The Innovation of Online Music Business Model From the Perspective of Industrial Value Chain Theory

The Innovation of Online Music Business Model From the Perspective of Industrial Value Chain Theory

Chao Lu (School of Economics and Management, Beijing Jiaotong University, Beijing, China) and Jialu Chang (School of Economics and Management, Beijing Jiaotong University, Beijing, China)
Copyright: © 2019 |Pages: 15
DOI: 10.4018/JECO.2019040101

Abstract

The emergence and development of online music have brought a great update to traditional music industrial value chain. As consumers know, record sales, media dissemination, and peripheral income like concerts are three major sources of income of traditional music industry. Compared with that, the music industry now possesses an extensive consumer group, a new growth point, and a new development direction. Meanwhile, as laws and business rules of online music industry improving, the new online music business model need to be established. Based on value chain theory, this article sets up a brand new online music business model and analyzes the operation strategy, and services mode of the business model applying internet thinking.
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Introduction

Nowadays, knowledge is becoming the predominant productive force. As an important part of cultural industry, music industry also grows prosperously. As is estimated in Annual Research and Consultation Report of Panorama Survey and Development Strategy on China Music Industry 2016-2020 issued by China's Investment Advisory Network, in 2016, the market size of China’s music industry will reach 295.2 billion and it will keep climbing to 319.9 billion in 2020. In the next five years (2016-2020), the average annual growth rate will be approximately 2.02%. In Internet era, due to the disappearance of physical media and decline of reproduction cost, the number of Internet users and apps present an exponential growth. In addition, there are 200 million music downloads in Internet every day in China making China the largest online music market in the world. It is possible to estimate the paid market of Internet music in China could exceed 10 billion. The trend of digital music is unpreventable.

However, facing with the great pressure of copyright payment, domestic digital music platforms still rely on network flow monetization which is passive and needs quite long period. In this way, profits come from subscription fee, high quality version fee and value-added services such as ads, game operation, online and offline performance, etc. (Liu, 2006). Due to low conversion rate of ads and high copyright and operation cost, most online music platforms either hardly maintain break-even, or turn to external investment because of deficit. Compared with online video or other similar industries, the output of online music is still too small with most income is from coloring ring back tone (CRBT) of telecom operators rather than Internet operation (Xue, 2014). The main cause that constraints the development of domestic online music industry is lack of feasible profit models to cover musicians and operations.

In 2015, the bringing forward of “Internet Plus” makes business model become one of the hot spots among the theoretical and industrial circles. New industry chains created by Internet require new business model to reform music industry. At present, most researches of online music business model in China focused on profitability, charge system and macro level. Few researchers yet attempted to innovate online music business model systematically. Therefore, this article discusses the demand-oriented strategies of online music business and initially attempts to establish new online music business model which centers on online music comprehensive services platform.

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