We May Have Unbundled The Music... But We've Smartly Bundled The Music Experience

from the doing-it-right dept

Ian Rogers, from Topspin, has an absolutely fantastic blog post on the question of "unbundling" and "rebundling," in the music business. What kicked it off was David Pakman's writeup about how unbundling the album into songs that can be purchased individually may have had the biggest impact on the record labels' bottom lines -- much bigger than unauthorized file sharing. It goes on to talk about the economic impacts of unbundling in a variety of industries. It's a good read.

Rogers picks up on this, and notes that plenty of people agree with this point, but they may be missing out on the fact that while this aspect of the music business may be in the midst of a massive "unbundling," other parts are seeing themselves bundled in highly profitable ways:
A new, more positive story is emerging. As artists get their arms around all their rights and build direct relationships with their fans we’re seeing artists’ output RE-BUNDLED into higher value packages and average revenue per transaction greater than those delivered by the Compact Disc. Instead of selling their art across a variety of channels (CD at Best Buy, digital download at iTunes, t-shirt at Hot Topic, ticket at Ticketmaster, and vinyl at Amoeba) artists are able to bundle their collective output into a single direct-to-consumer sale where they are the retailer (and pocket half the retailer margin, too). It’s true the CD was an incredibly efficient product with massive distribution (the move from “record stores” to big box retail in the 90s was a large contributor to the bubble you see in the above slide) with an average revenue per sale of greater than $10. It’s also true both piracy and individual track sales have unbundled the product and driven the average revenue per transaction for most artists to less than $3. But at Topspin we see people selling new bundles, different from the CD and as a result very high revenue per transaction:
2011-04-12 Music Business Now - 2
We've seen this before. And, obviously, I've spoken about this for years now. There are all sorts of opportunities, and those opportunities often come in recognizing how to best bundle scarce and non-scarce goods. This is why I think it's important to recognize the differences between what Pakman is talking about and what Rogers is talking about. Pakman's discussion on unbundling is focused on taking apart artificial bundles that were put together due to the inefficiencies of the technology at the time. You put a bunch of songs together on an album so you could distribute (and sell... and promote) them all together in one shot.

What Rogers is talking about, however, is a more natural bundle. Rather than a bundle borne out of the inefficiencies of existing technology, the bundling he's talking about is bringing together natural bundles of products that fit together smartly in packages that give fans real options -- and which are done for the overall convenience of fans and buyers, not the convenience of retailers and middlemen. That's a key difference and we're going to see more and more of it in a variety of industries. The bundles that will disappear are the bundles that were done to help serve the middlemen, and what will replace them (much more profitably and economically efficiently) are bundles that help serve the end user/buyers.

In the case of music, what's happened is that the unbundling is of the album, which certainly many music fans enjoyed, but which was often seen as inconvenient for the fans who just liked a few songs. What the new bundles are about is not about bundling music per se, but bundling the full music experience, which is what the industry should have been selling all along...

Filed Under: bundles, business models, experience, music, unbundling

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  1. icon
    PaulT (profile), 24 Apr 2011 @ 3:19am


    "but the average album has about 12 to 15 songs, and average cost of a CD was under 15 dollars, so industry is getting more money per song that it use to,"

    Yeah, 2 things there:

    First of all, iTunes and most other retailers aren't selling the albums at 99c per track. You have the option to buy individual tracks at that price, but album are usually cheaper as a bundle.

    Secondly - and this is where industry people are having problems - you don't *have* to buy the full 12-15 tracks. Back in the day, if you wanted 2 songs from the album you still had to buy the album (or overpriced singles). Now, you just buy the 2 songs you actually want and aren't forced to pay for the filler.

    " the user will likely still spend his remaining 11 dollars on 11 other songs he likes"

    But, he might not buy the tracks from the same label. Or he might get a pizza instead...

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