly influenced or changed, since this major group of music lovers is not interested in purchasing music in traditional ways and thereby respecting and supporting artists in harmony with the copyright law. Although there are reasons to believe that offering music for sale in the form of CDs is not profitable anymore, or will be less and less profitable in the future, there is a general growing interest in live concerts and other alternative ways of supporting artists. Those young consumers who prefer illegal downloading showed a greater enthusiasm about live events and purchasing merchandise in their answers on the questionnaire, which further emphasizes the importance of these alternatives. In line with the theory of live concerts being the boom segment of today’s music industry, the same can be concluded on the basis 24 of the analysis of online marketing activities on Facebook. Users showed an interest in the small contests published on the online community page, and new contacts of the company could be relatively easily collected with the help of these lotteries, which indicates that the further integration of such online marketing tools into the company’s promotion activities should be applauded. Besides these, it is worth considering Sell-A-Band as a supporting tool as well; however, there are reasons to believe that its popularity will never reach that of live concerts and merchandise, and it will provide only marginal help to the registered artists. Bearing the initial hypotheses in mind, it can be stated that the first one proved to be correct to an extent: users of Facebook were respondent to the small contests at the end of which they had the chance to win free concert tickets. Although the number of players was low, these users showed a growing interest in visiting concerts and took part in the lotteries interactively. Since the concerts examined during the research were all very successful, it cannot be stated explicitly that the lotteries led to an increase in the number of concert visitors; however, there are reasons to believe that such small contests have the potential to influence the number of concert visitors in a positive way. The second hypothesis could not be proven with this research: the questionnaire showed that people’s opinion about copyright infringement is not easily changeable, since 82.7% of the respondents said they would continue using illegal file sharing softwares even after becoming familiar with the harmfulness of their behavior. This shows that informing infringers about the unlawfulness of their behavior does not have enough influence on them and probably more powerful communication and regulatory measures are needed to fight this problem. Based on the above described results of the research and the conclusions drawn, the following recommendations are made in this report: • Instead of selling CDs and encouraging illegal downloaders to buy CDs, record labels should turn away from this traditional form of distributing music. Although the negative effects of illegal downloading should be intensively communicated, consumers should be confronted with more valuable alternatives on the market, which would be worth stopping illegal file sharing. For example, instead of producing simple CDs, record label companies should offer exclusive packages in the form of a CD together with an extra live concert DVD, with a poster about the band, or with a coupon for exclusive downloads or merchandise products. It is possible that more CDs would be purchased, if a higher value was attached to them. • Based on this above described concept of exclusivity and on the experience gained at Monkey Music, the production and promotion of traditional vinyl records could be advantageous in the future. Since CDs in themselves have become obsolete and uninteresting in the competition against other data carriers such as mp3 players, iPods, iPhones etc., the music industry may experience the return of vinyl records, however, this time as part of an exclusive collection, as a fashionable ornament, or a part of home decoration. Based on the sales statistics of Monkey Music for example, traditional records combined with modern technology (e.g. a coupon attached to the vinyl record 25 with which the album is downloadable in good quality from a given website) can have a relatively great consumer base (mostly the “true” fans of the given band), if the record is well promoted and has an attractive cover. • As for Sell-A-Band, although the website is not convenient for its original aim (exploring new talents is nearly impossible, since financial targets are rarely reached), it might be useful in a later stage of an artist’s career, when a sufficient fan base is already provided. For financing smaller projects, video shootings or the recording of a new album, Sell-A-Band can be a helpful tool if enough attention is drawn to the website. Hind’s example should be followed: first gaining popularity and recruiting a huge number of fans with marketing tools and through traditional and online media, and then regularly informing this already existing and stable fan base about the possibilities and advantages provided by Sell-A-Band. • Organizing simple, trendy and interactive online contests on a regular basis to advertise live events might significantly help artists and music companies. Although the research indicated that music consumers’ behavior and perceptions about illegal file sharing can barely be influenced, online marketing tools might have advantageous effects on another segment of consumer culture: live concerts can be effectively promoted with their help. Based on the experience gained at Monkey Music, online marketing tools in the music industry have not completely elbowed traditional media (radio, television, printed media) out of the market yet, however, increasing attention should be paid to online communications and maintaining a closer relationship with fans through the Web. On this basis, music industry players should not rely exclusively on online marketing tools; however, they should carefully integrate them into their marketing activities and devote more time for maintaining online relationships. 26 PART 2: PRACTICAL WORK Introduction of the Company Monkey Music, Gröbchen & Partner OG is an Austrian music label, publishing house and communication agency, which was established in 2000 and has grown into a competitive and well-known market player in its field since then. The founders of the company had all worked in the music business and had gained significant experience in A&R (artist & repertoire) consulting, production and promotion for Universal Music, Warner, BMG Germany etc., but decided to start their own business ten years ago, with the aim of providing a more creative way of enjoying music for dedicated music lovers. Since then, Monkey Music has cooperated with companies like Procter & Gamble, BMW and various film and advertisement producers by offering them creative solutions and music for their promotional materials, and besides that, it has become the label and promotional agency of various Austrian and German artists. Furthermore, Monkey Music has also been a pioneer of alternative ways of providing music to listeners, by installing Austria’s first “CD on demand” store in Vienna. Currently, as a small enterprise, the company employs only five people in its office in the city center of Vienna and concentrates on music label-related activities, in cooperation with a diverse group of artists ranging from smaller alternative bands to popular music groups. As a record label, Monkey Music is responsible for the thorough marketing of artists, including the coordination of manufacturing, production, distribution, promotion and copyright protection of sound recordings and videos, and the maintaining of contracts with recording artists and their managers. Consequently, the tasks which I was given during my work placement were diverse and thus provided a professional insight into the whole functioning of the company and the music industry. Administration & Invoicing General administration and filing of incoming and outgoing invoices were a part of my everyday tasks at the company, which I found useful from the point of view of professional precision. By entering the details of all invoices, shipping documents etc. into the company's common administrative files, I had to pay particular attention to the various projects to which each invoice belonged. The administration system was applied to the diversity of the projects Monkey Music was involved in, and all entries in the system had to be carefully indexed with a given artist or project. These indices made it possible to filter invoices, and both online and physical costs or benefits on the basis of artists, which always provided meaningful and up to date information about the company's operations. Furthermore, while working with the administration files, I also gained insight into the company's distribution system, since the movement of products and payments of Monkey Music became transparent in the files. 27 Inventory Management & Operation of the Webshop Inventory management was assisted by an equally precise system at Monkey Music. I was responsible for monitoring the movement of compact discs and various promotion materials in the warehouse of the company, issue delivery notes, enter incoming and outgoing quantities into an inventory file, and report shortages while taking reorder times into account, to make sure that all business partners of Monkey Music receive the quantities they require on time. Due to the great number of artists cooperating with the company, the warehouse contained both fast moving and slow moving goods, depending on the popularity of the given albums of artists, which I obviously had to keep in mind while managing inventory levels, thus I was required to have continuously updated information about the artists' current position on the market. I soon became the sole operator of the webshop installed on the website of the company. With the help of the Macromedia Dreamweaver software, I first had to create the given page of an artist in the webshop in HTML format, which made it possible to upload the songs and albums for sale on the website. After submitting a new item into the webshop, once I was notified in an automatically generated e-mail about an incoming order, I was responsible for getting in touch with the customer, issuing an invoice and asking for prepayment. Usually a few days following the receipt of an order, I checked whether the required amount of money arrived on the company's bank account, and provided that there was no problem with the transfer, I posted the products together with a copy of the invoice to the customer. A successful transaction was closed by administrating the invoice in the company's file containing outgoing invoices, while there were many payments outstanding, about which I regularly had to send inquiries and reminders to customers. Publishing-Related Tasks An equally high degree of exactitude was needed when I prepared so-called label copies of the different albums marketed by Monkey Music, which served as the most important source of all data about a new product and had to be prepared first when an album was published. All songs on an album were given an ISRC, an International Standard Recording Code, which uniquely identified the given recording with twelve characters, divided into four groups of letters and numbers which represented the country, the organization and the year of recording, and finally the given record itself. Together with the thirteen character-long EAN (European Article Number), these codes gained special importance when the songs of an artist were published, downloaded or streamed on the Internet or played on radio/in television. In these cases, all types of remuneration in connection with copyrights were transferred to the label company represented in the codes, that is why I had to pay particular attention to the proper format of these codes and double check them each time when I wrote them down. 28 I frequently used the data in these label copies, when I prepared production notifications for Austro Mechana, a non-profit organization working in the interest of composers, lyricists and music publishers. Each time Monkey Music planned to publish a new album, a so-called production notification was sent to this organization, from which a permission to manufacture the compact discs had to be received first. After that, when the compact discs were produced and their distribution on the market started, Austro Mechana was responsible to secure the proper remuneration of the owners of mechanical rights on the basis of the sales reports submitted by Monkey Music on a regular basis. The company followed a similar procedure with another organization, LSG, the task of which is the collection and management of rights, compensation and equity claims of beneficiaries in harmony with the substantive copyright law. After signing a so-called management agreement with both organizations, Monkey Music could be certain about the proper handling of both mechanical and performers' rights, provided that the company had submitted all the necessary information, for which I was responsible. I was given full responsibility in the case of online publishing of songs as well. Online distribution was facilitated by the use of a software called Rebeat. Once Monkey Music purchased this software and connected its credit card data with it, individual songs or albums could be made worldwide available for download and streaming on the Internet. Together with the songs, artist information and promotion materials could also be published online with the help of this program. While entering all data about the individual songs and artists, I had to be perfectly accurate and pay attention to the smallest details in the information, especially to the ISRC and EAN codes. After filling out an online form with all these necessary data, I also organized the online promotion of the uploaded songs or albums, decided on the airdate of online promotion, and wrote short and attention grabbing texts for the online press. After all these steps, the uploaded items soon became available for all Internet users around the globe. Online Music Marketing Besides the frequent use of Rebeat, I also worked a lot with a software named Cool Edit Pro, which was easily usable for the cutting of short samples of songs. Each time a new album was produced by Monkey Music, it was my task to cut thirty second-long samples of each song on the album which were later published and made available for pre-listening on the website of Monkey Music. In the music industry, this task could be viewed as the creation of short advertisements for online marketing purposes, and as such, I was responsible for forming a positive first impression in the listeners' mind when they heard these short samples of the songs marketed by Monkey Music. When I succeeded in finding and cutting the most attention-grabbing part of a song, it was later visible in the listeners' feedback and the company's sales data that the given song had the potential of becoming a hit, one of the most popular songs of an artist. 29 Besides these short samples, I was also responsible for editing photos and album covers for promotion purposes and publishing them on the website of Monkey Music. I received the photos in their original form and it was my duty to edit and resize them in a proper way with the help of the Adobe Photoshop software. I had to choose the most attractive pictures and modify, e.g. lighten, sharpen, cut them in order to make them more convenient for public relations purposes, since they were later used in various press materials and on websites involved in the marketing and distribution of music. While editing the songs and pictures, I got an overall impression of the artists Monkey Music was dealing with, and this impression was completed with biographical information and various press texts published on the company website, written either by the artists themselves or by my company mentor. I was often asked to translate these texts into English or French, in order to use them for example in the company's international newsletters or on English-language websites dealing with music. Besides these texts originating from the company or the artists, I was also asked to monitor online and traditional media, and scan and administrate the relevant texts dealing with one of the artists marketed by Monkey Music, for further PR use. Communication I also had the opportunity to make use of my various language skills when I was involved in the daily communication of the company with its business partners. When Monkey Music received inquiries in foreign languages, it was always my responsibility to deal with these foreign issues and to handle them properly. Besides these, I was often asked to prepare short and stylish translations of official announcements concerning the artists marketed by Monkey Music. For example, Bauchklang, a music group managed by Monkey Music won the Best Live Act Award at Amadeus, the greatest competition of the Austrian music industry, and it was my task to include this good news in the company's newsletter in English in such a manner, that Monkey Music can introduce one of its artists as a brand new award winner band and can generate concert bookings all around the world with the help of an attention grabbing text. Besides the above mentioned tasks, I was in daily contact with the employees of Monkey Music with the help of the company's online correspondence system, and personal meetings were also organized on a weekly basis. These meetings provided a good opportunity to gain an overall impression of all the current issues concerning the different projects of Monkey Music. Generally, the meetings were opened by the CEO of Monkey Music, who gave a short speech about the current state of affairs from his point of view and then requested all the employees to give a short update about their own field in the operations of the company. After that, questions and problems were discussed and solved together, and finally, the meeting was closed by agreeing on guidelines and projects for the future and the distribution of new tasks for all employees. 30 Special project-related meetings were also organized, on which I often took part. Depending on the topic and importance of the meetings, there were occasions when I remained a listener during the whole time and was busy with understanding the problem discussed and the points of view of the two parties. These meetings helped me gain a deeper and more diverse insight into the current functioning of the music industry, thus were useful and necessary; however, I preferred the ones at which I was able to actively take part in the conversation and share my ideas with the other participants. On smaller meetings with artists at the start of their professional career, I soon received the opportunity to answer their basic questions and explain the most important milestones of entering into the music market and publishing an album or a video clip. Besides these, there were two greater projects concerning two music groups in a longlasting relationship with Monkey Music in which I also had the opportunity to participate: the renewal of the website and the establishment of the international presence of the band Bauchklang; and the entry of The Vegetable Orchestra on the international music market. In the first case, I was responsible for recommending possible layouts and creative ideas for a new official website and collecting useful contacts in Western-European countries outside Austria and Germany. I was able to make use of my personal contacts in various fields of visual arts, and with their help I submitted a few usable ideas for the web page of the band, which unfortunately could not be finished until today. Besides this, the members of both music groups mentioned above found my language skills useful and could use my help in the search for new international contacts with which a long-lasting partnership could possibly be established. While collecting these contacts, social media websites proved to be of great help from the point of view of recruiting future fans and informing them about newsletters and other issues related to the artists. On the other hand, professional contacts for the purpose of event booking and promotion were rather hunted out through international websites, forums, blogs and conferences concentrating on various fields of music. Besides researching new partnership opportunities, I was responsible for the management of the already existing contacts of Monkey Music as well. With the help of the Microsoft Outlook mailing software, I regularly sorted and updated the e-mail addresses and other details of the partners of the company. First I gathered all contact information belonging to one person or organization, and created a digital business card in the system of Outlook on the basis of these data. After that, I grouped the various business cards according to countries, business fields and projects, to make the system more transparent and easier to use. Finally, I overviewed these names and contact information on a regular basis, in order to administrate changes in addresses or telephone numbers. Although this was a time-consuming task, it was worth the effort, since a carefully managed contact list provided a strong basis for the success of the company in the fields of communication and promotion. 31 Personal selling and promotion at live events One of the tasks which I liked most at the company was the organization and promotion of live events, such as Monkey Lounge, a mixture of a press conference and a concert, organized on a two-monthly basis. These Monkey Lounges were organized for Public Relations purposes in order to make the company more well-known and to inform the public about the latest news concerning Monkey Music, and featured artists from the company’s roster. Visitors of these events were mostly journalists and other press-related music experts, and business partners of Monkey Music. My task was to first gather the contact information of these guests, think about possible new sources of visitors and then inform them about the upcoming event. After promoting the given event in e-mails and in social website messages, I took part in the preparation for the event during the day of the concert and discussed several issues with our sponsor, a company which provided a significant part of the budget for the event. The Monkey Lounges were sponsored by Golden Eagle, a brand new energy drink on the Austrian market. In exchange for the financial contribution of the company marketing Golden Eagle, together with two of my colleagues I installed a stand at the entrance of the venue of the Monkey Lounge, decorated it with promotional materials of the energy drink company, and distributed free samples and information of the product to every guest of the event. Similarly to the promotion of Golden Eagle, I was sometimes responsible for the sale of merchandise, such as artist-related T-shirts, CDs, DVDs, records and posters at the concerts of musicians marketed by Monkey Music. I particularly enjoyed getting in touch with the fans of the given artist, seeing their enthusiasm, and providing them with a new T-shirt or an exclusive CD in which they were extremely interested. While selling merchandise I served as a representative of Monkey Music; besides providing them with a given product I also answered the questions of the customers and tried to achieve a positive overall impression in their mind. With some fans I changed contact information with the purpose of putting them onto the company’s newsletter list because they were particularly interested in other projects of Monkey Music as well. I always tried to establish a closer, more personal, longlasting relationship between the company, the artists and the fans, and fortunately I proved successful in this task. At the end of the concerts, both the musicians and my supervisor from Monkey Music were highly satisfied with my enthusiasm and the manner in which I served customers. To sum up, I found my practical tasks performed at the company useful and enjoyable. While gaining an insight into the different fields of management, finance, marketing, logistics and communication at the company, I was able to significantly improve my personal competences such as accuracy, precision, creativity, responsibility and problem solving skills, of which I believe I will make great use in the future. 32 PART 3: ADDITIONAL THEORETICAL BACKGROUND 3.1. Marketing and Arts While Dr. Tschmuck, quoted in Part 1, Theoretical Background, considers promotion as an inevitable part of support structures in the music industry, according to Kotler and Scheff, the role of marketing in arts is still a debated issue. In some cases, “marketing is feared and even hated for what it might do to the arts; on the other hand, there is an unquestioning conviction that marketing can work miracles for the arts” (Kotler and Scheff 24). Indeed, especially in today's competitive cultural environment, with consumers becoming more sophisticated, demanding and unpredictable, targeted and clearly positioned marketing activities are needed to support artists (Van der Vlugt 7-25). Both van der Vlugt and Kotler and Scheff discuss the increasing financial pressure that artists, especially music industry players have to face. They state that on today's market there is an oversupply of music groups which obviously have to share a limited income from supporting organizations and governments, and with the increase of the number of these groups, the share they can receive from subsidies decreases. At the same time, the audience for the arts is limited and is decreasing with the emergence of other leisure activities, which might serve as substitutes for the arts and thus make artists face tough competition on the market. Taking into account that artists on their own without any marketing activity are not likely to stay successful in today’s competitive market, as a solution, all the above mentioned authors advise looking at the demand side on the market when applying marketing techniques in the field of arts promotion. Emphasis should lie on broadening the audience base, increasing the audience size, increasing the accessibility of arts and meeting the specific needs of the audience. Although artists tend to concentrate on the product itself, “the essence of art is in its communication with the audience member”, and this communication needs to be facilitated by effective marketing tools in order to achieve sustainable success (Kotler and Scheff 25). Concerning the digital era we live in, getting closer to the audience, in other words potential customers, can be maintained effectively by making use of the provided advanced technologies and thus marketing music online for example. Electronic publishing revolution together with the growth of computer-mediated communication has inevitably caused significant changes in decision-making processes and in the ways of communication between companies and customers, or in this case between artists and the public (Clive Hoey 273). These changes and developments should definitely be built into the marketing of arts in order to better identify the needs of the public. 3.2 Computer-mediated communication, hypermedia and interactivity M.W. Delozier identified the role of marketing communications as early as 1976 as the following: to “share the meaning of a company’s total product offering with its customers in such a way as to attain their goals, and at the same time, move the company closer toward 33 its own goals” (Clive Hoey 278). While this basic goal of marketing communications has not changed since then, the means to achieve the company’s targets with marketing communication has undergone a significant development since the emergence of the Internet and computer-mediated communication. Parallel with the development of technology, Rudy (1996) explained computer-mediated communication as “any kind of communication involving the transmission of electronic signals between computers.” The importance of this “communications revolution” was soon discovered, and the British management writer, Charles Handy claimed it to be the key success factor of the future of organizations. Donna L. Hoffman and Thomas P. Novak, internationally-recognized scholars of electronic commerce and Internet marketing identified a shift from traditional “one to many” communication model toward a “many to many” method. The previous describes a situation, in which organizations reach many current and potential customers with the help of various marketing efforts; however, receiving feedback from consumers is limited, due to the oneway nature of communication. This traditional form of marketing communication has radically been changed by the emergence of the Internet, creating a “many to many” communication network, in which immediate feedback can be obtained from customers. Consequently, interactivity has soon been identified as the key difference between traditional mass media and computer-mediated communication and has been in the focus of marketing strategies of organizations ever since then. R. C. Blattberg and J. Deighton, well-known researchers of optimal budget allocations for customer acquisition, defined this as “the facility for individuals and organizations to communicate directly with one another regardless of where they are or when they wish to communicate.” In order to make the best use of this interactivity, it was necessary to take a closer look at the “hypermedia environment” which was born with the emergence of the Internet. Bornman and von Solms, authors of the book “Hypermedia, multimedia and hypertext”, explained the term “hypermedia” as the combination of hypertext allowing users to connect information with each other via different paths or links, and multimedia providing interactive access to both static (graphics and texts) and dynamic (audio, video) content. This way, in the hypermedia environment, communication is possible both person-to-person and through the media, and besides these, it can potentially support one-to-many mass communication (Clive Hoey 280-281). 3.3 Shift in Today's Marketing Communications Model In their book Principles of Marketing, Philip Kotler (Northwestern University) and Gary Armstrong (University of North Carolina) also emphasize that significant changes are taking place on today's markets, which largely affect marketing communications. Firstly, they draw the attention to the fact that consumers are changing. In the present digital age, they have better access to any kind of information and have also more opportunities to exchange this 34 information with each other, enlarging the word-of-mouth effect through Internet channels. Secondly, in line with the emergence of computer-mediated communication described above, Kotler and Armstrong state that marketing strategies are subject to change, since they tend to shift away from mass marketing and concentrate on focused marketing programs and closer relationships with customers. Finally, the ways in which marketers and customers communicate with each other are continuously changing and improving as digital technology changes. In the digital age, new communicational tools such as cell phones, iPods, satellite and cable television systems, and many channels on the Internet are provided. It is important to mention, however, that the fundamentals of proper marketing do not change, and companies should continue to keep their core objectives in view, and then integrate new promotion tools into their strategy (Brassington and Pettitt 463). In connection with this new marketing communications model, two theories are discussed in professional literature. One of them depicts a “chaos scenario”, and assumes that the old mass-media communications model will totally collapse and digital technologies will take its place entirely. This view is based on the logical assumption that simultaneously with the increase of mass media costs, audiences will shrink and viewers with more and more Internet experience and access will use online video on demand systems in order to skip television commercials which they often find disruptive. In contrast to those who believe in this “chaos scenario”, other theorists are expecting a more gradual shift to the new marketing communications model. They claim that broadcast television and other mass media still constitute a large share of promotional budgets, and this fact will probably not change quickly in the future. Their argument is supported by the fact that in the US in 2008 “more than 43% of advertising dollars were spent on national and local television commercials versus 7.6% on Internet advertising” (Kotler and Armstrong 428). Kotler and Armstrong prefer the second view, and forecast that the new marketing communications model will consist of a mixture of both traditional mass media and new, more personalized media. The idea of a less radical change and a mixture of traditional and new-age media was further preferred by Dr. Wilson F. Ozuem (Ashcroft International Business School, Essex, England) in his dissertation study Conceptualizing Marketing Communication in the New Marketing Paradigm: A Postmodern Perspective. In this study, Dr. Ozuem elaborates on the concept of postmodernism in marketing and the role Internet can play in future marketing communications, and he states that “the consumer is becoming more of an abstract concept, alternating identities between the extremes of cyber-consumer and traditional buyer” (Ozuem 14). This diversity in consumer behavior obviously requires the use of different marketing communication media. Thus in order to reach both traditional and new age consumers, the use of a mixture of mass media and personalized online tools is reasonable in the near future. 35 3.4 Integrated Marketing Communications and Online Marketing Today’s rich mix of media and communication tools makes marketers face a serious problem: consumers perceive commercial messages from a lot of different sources, between which they do not distinguish, thus they merge all the received information into one perceived image of a given company. Conflicting messages in this case can quickly confuse consumers and destroy the company's image and its relationship with customers. To avoid this, more and more companies follow the theory of integrated marketing communications. Under this concept, all communications channels of a given company are carefully integrated, in order to guarantee that they deliver a clear and consistent commercial message. This involves paying attention to each brand contact that consumers have and leads to the creation of a total marketing communication strategy aiming at strong customer relationships. As it can be observed on the following graph, commercial messages and images can reach consumers from different marketing communications sources, such as advertising, personal selling, sales promotion, public relations and direct marketing (the newest form of which is online marketing). The main idea of integrated marketing communication is to tie together all these messages and images, and make sure that for example the website of a given music group projects the same image as its advertisements or social network presence (Kotler and Armstrong 424-430). Integrated Marketing Communications Personal selling Advertising Sales promotion Consistent, clear, and compelling company and brand messages Public relations Direct and online marketing Source: Principles of Marketing Kotler and Armstrong discuss online marketing, jointly with other promotional tools, in the framework of integrated marketing communications. They state that digital revolution largely affects the way marketers communicate with their customers, and the emergence of 36 online promotional tools widens the set of marketing communications methods that can be used by a company. Such a mix of traditional media (e.g. television, magazines) and newage digital media (online and mobile channels) requires careful coordination, in other words, integrated marketing communications by marketers, in order to deliver a clear and persuasive message about a given company, or in this case a musician or music group. This careful combination of traditional and new-age digital media is present at Monkey Music as well, and requires constant attention on delivering consistent messages. This consistency and a perfect fit of online marketing into the company’s overall communication strategy had to be kept in mind when new promotion activities with the help of online tools were introduced during my research. 3.5 The Importance of Direct and Online Marketing Online marketing is the fastest growing form of direct marketing, and as such, it shares the four distinctive characteristics of direct marketing. Compared to other elements of the promotion mix, it can be considered: • less public, since most of the times the message is directed to specific consumer groups; • immediate, meaning that messages are prepared quickly; • customized, since messages can be tailored to specific customers' needs anytime; • interactive. A dialogue can take place between the marketing team and the consumer, and this way, direct and online marketing suit well highly targeted marketing efforts and are able to build one-to-one customer relationships (Kotler and Armstrong 442). The importance of direct marketing, with online marketing being a part of it, should not be overlooked by marketers. According to Kotler and Armstrong, a gradual change can be observed in this field, and a new direct marketing model is emerging. Earlier, direct marketers, such as direct mailers, telemarketers and catalog companies, gathered customer names and tried to sell their goods by mail and telephone. In the digital age, as technology makes it possible to create accurate market databases and provides new marketing media, the model of direct marketing is being transformed. Although most companies still use it as a supplementary channel jointly with the other promotion methods, there are some firms that go further than that and rely solely on direct marketing. Nowadays, if this happens, then the given company usually bases its business model on online marketing, and sets up an attractive website and webshop, with online marketing being its only one business approach. Direct marketing, and especially online marketing, is continuously growing due to the fact that it fits into the recent trend of building a closer relationship with customers. This closer relationship is of great importance in the music industry, where brand loyalty appears in the form of being a fan of a given artist. To retain these fans, who can also be viewed as brand ambassadors, regular communication is needed from the artist’s side as well, who this 37 way builds and tries to maintain a closer, seemingly personal relationship. In doing so, “direct marketing continues to become more Web-oriented, and Internet marketing is claiming a fast-growing share of direct marketing spending and sales” (Kotler and Armstrong 515). Indeed, Internet now constitutes only 20% of direct marketing-driven sales, however, according to the Direct Market Association's predictions, over the next five years Internet marketing expenditures will grow at 16% a year, and Internet-driven sales will increase by almost 15%. 3.6 Benefits of Direct and Online Marketing According to the authors, direct and online marketing benefit both buyers and sellers on the marketplace. For customers, these forms of marketing are convenient, easy and private, since they are able to gather information, make purchasing decisions and order products from the comfort of their homes. Consumers are provided with an improved access to products, since through these new media, an unlimited selection can be offered to them all over the world. The number of separate items that can be offered for sale on the Internet or in catalogs is much higher than the number of products that can be displayed in shops. This way, buyers have an increased freedom of choice, which is further raised by the fact that they can easily access and compare information about companies, products and competitors, which, in theory, all lead to a more rational purchasing decision at the end and to efficiency of markets. This, together with the interactive and immediate nature of direct and online marketing, gives the feeling of a greater measure of control to customers. This is all true for any kind of consumer products; however, greater measure of control of customers in the case of the music industry is even more significant: when aiming at a rational purchasing decision and researching a given artist or a record before buying it, customers often turn to the solution of illegal digital file sharing. When this happens, online tools are affecting music industry players in a negative way. This research aims at the reversal of this tendency. As for sellers, direct and online marketing are powerful tools of establishing and improving customer relationships. These forms of marketing give consumers the opportunity to ask questions and to volunteer feedback and suggestions, which leads to possible improvements in the marketers' products and generates customer satisfaction and retention. Besides that, direct and online marketing also provide a low-cost, efficient and fast way of reaching target markets, since the setting up of websites and the introduction of online advertising tools do not require much time and huge costs. Finally, online channels make it possible for marketers to handle their prices, announcements and programs with greater flexibility, to react immediately on the moves of their competitors, and to reach previously not served market niches as well, thanks to the fact that Internet marketing can be considered as a truly global medium, according to Kotler and Armstrong. Brassington and Pettitt also examine e-marketing from the seller's perspective, and 38 summarize the main benefits of investing into online marketing as the 5 Ss: • Sell: Selling goods and services online, to a global market, to a theoretically unlimited number of Internet-using consumers. • Serve: Websites can be used to provide additional customer service or to streamline service delivery. • Save: Significant overhead cost savings are made possible by online marketing. • Speak: Companies can enter into one-to-one dialogues with customers online. Valuable feedback can be provided, and important databases can also be set up this way. • Sizzle: a well designed website can add extra benefits to the brand image through educating and entertaining visitors. Creative interactive content added to the website can grab and retain customer attention (Brassington and Pettitt 465). 3.7 Online Marketing as the Fastest Growing Form of Direct Marketing As it is summarized on the following graph, direct marketing can take many forms from the traditional catalog, direct-mail and face-to-face selling to the recent innovations of digital technologies (interactive television, mobile phone marketing, podcasts and vodcasts) and online channels. These tools all share the typical characteristics of direct marketing communications already discussed above. From among them, this report raises the forms of online marketing and discusses those in detail. Since the music industry is changing dynamically, and, as Dr. Tschmuck also noted, online channels play a more and more important role in the music business, it can be assumed that online marketing has the greatest potential compared to other forms of direct marketing in this case. Forms of Direct Marketing Face-toface selling Online marketing New digital media Direct-mail marketing Customers and prospects Kiosk marketing Telemarketing Source: Principles of Marketing Catalog marketing Directresponse TV 39 As Kotler and Armstrong discuss it, the revolution of the Internet gave rise to fundamentally new ways of value creation and relationship building by companies. Today, it provides the possibility of marketing online to two kinds of companies: • click-only companies with no brick-and-mortar market presence (such as the e-tailer Amazon.com or Yahoo! and Google search engines), and • click-and-mortar companies which can be considered traditional companies with online marketing added to their operations (in other words, all companies having a website), such as Monkey Music. These companies can be involved in operations in four major online marketing domains: 1. Business-to-Consumer (B2C): similar to traditional marketing approach of attracting consumers, however, in this case, it is the online customer who initiates and controls the contact by visiting the website of a given company or subscribing to its e-mail newsletter. 2. Business-to-Business (B2B): using B2B websites, e-mail, online product catalogs and online trading networks to reach new business customers and maintain relationships. 3. Consumer-to-Consumer (C2C): communication occurring on the Internet between interested customers, who buy and exchange goods or information through blogs (online journals). Such blogs containing commercial information can have enormous impact on their readers. Companies advertising themselves on blogs or establishing their own blogs are aiming at influencing readers this way, by generating online wordof-mouth advertisement among consumers. 4. Consumer-to-Business (C2B): through the web, consumers can easily communicate with companies, which usually invite and welcome suggestions and questions, such as users’ comments in the forum of their official company website (Kotler and Armstrong 529-532). In fact, Monkey Music is involved in all of these four domains, by managing and promoting artists to the public (B2C), providing publishing and communication solutions to other businesses (B2B), participating actively in online social networks and generating customer discussions (C2C) and collecting customer feedback (C2B). 3.8 Ways of Conducting Online Marketing It must not be forgotten that using the Internet as an advertising medium includes disadvantages. In online advertising, only a limited visual presentation is possible, furthermore, the audience is not guaranteed, since most of the time it is the consumer which initiates contact with a company or artists, by seeking relevant information on the Internet and opening the company’s official website. Finally, the success of online advertising is largely dependent on infrastructure, since only those consumers may be reached with online marketing tools which have a functioning Internet connection, thus can access all kinds of 40 websites and online applications. Still, despite these disadvantages, it can be stated that advantages of online marketing outweigh them, and make the Internet a helpful promotional tool (Brassington and Pettitt 475). In the music industry, chances of an online promotion campaign to be successful can be considered relatively high, since the audience can be carefully targeted in various websites (e.g. webpages dealing with different music genres) and young listeners usually have access to the Internet and are actively taking part in online activities. Once a company decides to use Internet as a means of promotion, it can choose between four main ways of moving online, each of which has to be integrated with each other and with the rest of the promotion mix. In the case of Monkey Music, some of these means are already used; however, all of them are worth elaborating on and considering possible improvements. The four main online marketing methods are the following: Creating a website Kotler and Armstrong state that the creation of a website is the first step for most companies when they decide to go online. They distinguish between corporate or brand websites and marketing websites. Corporate websites are designed with the aim of building customer goodwill, collecting feedback from consumers, providing information, and generating excitement about the company or brand. Although such webpages fulfill many functions, purchasing is not possible on them. On the contrary, marketing websites engage consumers in an interaction that leads them towards direct purchase, by describing the latest hot deals, and offering online ordering and payment possibilities. Currently, the website of Monkey Music both provides information and collects customer feedback, and offers the possibility of online record ordering and payment. Once a website is created, it needs to be promoted, usually in offline print and broadcast advertisements, and through ads and links on other websites. After that it becomes important to constantly update company and marketing websites, to make sure that they remain interesting and attractive enough to generate repeated visits of consumers. The theory of the seven Cs of effective website design summarizes the key aspects in this field and states that the following factors determine the success of a given website: • Context: the design and layout of the website; • Content: text, sound, pictures and video, that the site contains; • Community: the ways that the website enables user-to-user communication (for example through forums); • Customization: how the site can tailor itself to different users or how it allows users to personalize it; • Communication: the ways site-to-user, user-to-site, or two-way communication is enabled; • Connection: how much the site is linked to other websites or is integrated into online social networks; 41 • Commerce: the site's ability to enable commercial transactions. This list is often extended with one more C, namely constant change, the continuous update of the content (Kotler and Armstrong 534). Besides Kotler and Armstrong, Brassington and Pettitt also summarized the basic requirements for websites to be successful. According to them, a website “should have all the creative flair of an advertisement, the style and information of a company brochure, the personal touch and tailored presentation of face-to-face interaction and, not least, always leave the visitor clear as to what action should be taken next” (Brassington and Pettitt 465). To sum up, based on their definition, a website should fit into the overall promotional activities of the marketer, and should complement traditional media in delivering a consistent company image. Taking into account its complementary function, a website can then serve as an additional research and planning tool, distribution and customer service, and communication medium. Placing Ads and Promotions Online Online advertising is becoming a major medium, with American companies already spending more on it than they spend on newspaper, outdoor or radio advertising. It can take three basic forms, such as display ads, search-related ads, and online classifieds. Depending on the amount of financial resources held for these purposes, each company has the opportunity to be engaged in any of the forms of online advertisements below. Online display ads may appear anywhere on the browsing consumers' screen. • Their most common form is banners, meaning the banner-shaped ads that can be found at one side or at the center of a website. According to Brassington and Pettitt, this type of online advertising can be effective in terms of increasing brand awareness, advertising recall and purchase intent. According to a survey conducted among 50,000 consumers in the US, all the three indicators grew after increasing the intensity of banner advertising (Brassington and Pettitt 472). • Other option is the use of interstitials, which appear when the user opens a new website, especially while the new screen is loading. • Thirdly, pop-ups appear suddenly in a new window, in front of the window which is being viewed at that given moment. This form may have an annoying effect on customers, which led to the creation of applications that enable the user to block such pop-up windows. It obviously lowers the effectiveness of this form of online advertisement. • As an answer to that, advertisers developed pop-unders, which appear behind the page that is being viewed, so that pop-up blockers cannot explore them, and the user only recognizes them when he/she closes all the pages that were viewed previously. • Finally, simultaneously with the wide spread of broadband Internet access which allows greater speed of browsing, advertisers are developing rich media display ads nowadays, which combine animation, video, sound, and interactivity. These rich media 42 displays draw users' attention more effectively. Another area of online advertising which is growing significantly nowadays is searchrelated ads, or contextual advertising. This means text-based ads and links appearing alongside search engine results displayed on sites such as Yahoo! and Google. These ads are highly effective, which of course demonstrates itself in the related costs as well; this form of online advertising requires the most financial resources compared to all other methods. Search-related ads account for more than 40% of all online advertising expenditures, and constitute nearly the whole amount of Google's enormous revenues. Other tools involve content sponsorships, when companies gain name exposure similarly to the traditional way of sponsorship, by supporting special content on various websites. With the careful selection of a sponsored content, it is possible to generate significant awareness, in case the given company’s name is well-displayed on the sponsored website and is relevant in the given field of activities. Furthermore, alliances and affiliate programs can also be developed, in which certain companies work together both on- and offline, in order to promote each other and thus themselves as well, by placing each other's banners on the sites. Finally, the online word-of-mouth, namely viral marketing is frequently used today. It involves the creation of a website, video, e-mail message or other marketing event that is so infectious that users will pass it along to their friends. This addictive and self-propagating promotion is then displayed more and more on websites, blogs, cell phones, and message boards. Although most of the times the company itself does not have a say in viral marketing, and the control is in consumers' hands, a well-started viral campaign can turn into a huge success. The greatest advantage of this method is that it requires an only onetime effort and investment, when the given marketing event is created. After that, it is the users’ activity and enthusiasm which is responsible for the spread of the given video or message; the online marketer does not need to further promote the event. Creating or Participating in Online Social Networks The popularity of the Internet as a communication channel led to the creation of web communities or online social networks, providing users with the opportunity to congregate, socialize and exchange views and information. Such sites as MySpace, Facebook, YouTube and Second Life are recognized by more and more companies as potential advertising media, resulting in an ever increasing number of company profiles on these sites, among which the profile of Monkey Music for example can also be found. Joining such an existing network seems to be the easiest, however, own community websites can also be set up, like Nike did. Obviously, the presence of a given brand is much more intensive in a social network created by the company itself; however, attracting members to such a network may be too difficult for smaller or less popular companies. Although these websites appear very attractive for marketers, attention should be paid to the fact that they are still new and thus results of marketing activities on these sites are 43 hard to measure. Besides that, these sites are largely controlled by users, meaning that marketers cannot force consumers talking about their products in any artificial ways; companies and brands have to become part of the online social lives of customers. This, of course, is hard to control and maintain. Companies have to find a proper way of communicating with their potential customers in these networks, which on the one hand should not be too pushy, but on the other hand should provide sufficiently active and frequent display of the company’s products and services. As a result of the fact that online social networks merge a huge number of different customer groups together, there is a recent trend of companies joining smaller communities of like-minded people, and focusing on niche networks that way. These niche sites are extremely advantageous vehicles for marketers who want to target special interest groups, since they constitute a better marketing message environment, and tend to spend more time on the site which is specialized and connects people with the same interests. Furthermore, while the bigger sites become overloaded with advertisements, and make users immediately ignoring ads when those appear, niche network members tend to pay more attention to ads, since they trust more both the content and the other members advertising something. That is why those companies which market products or services for a specific group of consumers (for example for people with a hobby of listening to music, cooking or fishing) should focus on these smaller sites gathering users with the same interest. Using E-Mail E-mail is an important and increasing online marketing tool, especially its enriched form which contains animated, interactive and personalized messages with audio and video. The main aim of e-mail marketing is to encourage users to look at a given website which is advertised in the e-mail, and to obtain permission to send more information afterwards, and include the given user in the company's marketing database, for example by offering the possibility to subscribe to the newsletter of a given organization. Carefully designed e-mail marketing plays an important role in both creating initial contact with customers and maintaining relationships with them later on. First, companies acquire customers with the help of an opt-in mechanism when users agree to receive regular e-mails, newsletters etc., and then marketers try to retain these customers by designing special offers for micro segments. Brassington and Pettitt depicted this on the following graph. 44 Source: Essentials of Marketing The authors also identified three distinct phases which e-mail marketing has gone through since the first messages were sent through cyberspace in 1971. They named the first phase the Broadcast/Spam era, which was characterized by indiscriminately sent messages, often with little targeting and tailoring, without careful attention to the recipient. Unfortunately, some companies still belong to this first generation, although European regulation is becoming stricter concerning e-mails, favoring an opt-in mechanism, thus assuming that people do not want to get e-mails unless they specifically ask for it. According to the authors, the second phase is representative of today's e-mail marketers, operating on a permission basis, offering the consumer the opportunity to volunteer to receive regular messages on special offers. Considering the fact that this particular theory was set up in 2001, there are reasons to believe that e-mail marketing in these days can already be in between the second and third generation, in a transition. The third phase, precision marketing combines the power of e-mail with the power of information technology, and relies on precise customer databases, records and analyses responses of customers, and this way ensures greater targeting and almost individual customer relationship management (Brassington and Pettitt 481). First Generation Second Generation Third Generation Broadcast/spam Permission marketing Precision marketing • • • • • • • • • • • High volume/low cost • Send and forget • Generally not relevant Responsible Poorly segmented Minimal personalization Approaching bulk mail 45 Focus on individual Dialog-based Utilizes reply button Minimized opt-out Builds brand affinity ‘Mail Worth Opening’ Although these new generation e-mails as attention-grabbers can be very effective when targeted appropriately, e-mail marketing is often avoided because of the huge number of spams (unwanted, irritating commercial e-mails) sent each day. The number of spam messages sent worldwide already exceeds the number of normal, person-to-person e-mails, which discourages companies which are considering using e-mail marketing, since it may easily ruin the company's image. To handle this problem, most legitimate marketers nowadays are trying to improve permission-based e-mail marketing, and send e-mails only to customers who opt in, and sign up for example for regular newsletters. This way, frustration and irritation is avoided, and personal relationships and attention are built again. Besides spams, Kotler and Armstrong mention other public policy issues that can harm and irritate consumers and make marketers appear non-benevolent. Such issues are annoying and offending customers with unwanted banners and pop-under ads, taking advantage of impulsive or less-sophisticated buyers with TV shopping and online “infomercials”. Besides these, Internet fraud, such as identity theft, financial scams and phising (identity theft using deceptive e-mails and fraudulent websites to fool users into giving away their personal data), and the lack of Internet privacy are becoming an important issue as well. Online marketers should be aware of such concerns and worries of customers, and should provide proper information on their policies regarding personal data of users, in order to preserve and improve the positive public image of online marketing tools, and build strong customer trust (Kotler and Armstrong 512-543). 3.9 The Future of Online Marketing – The Concept of Web 3.0 The above described techniques of online marketing were all designed for the Web 2.0 environment. The term Web 2.0 was originally used as the name of a conference in 2003, and its creator, Tim Oreilly, planned to signify the resurgence of interest in the web after the dot.com bust with it. Nowadays, many people tend to tie the term Web 2.0 to a particular decade of Internet technology, which results in the fact that Web 1.0 and Web 3.0 are also frequently mentioned in the literature concentrating on online marketing today. Based on this point of view, Web 1.0 is attached to the 1990s, Web 2.0 describes the 2000s, while Web 3.0 is the new Internet era, which started with the year 2010. Web 3.0 concerns not only the web itself, but mobile technology, sensors, and all other advancements which contribute to the development of Internet technology and broaden the use of the web. According to Dave Chaffey, together with the evolution of web functionality, the following approaches will gain significance during this era: • The usage of web-based applications and services is likely to become more common, meaning that most activities will be facilitated by only a computer and a functioning Internet connection, and the need for specific software packages will decrease. 46 • Syndication, in other words, the increased incorporation of syndicated content and services from other sites into a particular webpage will become more important. This is relevant in the field of online marketing as well, requiring marketers to better integrate various sources of information in their online presence. • Increased usage of streamed video or IPTV will complement or even replace traditional television, through the evolution and wide spread of YouTube and various online television channels. This phenomenon can lead to disadvantageous changes in traditional advertising, since TV commercials between shows, news etc. can be perfectly filtered by online viewers who would like to watch films without advertisements in between. This of course suggests greater concentration on online advertising and the restructuring of financial resources, leaving a smaller share of budget for traditional TV commercials. • Increased use of virtual environments modeling real life such as Second Life. The active participation of companies, or in this case, artists in these virtual environments may be of great marketing value in the future. Once users of such virtual networks are confronted with companies and artists in online communities, they are likely to become interested in them in their real life as well. • More intensive personal data integration, such as the exchange of data between social networks is foreseeable in the present Web 3.0 era. As it was already described above, the importance of social networks in online marketing should be explored even more, since these online platforms can be viewed as excellent source of consumer information nowadays. The fact that all kinds of community websites have a continuously rising number of registered members is highly advantageous for online marketers, who may easily become a user of these sites and then be connected to potential customers. Moreover, the efforts and financial resources required in this case are extremely low, allowing marketers apply other, more expensive marketing techniques as well. • Finally, semantics is likely to revolutionize the use of the Internet, and online marketers who recognize the importance of this development can take advantage of semantics in the future. According to nowadays’ predictions, with the help of semantic markup, artificial intelligence applications will be developed, which will be able to recommend content and services to users without them actively having to look for these contents. This means that such a great knowledge of users’ preferences will be obtained, that special applications will be able to provide users with the required information without even asking questions or using online search engines. These applications will apply their own judgment as to the best brands and company offerings, for example with the help of an automated shopping comparison service. Other examples are Wesabe and Mint, which have the potential to turn everyday people’s credit cards into a sensor providing meaningful information about tracks which are left in the real world. Obviously, when semantics will constitute such a great part of 47 Internet technology in the future, online marketers will have to pay attention to it and make use of the extremely meaningful information provided by semantics (Oreilly). To sum up, the continuous development of Internet technology will inevitably require an ever increasing concentration on online marketing methods in the future. However, it should always be kept in mind that the amount of information that can be found on the world wide web is so huge and incontrollable, that the evaluation and selection of relevant data among all useless information will soon become very important, facilitated by semantics. 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Internet World Stats. 20 May 2010 <http://www.internetworldstats.com/stats.htm>. 51 APPENDIX Appendix 1: Questionnaire Questionnaire about Internet usage and downloading behavior Dear Sir/Madam, With the help of this questionnaire, I am researching the file sharing behavior of Internet users and testing their knowledge about the effects of their behavior. With answering my questions, you will help me draw meaningful conclusions about this topic, which constitutes an important part of my college graduation thesis. Please give honest answers and do not be afraid of any consequences of filling out this questionnaire; you do not have to provide your name or any contact details. Thank you in advance for your cooperation! 1. Gender: Male Female 2. Age: ……… years 3. Work status: Working Studying Both None of the above 4. Monthly net income: ………….. EUR 5. Do you have any kind of access to the Internet? Yes No 6. Do you download music or films from the Internet? Yes No 7. If so, how often? Every day Weekly Two weekly Rarely 8. Do you also buy CDs/DVDs in music shops or other stores, or you rather download them from the Internet? I prefer buying CDs I download them Both 9. Do you think that the prices of CDs/DVDs in stores are too high nowadays? Yes No 10.Would you buy more CDs/DVDs if they were cheaper? Yes, I would buy more CDs if they were cheaper, e.g. 15 EUR. No, I would not buy them anyway. 52 11.Do you usually pay for your online music/film downloads? Yes No 12.From where do you download these songs and films? (more answers possible) Official artist/movie website Website of the music label, official webshop iTunes or other similar payable download sites With the help of BitTorrent, eDonkey, Soulseek or other similar free file sharing software Other 13.Are you aware of the fact that if you download or upload copyrighted material (song, film) with the help of a file sharing software (such as the ones mentioned above) to peer-to-peer networks, you are committing crime and you are an illegal file sharer? Yes No 14.Do you agree with this view? Do you consider peer-to-peer file sharing as harmful? Yes No 15.Are you afraid of the possible consequences, such as penalty, lawsuits and various punishments for illegal file sharers? Yes No 16.Some people say that illegal file sharing behavior can significantly harm artists and music/film industry employees. Do you agree on this opinion? Yes No 17.Opponents of illegal file sharing claim that it can lead to serious losses of the economy and increasing unemployment, just like it already happened in the US for example. Have you heard any news about these harmful effects of illegal file sharing? Are you aware of these negative consequences? Yes No, I’ve never heard about such harmful effects. 18.Will you continue using file sharing programs, now that you are aware of their effects? Yes No, I won’t use them anymore. 19.You ought to know that, although artists lose a substantial amount of their income due to illegal downloads, they can be supported in other ways as well. E.g. you can attend their live concerts, purchase merchandise (T-shirts, posters), or donate some money to them. Have you considered these possibilities as a means of supporting artists so far? (more answers possible) Yes, I went to concerts for this reason. Yes, I already knew that by buying merchandise I can help my favorite artist. Yes, I have already heard about music fundraising (donation) possibilities. No 20.Now that you know how illegal file sharing behavior may harm your favorite artists, are you planning to support them somehow in the future? (more answers possible) 53 Yes, I will visit more concerts. Yes, I will buy merchandise of my favorite artists. Yes, I will donate them some money, e.g. on www.sellaband.com No Thank you very much for your answers! Appendix 2: Analysis of the Questionnaire Results The questionnaire which constituted a significant part of the research had a two-fold aim: the first few questions concentrated on the demographic data and downloading behavior of Internet users, while the second part dealt with providing information to the respondents and testing their reactions on this information. The questionnaire was distributed between 12 October and 10 November 2010 on the Internet with the help of Survey Gizmo, a questionnaire creator and analyzer website, and in a traditional physical way. Altogether 160 respondents filled in the questionnaire completely, in various age groups between 17 and 65 years, all around the world, as it can be seen on the following map where groups of responses are marked with an orange spot: The proportion of males and females in the sample population was nearly equal, since 51.2% of the respondents were women, while men constituted 48.8%. The age of respondents ranged from 17 until 65 years, with a slight overrepresentation of the age group 20-24, due to the fact that many respondents were of the same age group as the researcher herself. However, if we take into account the fact that the most active Internet users also belong to this generation, this overrepresentation does not need to be considered disadvantageous from the point of view of the research. 54 Further demographic data was collected about the respondents’ working status and monthly net income. As the pie chart below shows, half of the respondents was working, nearly 19% of them were student, 28.7% stated that they both work and study at the same time, while 1.3% chose the answer “none of the above”, meaning that they nor worked, neither studied during the time of the research. There were significant differences in the monthly net income of the respondents, ranging from 0 to 6,000 EUR/month. Obviously, higher incomes were typical in the age groups between 30-60 years, while many younger respondents, especially students claimed to have no income. The above listed demographic differences proved to be influencing in the respondents’ Internet usage and downloading behavior; elder, better-off Western-European respondents showed more willingness for buying CDs and preferred payable, legal downloads, while the younger population chose free illegal downloads more often and preferred those to CDs. The next few questions dealt with the Internet usage and music purchasing behavior of people. 98.7% of the respondents stated that they had access to the Internet, which served as a basis for the following questions. Such a high proportion of Internet users may be subject of falsifications, similarly to the fact that 88.6% of the respondents admitted to regularly download films or music from the Internet. These percentages are inevitably high and not representative in worldwide terms, and may be a consequence of the overrepresentation of younger European people in the sample population. As for the frequency of downloads, 40.6% of the respondents admitted to download films and songs from on a weekly basis and 13% on a two weekly basis. 17.4% stated that they downloaded such contents every day, while nearly 30% answered “rarely”. When asking people about their music purchasing preferences, nearly half of the respondents said they prefer downloading music from the Internet. 28.6% purchased music and films both in their physical and digital forms, while 23.4% stated they rather buy CDs and DVDs. Respondents preferring downloads belonged typically to the younger age groups, while CD and DVD buyers constituted the elder groups of the sample population. 55 The next question researched the opinion of respondents on today’s CD and DVD prices, and it was found that a clear majority (72.2%) of people considers prices too high on the market nowadays. In order to find out if these high prices influence the respondents’ music purchasing decisions, people were asked if they would buy more CDs and DVDs provided that prices would not be higher than 15 EUR. 70.5% stated that they would buy more CDs and DVDs if prices were lower on the market, which means that even a proportion of “downloaders” would consider buying CDs for a lower price. 29.5%, influenced however, by these was prices not and showed no interest in physical forms of music anyway. Then, respondents were asked if they usually paid for their downloads, and a strong majority of them, more than 84% stated that they did not pay for the music or films they consumed from the Internet. As for the source of these payable and free downloads, nearly half of the respondents answered that they used a free file sharing software, such as BitTorrent or eDonkey. While younger respondents mostly chose these free softwares, elder people stated they downloaded from official artist websites, music label webpages, and official webshops. The use of iTunes was preferred by nearly 15%, both younger and elder respondents, while 18% said they used other means of downloading. The respondents were then asked if they are aware of the fact that the free up- and downloading of copyrighted material is illegal, and 82.3% of them stated to be already familiar with this fact. Although a clear majority of them knew about the illegality of this behavior, it does not mean, that they also accept it: in the next question, nearly 52% of the 56 people said they did not agree with this view and did not consider peer-to-peer file sharing as a crime. Just like any other illegal activity, peer-to-peer file sharing has consequences, such as lawsuits, penalties etc. as well. When asked if they were afraid of such consequences, 74.4% of the respondents said they had no fear of these penalties. Such a high proportion indicates that regulation and punishment of copyright infringers is not effective and people generally do not take these options seriously. After that, respondents’ opinion on the issue of harming artists with illegal downloads were researched. Nearly 64% of people agreed with this view and stated that they found illegal downloading disadvantageous for artists. A relatively great proportion, however, said they did not consider copyright infringement harmful for the right owners. The next question approached the problem of illegal file sharing from a rather economic point of view and asked if respondents knew about the fact that illegal file sharing harms not only the artists, but the whole economy of countries as well. The proportion of “Yes” and “No” answers was nearly equal, since 51.2% stated that they had already heard of negative economic consequences of file sharing, while 48.8% said they had not known about it. This clearly shows the need for more intensive communication of harmful consequences of copyright infringement and for proper education of people about this issue. Unfortunately, the questionnaire showed that people’s opinion about illegal file sharing is not easily changeable, since 82.7% of the respondents said they would continue using illegal file sharing softwares even after becoming familiar with the negative economic consequences of their behavior. Finally, the last two questions tested if people are familiar with alternative ways of supporting artists, such as attending concerts, purchasing merchandise or donating money on a voluntary basis. Merchandise and concerts were the most common supporting tools, while donations were only known by 15.6% of respondents. A bit more than 13% of people said to have not considered any of these possibilities as alternative means of supporting artists. 57 At the end, after providing people with this information, it was asked if they planned to practice any of these methods in the future and support their favorite artists this way. The majority (40%) of respondents chose to visit more concerts in the future, which is in harmony with the findings of Dr. Tschmuck, who claimed the live performance sector to be of significant importance in the coming years. 34% of the respondents were unfortunately not influenced by the information above, while 22% said to buy more merchandise. Online donations as a supporting possibility were considered only by 4% of the respondents. That is why there are reasons to believe that people are willing to support their favorite artists, however, they also expect something in exchange, e.g. a live concert experience or a merchandise product, and prefer one-sided, charitable transactions much less. Appendix 3: Analysis of the Sell-A-Band Website and the Concept behind It Sell-A-Band (www.sellaband.com) is a unique music fundraising website created with the aim of uniting “Artists and Fans in an independent movement that aims to level the playing field in the global music industry.” Sell-A-Band in its company form is based in Munich, Germany and Amsterdam, Holland, in two melting pots of creativity in Europe. It provides the possibility for artists to register themselves as fundraisers on the www.sellaband.com website and collect donations from their fans, the so-called believers, via PayPal, an online payment method. Since the launch of the website in August 2006, 58 artists have been able to have their albums funded completely by fans with the help of SellA-Band and more than 3,000,000 EUR has been donated to various music groups by fans and big supporting organizations. In exchange, fans receive various incentives (CDs, merchandise, small portion of the artists’ income) determined freely by the bands. Besides this, bands registered on Sell-A-Band can also decide independently on entering into deals with labels, publishers or management agencies once they reached a given level of popularity and funds, and retain complete freedom in creating music in the way they would 58 like to. This way, Sell-A-Band tries to provide an equal chance to all music industry players by letting the everyday music lovers decide on which band should become popular and successful in the future, while it also aims at connecting record labels and powerful music companies with emerging new artists, by raising their attention to these Sell-A-Band chart leader bands (“About us”). There are reasons to believe that the general concept of Sell-A-Band should be applauded in today’s music industry. It provides a real alternative and a choice for music lovers to have their say in the success of artists and give rise to projects which could not be funded any other way. However, the website is not popular and well-known enough to reach a considerable public base and it is not targeted and advertised in the proper way. That is why it can be observed that Sell-A-Band as a German company is mostly known in WesternEurope and its success and growth is based on word-of-mouth advertisement among enthusiastic users. Although the functioning of donation on Sell-A-Band is unique and interesting, relatively few users know it well. Basically, artists register on the website and are required to submit a short summary of their plans, the incentives for believers to donate, state whether they would like to raise funds for the production of a new album, a tour or a promotion campaign, and decide on a target, a sum of donations they would like to reach (usually between 1,000 and 100,000 EUR). Believers can then purchase parts in these projects, generally for 10 EUR each, by using PayPal online payment method and transferring a given amount of money to Sell-A-Band. Once this donated part enters the believer’s account in the system of Sell-A-Band, it can be withdrawn from the given artist and moved freely to another until the target of an artist is reached. Once a project is finished, believers’ money is transferred to the given artist, donations cannot be withdrawn anymore, and fans who purchased parts in the project can expect rewards in the form of CDs, money or merchandise (“Believer FAQ”). This means of supporting artists differs significantly from other methods and fits into the trend of establishing closer relationships between artists and their fans on today’s music market. It also makes use of online platforms, is trendy, youthful and revolutionary, however, the potential behind it seems to be unused, based on the interviews and the observatory research conducted in this field. Sell-A-Band concentrates on a certain region of Western Europe (mainly the German-speaking countries and the Benelux states) and shows no significant attempt to grow more international. Although it has a relatively intensive presence on online social networks such as Facebook and Twitter, meaning that short fewword news are posted on a daily basis, users barely react to these posts: a few of them click on the “Like” button under the news, but nearly none of them writes comments or starts a closer interaction with Sell-A-Band. This way, even if online communication has a great potential to be interactive and two-way, Sell-A-Band maintains mostly one-way communication and receives only a few feedback (on average, 5 “Like”-s per post) from its relatively little fan-base (1,675 fans on Facebook). Besides social media platforms, Sell-ABand tries to provide possibility for communication on its own website as well in the form of 59 forums; however, posts are usually outdated and irrelevant. Unfortunately, traditional media is even more rarely used by Sell-A-Band for marketing purposes: since its launch in August 2006, Sell-A-Band has created its first TV and online video commercial in only September 2010, and this half-minute long advertisement is a German-speaking one, which significantly limits the target group of the commercial. Probably due to the few marketing efforts, those Sell-A-Band member artists who can reach their targets and raise a considerable amount of money mostly come from only a few countries, namely the USA, Canada, Great Britain, Germany and the Netherlands. While SellA-Band currently has 4341 registered artists since August 2006, only 58 of them (which equal 1.34%) has reached their target until 13 November 2010. Naturally, this low percentage of successfully completed projects can depend on various factors; targets might be set too high, artists’ profile pages may be non-attractive or incomplete, it is possible that artists do not communicate their goals well enough or do not offer proper incentives etc. Besides these factors, however, low popularity of the website and the lack of proper promotion are certainly influencing as well, which might be viewed as an overall weakness of Sell-A-Band. As of 13 November 2010, there were altogether 155 registered artists, who had reached at least 1% of their target since their registration on Sell-A-Band; in contrast to them, 4186 projects had not been able to raise even 1% of their required funds. These minor and unsuccessful projects usually have a low number of believers as well, ranging from zero to about 40 people, donating on average one part, namely 10 EUR. On the other hand, there are a few success stories worth mentioning as well. There are about 30 projects relatively near (70-99%) to reaching their target, and having 143-665 believers, who determine the current status of these artists depending on the amount of funding target of course. The bands with the highest number of believers are obviously those which have already reached their target once or even more. Some of them have more than 1000 believers, while others have already reached a small (e.g. 3,000 EUR) target with 76 fans. Based on the data collected from the charts published on Sell-A-Band, it can be assumed that one believer purchases on average 4-7 parts from a given project, meaning that a fan donates 40-70 EUR to its favourite artist. However, keeping in mind that there are a few music supporting organizations registered as believers on Sell-A-Band, which purchase tens of parts at a time, the average number of parts bought by an ordinary user must then be even lower. With such a low number of donations, obviously a long time may be required to complete a project with the help of fans. Artists have to wait weeks, or often months, to reach their targets and receive the whole amount of money with which they can then execute a given project. However, there are a few exceptional artists who managed to reach their targets already 2 or 3 times, among which Hind, a Dutch pop singer is definitely worth mentioning: she managed to raise her first target, 40,000 EUR for recording an album within only 11 days after launching the project on Sell-A-Band, with the help of 979 believers. In the frame of a well-organized and communicated marketing plan, she has already raised 60 71% of her following target, 30,000 EUR for marketing her album, and plans to raise another 30,000 EUR for shooting videos for her songs. After being a finalist of the first Idols talent show of the Netherlands 7 years ago, she already released two albums and had numerous international concerts before she joined Sell-A-Band at the end of November 2009. Within less than one year, she raised altogether 61,600 EUR on the website and has a real chance of collecting another 40,000 EUR in the near future. With these amounts of money, she can definitely be called a miracle of Sell-A-Band, however, it must be kept in mind that her Sell-A-Band membership has always been properly communicated, advertised, and carefully built into the overall marketing of the artist. Researching Hind’s marketing activities on various Internet platforms, it can be stated that attention is drawn to the possibility of donations through Sell-A-Band in many ways, and through intensive and close cooperation with fans Hind collects positive feedbacks in this field. Through her example, it can be proven that Sell-A-Band may serve as a real supporting option for artists, provided that it is integrated into the artist’s marketing activities and attention is drawn to it as often as possible. Without such marketing input, however, the website remains unnoticed and an unrealistic supporting tool. Appendix 4: Sell-A-Band Interviews In order to present an analysis of the Sell-A-Band concept from more points of view, personal interviews were also made in this topic. Eight questions were put to three professionals who are currently working in different fields of the music industry. The three interviewees were a record label manager with 4 years professional experience (A), a young journalist specialized in music (B) and a music promoter with 15 years professional experience (C). 1) Do you like the overall concept of Sell-A-Band in general? Why/why not? A: It is of course a nice idea, but I do not think that the concept is really usable and can provide real help for artists. I do not believe in the system of Sell-A-Band. B: Generally, it should be applauded, since the core idea of Web 2.0 is totally pursued in this system: the user/fan can have a direct impact on the success of the bands. C: Yes! I find the idea of Sell-A-Band basically good and original. If it is well executed, it has the potential to provide a new way of supporting artists and establishing a closer connection between fans and bands. 2) Do you think it is worth the effort, registering artists on the Sell-A-Band website? In you opinion, can Sell-A-Band really provide considerable help for artists? Why/why not? A: I am not an experienced user of the website and I have never supported any bands on it. However, regarding the low popularity of this method, I do not think can help artists get closer to being famous and successful. 61 B: Registration of bands on the website is definitely not counter-productive. From the perspective of the international music market, however, I consider the role of Sell-A-Band rather marginal. The question whether it is really a useful tool requires a more precise definition. It is certainly useful for gaining a wider presence and for having the chance to complete a given project. However, Sell-A-Band cannot provide an ultimate solution for every issue. An Internet platform can never take over the tasks of an ordinary promoter or booker and cannot guarantee musical talent. C: In principle yes, it does not take any huge efforts to register on the website and create an attractive and interactive artist profile. However, now that a restructuring and re-launch is coming, I am curious how it may effect the functioning of Sell-A-Band. Hopefully it will make it even better. 3) In your view, is Sell-A-Band well-known enough or should the concept be advertised and promoted more widely? A: In my view, there are relatively many people who know the name of the website, but the concept is rather unknown to most music lovers. That is why I think Sell-A-Band is in need of a strong and informative advertising campaign. B: I must confess that I did not really know Sell-A-Band until now, which may suggest that more intensive promotion would be necessary in this case. We are talking about an Internet service. In our fast-paced information world, it will soon turn out whether the concept of Sell-A-Band can be sustained. It is also possible that similar, but better promoted concepts will emerge and wash Sell-A-Band away. C: In its present form, Sell-A-Band is not well-promoted: it does not reach the general public, is not well-targeted, and relies on mainly word-of-mouth advertisement. Keeping in mind that currently there is a re-launch under a new owner, this development should be communicated in the frame of a well-executed marketing campaign, making use of both online and traditional media. If such a campaign is not organized, Sell-A-Band will never take one step forward, but will remain a small, relatively unknown way of helping bands. 4) Do you consider the various motivational tools for Believers on Sell-A-Band (CDs, merchandise, small portion of income) proper and effective? A: I like the idea of “giving something back to the fans in exchange for their help” and find the motivational tools good. B: No. As for me, I do not see any incentive to invest into Sell-A-Band. I rather believe in bands which I can hear in rehearsal rooms and at live performances and I invest in these bands, if possible. The Web is not a base for such investments for me. C: In my view, motivation should be music itself, the respect for artists and being a true fan of musicians. I do not think these motivational tools are valuable enough to influence those people who like music in general; I think believers on Sell-A-Band are more than ordinary music lovers: they are fans of a given artist. But of course, it is not bad to receive something 62 in return for their generosity. 5) Do you think that online payment methods (e.g. PayPal, which is also used on Sell-A-Band) are trustworthy enough and people like to use them? Do you trust these payment possibilities? A: I do not have great experience with using PayPal but as I have heard, it is used by more and more people every day. However, I would provide the users more payment possibilities, e.g. traditional money transfer as well, to make sure Sell-A-Band does not lose any believers because of lack of trust in online payment methods. B: PayPal is nowadays a common practice on the Web and, in my view, has stood the test as a payment form on the Web in developed countries. C: Yes, I think more and more people trust these methods nowadays. 6) Have you already donated money to an artist on Sell-A-Band? What is your experience with it? A: No, I have never used it. B: I have not used the system of Sell-A-Band yet, thus I have no experience with it. C: Yes, I donated three parts to three different acts. Two of them have already reached their target and produced an album. The third band is still waiting for enough believers. From the first band, I received three CDs and there was no problem with them. In the second case I refused to get the CDs, although they were willing to send me a few. In contrast to the CDs, no proportions of income have arrived on my bank account yet, but I have to say I am not surprised about that. From the beginning, I did not believe that money would be transferred to the donators. What I truly missed, however, was the feedback from the musicians’ side! Once their target was reached, there were no updates anymore and believers received no news about the bands. Interaction disappeared completely, and I had to research some information on my own, when I wanted to get some news about the artists. 7) Do you think that the idea of charity in the music business may become more common and accepted in the future? Why/why not? A: I do not think business could or will function like this. In my view, there are less and less people willing to pay for something on a charitable basis, and nowadays many of us think twice before spending money and look for valuable goods. B: The traditional structures in the music industry are currently falling apart. CD sales are continuously declining. Everything and everybody turns more and more to the digital world. On this basis, the acceptance of such an online platform as Sell-A-Band is likely to strengthen as well. C: I do not think that artists should view charity as a real option to rely on. Sell-A-Band is also dominated by a few big supporters, and it is relatively rare that bands reach their target. Personal interaction is needed, and I think other ways of supporting artists will 63 always remain more common than donation in itself. 8) Would you modify the concept of Sell-A-Band? How do you think it could be improved? A: Even if in my view Sell-A-Band does not have the potential to become a great artist supporting possibility, I would invest much more into marketing and PR because I think SellA-Band could be a perfect “PR topic” in which many people would be interested, if its owners paid more attention to marketing. B: Major labels could also take part in the activities of Sell-A-Band and offer contracts (about production, management, promotion, tour) to the most popular/best bands. Sell-A-Band should therefore cooperate more closely with such labels. C: I would definitely make it more proactive. Newsletters and updates should be sent to users on a regular basis. Currently, Sell-A-Band is waiting for the believers to open the website and search for information. It should be the other way round, thus Sell-A-Band should contact its users first with attractive and eye-catching news. And, of course, much more intensive promotion would be needed to make the whole concept more well-known and used. Appendix 5: Analysis of Facebook marketing activity To test whether Dr. Tschmuck’s theory about the live performance sector being a boom segment in today’s music industry is correct and if it can be strengthened with online marketing activities, small lotteries were published on Facebook, one of the most popular online social networks. To the request of the company, these lotteries were connected to the live concerts of Bauchklang, an Austrian alternative beatbox music group managed by Monkey Music, with the aim of motivating people to visit more concerts and, at the same time, of making the page of Monkey Music on Facebook more popular. By encouraging users to become a fan of the page of Monkey Music, these small contests had an advantageous effect in the long run: the fan base could be broadened and this way the messages of the company could reach more and more people. That is why the initial hypothesis was tested on Bauchklang and Monkey Music, while Ginga, another music group marketed by the company served as the control group, without any marketing activities. As the company requested, the small contests helped raising the number of fans of Monkey Music and promoted the concerts of Bauchklang at the same time. For technical reasons, it was the number of fans of Monkey Music that could be influenced, since I had no access to the profile of Bauchklang on Facebook. That is why in the frame of this research, it can be assumed that the new fans joining the fan base of Monkey Music during the few day long contests were those users who were particularly interested in Bauchklang. Consequently, the concerts of Bauchklang were advertised, and the number of fans of Monkey Music and Ginga were compared and observed during the research. 64 1) 11 September 2010, Gasometer, Vienna, Austria Promoted event: Concert of Bauchklang and Sofa Surfers (both music groups marketed by monkey.) in Gasometer, Vienna, 11 September 2010 Text of advertisement: LOTTERY! You have the chance to win 3x2 tickets on the concert of BAUCHKLANG and SOFA SURFERS on the 11th of September 2010 in Gasometer Vienna. For that, you only have to press the “Like” button on the Facebook page of monkey. and then tag yourself on this photo. Hurry up, the lucky winners will be selected and notified on Thursday at 17:00! Number of pages where the 3 pages (monkey., Bauchklang, Sofa Surfers) promotion was published: Duration of promotion 7 September, 14:30 - 9 September, 17:00 (date, time): Progress (repeated 7 September, 14:30 1,585 fans, 0 tags message, fans of monkey., 8 September, 13:30 1,593 fans, 13 tags people tagged): 9 September, 16:30 1,598 fans, 15 tags 9 September, 17:00 1,600 fans, 17 tags End result: 15 new fans of monkey. within less than 2 days, 17 players, 3 winners 65 2) 25 October 2010, Mosquito, Timelkam, Austria Promoted event: Text of advertisement: Number of pages where the promotion was published: Duration of promotion (date, time): Progress (repeated message, fans of monkey., players): End result: Concert of Bauchklang in Mosquito, Timelkam, 25 October 2010 LOTTERY! You have the chance to win 2x2 tickets on the concert of BAUCHKLANG on the 25th of October 2010 in Mosquito, Timelkam. For that, you only have to press the “Like” button on the Facebook page of monkey. and then press “I’m attending” on the event page of this concert. Hurry up, the lucky winners will be selected and notified on Saturday at 17:00! 2 pages (monkey., Bauchklang) 21 October, 09:30 - 23 October, 17:00 21 October, 09:30 1,655 fans, 22 October, 14:30 1,667 fans, 23 October, 10:00 1,673 fans, 23 October, 17:00 1,680 fans, 25 new fans of monkey. within 2 days, 32 winners 4 players 13 players 27 players 32 players players, 2 3) 13 November 2010, Halle B, Baden, Austria Promoted event: Text of advertisement: Number of pages where the promotion was published: Duration of promotion (date, time): Progress (repeated message, fans of monkey., people tagged): End result: Concert of Bauchklang in Halle B, Baden, 13 November 2010 LOTTERY! You have the chance to win 2x2 tickets on the concert of BAUCHKLANG on the 13th of November 2010 in Halle B Baden. It’s easy: you only have to press the “Like” button on the Facebook page of monkey. and then tag yourself on this photo. Don’t waste your time, the winners will be selected and notified on Thursday at 18:00! 2 pages (monkey., Bauchklang) 8 November, 16:30 - 11 November, 18:00 8 November, 16:30 1,702 fans, 9 November, 15:00 1,709 fans, 10 November, 12:30 1,718 fans, 11 November, 18:00 1,723 fans, 21 new fans of monkey. within 3 days, 28 winners 66 0 players 10 players 21 players 28 players players, 2 4) 20 November 2010, Volkshaus, Weiz, Austria Promoted event: Concert of Bauchklang in Volkshaus, Weiz, 20 November 2010 LOTTERY! You have the chance to win 3x2 tickets on the concert of BAUCHKLANG on the 20th of November 2010 in Volkshaus, Weiz. What you have to do is to press the “Like” button on the Facebook page of monkey. and then tag yourself on this photo. You better hurry up: the winners will be selected and notified on Thursday at 17:30! Text of advertisement: Number of pages where the promotion was published: Duration of promotion (date, time): Progress (repeated message, fans of monkey., people tagged): End result: 2 pages (monkey., Bauchklang) 15 November, 18:30 - 18 November, 17:30 15 November, 16:30 1,734 fans, 17 November, 13:00 1,746 fans, 18 November, 18:00 1,757 fans, 23 new fans of monkey. within 3 days, 24 winners 0 players 16 players 24 players players, 3 Control group: the fan page of Ginga (another band marketed by Monkey Music), without lotteries and advertisements: Fans on Facebook monkey. Ginga Sep- Sep- Sep- Oct- Oct- Oct- Nov- Nov- Nov- Nov- Nov- Nov- Nov07 08 09 21 22 23 08 09 10 11 15 17 18 1585 1593 1600 1655 1667 1680 1702 1709 1718 1723 1734 1746 1757 917 919 920 961 963 964 990 993 995 995 1003 1005 1006 1900 1800 1700 1600 1500 1400 1300 1200 1100 1000 900 800 monkey. Date 67 Nov-18 Nov-17 Nov-15 Nov-11 Nov-10 Nov-09 Nov-08 Oct-23 Oct-22 Oct-21 Sep-09 Sep-08 Ginga Sep-07 Number of fans Fans of monkey. and Ginga on Facebook