Finding the Next Big Thing

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Madonna, Bruce Springsteen, Michael Jackson, the Backstreet Boys and a few lucky other superstars topped the charts of the 80s and 90s, raking in large sums of money for the music industry. However, times have changed. CDs are obsolete and music piracy is the driving the industry to bankruptcy. The music business has consistently failed to adapt to these changes and are paying for their blindness in over $8 billion US of lost revenue. So, given the advent of i-pods, digital downloads and the age of youtube, the question arises: how should the major music companies go about picking the next big thing, when the cost of making a mistake could doom them to bankruptcy?

The music industry is hard at work trying to cope with these changes. As International Federation of the Phonographic Industry (IFPI) chairman and CEO John Kennedy explains, "The global music business is continuing to fight its corner, investing in talent and developing new business models despite the problems of a market rigged by piracy. Music companies are investing over US $5 billion a year in developing and marketing artists, licensing hundreds of services and adapting their distribution channels to meet changing consumer demand.” Regrettably, despite their diligence, the music companies’ 5 billion dollar investment does not seem to have made much of a difference in the state of the industry.

The trend in music sales over the past decade is best exemplified by the following graph: As shown above, the unfortunate state of the music industry is best exemplified by the fact that total revenue from U.S. music sales and licensing plunged from $14.6 billion US in 1999 to $6.3 billion US in 2009 (Goldman), despite the fact that the US’s population actually grew duri...

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