VyRT: The Newest Disruption to the Music Industry?

The music industry is perhaps one of those most affected by the advent of the Internet. Higher internet penetration and greater bandwidth have allowed more and more people to download music online. Online services that have emerged at the turn of the century such as Napster, Kazaa, and BitTorrent have made peer-to-peer file sharing increasingly easy (albeit illegal). This has resulted in a surge in music piracy, significant infringements on music copyrights and substantial losses to the music industry.

Later disruptions to the traditional music business model included YouTube, where artists could present their music and music videos without having to go through the more conventional “MTV” route; and of course, iTunes, which has made it very effective for consumers to buy a single song off an album. The combination of the iPod and iTunes store has made the need to buy a CD or any other form of physical record virtually obsolete. Consumers can now “break up” an album and choose only the song(s) they like – instead of buying the record in its entirety – at a significantly lower price per song (between $0.99 and $1.29 per track[i].) The latest wave of change in the way people consume music is the growing use of online streaming. Many people now do not buy songs at all; instead they stream them using music sites such as Spotify and Pandora. In this new model record labels and artists make money out of advertising revenue and ever-smaller music licensing fees.

As a result of these successive disruptions to the music industry brought about by the Internet, it is estimated that in the last decade, album sales dropped by a quarter in the period between 2001 and 2005[ii]. Album sales went from an all-time high of 785 million units in 2000 to a little over 247 million units in 2010[iii]. The highest revenue source for record labels in 2011 was iTunes, generating $3.2bn. A distant second is Spotify, which, between its free and paid subscription models, now stands at 23mn subscribers[iv].

Of course, there is the counter argument that instead of killing the music industry, the Internet has actually set music free. Instead of being at the mercy of one of the four major record labels (Warner Music Group, Sony Music, Universal Music, and EMI[v]), musicians now get to produce their own music, share it online with their fans (inexpensively or free of charge), and leverage social media to build a strong following. This ultimately gives them more creative freedom and stronger leverage to negotiate better deals with the majors. What is more, the ubiquity and low cost of offering music online allowed for the fragmentation of the music market. It is now possible for artists with very peculiar tastes in music to express themselves creatively and yet still find a niche market interested in their offering. This would have never been possible with the large music labels looking only for artists with reasonably wide appeal[vi].

By opening up more avenues for artists to reach their audiences and establish a dedicated fan base, sources of revenue other than record sales have become more salient. Examples of these alternative revenue sources include live music ticket sales, merchandise sales, and music licensing for television shows[vii]. While record sales have been facing a steady decline, revenues from concerts and music festivals have in fact been on the rise[viii]. David Laing from the University of Liverpool estimated that live music revenues stood at $25bn in 2010[ix]. A live show experience is virtually immune to piracy and is arguably very hard to replicate via other media[x].

It seems, however, that that is exactly what the new online platform VyRT (https://beta.vyrt.com/) is trying to do. From its “About” page: “VyRT gives Artists the opportunity to sell digital tickets to live events that are broadcast worldwide in an online social theater.” For a pay-per-view fee (around $10), virtual ticket holders gain access to a fully-produced, high quality live stream of their favorite artist’s live show; which they can then enjoy either on their laptop screen in their PJs with a pint of ice cream, or on an internet-enabled home entertainment system during a viewing party with their friends. In addition to the live broadcast, VyRT offers extra perks such as backstage access and artist Q&A. It also adds a social component to the fans’ experience by allowing them to interact with each other and with the artists via live chats and comments.

VyRT is still a pretty young platform (it is still in beta testing.) So far, it has supported three events by the band Thirty Seconds to Mars (Jared Leto, lead singer of the band, is actually the entrepreneur behind VyRT.) Earlier this month, VyRT acquired its first “outside” client by featuring the Jonas Brothers’ performance at Radio City Music Hall in New York.

I have personally viewed one of the Thirty Seconds to Mars performances on VyRT (yes, I was in my PJs with a pint of ice cream) and I must admit, I have thoroughly enjoyed the experience. While there are still a few technical glitches that the beta version is trying to hash out (especially with the live chat feature), it definitely felt a lot more than an impersonal, one-dimensional live stream. The streaming quality was remarkably good, with a crisp image, clear sound, and few – if any – interruptions. For 10 bucks a show, I definitely felt that I was getting my money’s worth.

Of course, the question remains as to whether VyRT, and potential similar platforms, would do to live music what iTunes and Spotify have done to recorded music. My assessment is no. While VyRT is certainly entertaining, it is still very difficult to replicate the sheer energy of a live show. Instead of being a substitute cannibalizing the concert business, I view VyRT more as a complement, catering to those around the world who, like me, would not have been able to attend the live show anyway. In that regard, VyRT is reaching new customers and opening up a whole new revenue source, in addition to actually building up demand for both the records and the live shows. After my VyRT experience, I for one am not only ready for another one, but also for a real, loud, all-out-crazy concert.


Endnotes:

[i] http://www.businessweek.com/news/2011-11-14/record-sales-rise-as-lady-gaga-adele-find-a-future-with-spotify.html#p2

[ii] http://voices.yahoo.com/the-music-industry-versus-internet-4552117.html?cat=15

[iii] http://www.businessweek.com/news/2011-11-14/record-sales-rise-as-lady-gaga-adele-find-a-future-with-spotify.html#p1

[iv] http://www.businessinsider.com/spotify-revenue-labels-2012-6#ixzz1yvGetHxA

[v] http://www.businessweek.com/stories/2009-03-06/the-music-industrys-new-internet-problembusinessweek-business-news-stock-market-and-financial-advice

[vi] http://www.time.com/time/arts/article/0,8599,1900054,00.html

[vii] http://www.time.com/time/arts/article/0,8599,1900054,00.html

[viii] http://www.pwc.com/gx/en/global-entertainment-media-outlook/segment-insights/music.jhtml

[ix] http://livemusicexchange.org/blog/whats-it-worth-calculating-the-economic-value-of-live-music-dave-laing/

[x]  http://voices.yahoo.com/the-music-industry-versus-internet-4552117.html?cat=15


2 Comments

  1. Hello, you used to write fantastic, but the last several posts have been kinda boring… I miss your tremendous writings. Past several posts are just a little out of track! come on!

  2. Lola Puerta Varela

    I agree Dina, as for now online live events are a side business for the music industry and never a substitute of live concerts. The disruptions that the music industry is experiencing have brought a significant loss of revenue that has not been offset by more revenues on live events. It is no surprise to me that the entrepreneur behind this start up is an artist. Even if concert revenues are growing, the music industry will still long for previous offline revenues lost from record sales as live events have many limitations to revenue: number of attendees per concert, geography… Either a concert is sold out rapidly (leaving fans without a chance to attend) or demand is geographically dispersed and tickets do not sell well. In both cases there are revenues that are lost. Initiatives such as VyRT aim at monetizing that loss and that is why it is a good complement to amortize the large investments needed to produce music.

    I think however, that this is not it. Online live events will be much more than we can imagine now. Even though now the value added is just a live chat, the possibility to be home in bed or premium content with artists, when technologies such as 3D holographic projection are part of our lives, online live events will become a separate line of revenues rather than a complement. Sites like VrTY will be able to offer “Concert On Demand” subscriptions to bars or other establishments wishing to lure clients with 3D holographic concerts. This will become a new and separate distribution channel, a music product that B2B consumers will be willing to pay for (something not so common these days) but more importantly it will bring fans and artists together much more widely than before.