Exploring the online music market : consumer characteristics and value perceptions

Abstract: The advent of the Internet and the digitization of music has resulted in a multitude of new challenges and opportunities for the recording industry. So far, sales of digital downloadable music have not compensated for the decrease in CD sales throughout the twentyfirst century. To attract new customers and successfully compete with file-sharing networks, commercial online music services need to meet customer expectations by delivering what they value. Therefore, to increase the understanding of prospective customers, the purpose of this thesis was to explore and describe customer value and target groups within the online music market. Data were collected through a survey of Swedish consumers between 16 and 60 years old. Customer-perceived value of downloadable music, in terms of expected value for money, was found to be quite low. Value could, however, be increased by improving the most important benefits. In addition to fundamental functions, such as ease of use and search, a large music catalogue, and good sound quality, flexibility in use is essential. This involves ensuring transferability, compatibility, possibility to duplicate files, and opportunity to sample. The high level of desired flexibility suggests that digital rights management (DRM) restrictions decrease value by making it difficult for consumers to use the product freely. Furthermore, perceived value could be enhanced by decreasing privacy risk, such as concerns about paying with credit card online, and, most importantly, lowering prices. Consumers, on average, thought that a downloadable song should cost 5-6 SEK, i.e. about half of the current price. However, providing better value in terms of the proposed benefits, combined with lower risk, would improve consumers' willingness to pay. The study also found that current potential target customers of online music services are between the ages of 25 and 45, have a higher-than- average interest in music, low concerns about risk, and are experienced users of the Internet and digital music overall. Clearly, use of file- sharing networks and commercial online music services is not mutually exclusive. In fact, P2P users in the study were generally more likely than P2P non-users to be customers of commercial services. Moreover, increased customer value of pay-per-download services is more likely to result in higher usage intentions among consumers with current Internet music download experience. An important challenge for commercial online music services, therefore, is not only to attract more file sharers, but also to retain occasional customers by increasing the perceived value.