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«Kate Totaro An honors thesis submitted in partial fulfillment of the requirements for the degree of Bachelor of Science Undergraduate College Leonard ...»

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I don't like popping in the generic blank ugly disc that's scribbled on with a Sharpie; I like having the pretty colored and well-designed disc to put into the CD player so it's like, 'I legitimately pay for my music, biatch!’ For this respondent, the authenticity of the product is a huge motivating factor in the purchase decision. For him, authenticity creates a personal and social validation. Another respondent emphatically stated that, “The original has so much more utility over copies!” For others, authenticity means experiencing the non-musical features of a CD such as the cover art, liner notes, photos, or lyrics. One respondent noted that, “Creative inserts and continuity through the songs make the whole [the CD] greater than the parts [the individual tracks].” For many consumers, the album represents “a total experience”, not simply a sonic pleasure. As one respondent described, CDs represent “originality and sincerity, uncompromised.” The importance of authenticity is also visually displayed below in Figure 8. The questions, listed in the legend on the right of the graph, were only administered to individuals (78) who indicated that they were “likely” to purchase a CD in the next month (a rating of “5” or greater on the Likert scale).

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As these responses show, the “total experience” of both added content and artistic intent are driving factors for tangible music consumption among the student demographic.

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critical in their purchase decisions. One respondent noted that he felt a strong sense of pride in every piece that he added to his collection. Another described CDs as “physical artifacts of my passion”. For many, collecting was described almost as a hobby; not only is the final product important, but the search and the ability to impress others also play a large role in the importance of CDs. As one respondent noted, “Going to a store and purchasing a CD is more of a meaningful experience than downloading a song.” Another noted the feeling they got from “buying, unwrapping, and popping in a CD for the first time.”

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world with formats such as iTunes. However, as Brown states, “[Collecting digital files is] very different from collecting physical music objects” (Brown, 2006, p.8). He goes on to describe a relevant study that he conducted: “When we asked our participants about collecting digital files rather than physical music objects they were generally negative, even those who used MP3 files extensively” (Brown, 2006, p.8). As can be seen, collectability creates a unique and valuable differentiating attribute of tangible music.

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Another important attribute of tangible music, one that partly stems from collectability, is that of displayability. For many consumers, their music expresses who they are; a tangible collection is a presentation of a person’s tastes and expertise. While this seems to be a diminishing factor in my focus group and survey respondents, it is still noted often enough to deserve attention. (Perhaps many of my respondents do not display their music because the majority live in cramped New York City apartments.) Safety (Perceived Permanence) Perceived permanence is an often-noted attribute that adds utility to tangible music.

While neither digital nor tangible music is truly permanent, many consumers feel safer owning a tangible product rather than a digital download. Although hard drives can be backed-up to avoid disaster, often they are not updated frequently enough (or at all) to give consumers adequate piece of mind. One consumer described his perceptions as the following: “I know that the CD will always be there. I've downloaded lots of songs before, then the computer crashed and I lost them all! CDs are much safer.” Another said, “I feel much better having a hard copy of the music. What if something were to happen to my computer?!”

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A final often cited attribute of tangible music is that of enhancements. Many CDs offer value added attributes that cannot be found online or downloaded from iTunes. For instance, special edition compilations, DVD content, interviews, or special promotions add value to the tangible product that cannot be replicated with digital music.

All of the above described attributes—authenticity, collectability, displayability, perceived permanence, and enhancements—provide utility for tangible music consumers. All of the attributes are nonreplicable in the digital realm, and therefore create value and differentiate the tangible music market from the digital music market. While the previous section described the “who”, “how prevalent”, and “why not” of student music consumption patterns, this section shed light on the “why”. PRICE ELASTICITY OF DEMAND Another insight that I pulled from the survey results is the importance of pricing strategies. While many in the industry are extremely reluctant to lower CD prices, the results show that the price elasticity of demand for tangible music is very high; consumers are very sensitive to changes in prices of CDs. As shown below in Figure 9, incremental drops in price lead to large increases in intended purchases. (While this type of question cannot recreate the classical interpretation of price elasticity because it measures intended purchase behavior, it is still helpful in inferring elasticity.) As can be seen, a price of $8 per CD would greatly increase the likelihood of purchase among students. The change in intended demand in each of the X-axis categories is significant considering the change from “Current Prices” (to be interpreted individually) to “$8” per CD.

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Figure above indicates that if labels were willing to slightly reduce prices, still earning a nice profit on each disc, they would greatly increase demand of tangible music. Even with reduced prices, labels would still be earning higher margins on tangible music than on digital downloads. ALTERNATIVE ENTERTAINMENT In an attempt to measure the student consumers’ perception of the value of tangible music

against similar alternative entertainment options, I asked respondents the following question:

If you were given $100 per month to spend on personal entertainment (not including social entertainment such as going out to a movie, restaurant, club, etc.) how would you allocate your budget across the following categories? You can spend anywhere from $0-$100 on a category. Remember, your total must add up to $100.

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As can be seen, DVDs, CDs and books accounted for the highest percentages of outlay.

However, to gain greater insight into the perceived value of tangible music, I created a relative scale based on approximate prices of alternative entrainment products. This scaled investigation allowed me to determine how many units of each product individuals intended to purchase. I used approximate prices of: DVD: $17, CD: $13, Downloadable Music: $1; Ringtones: $2, Downloadable Video: $2, Video Game: $40, Book: $10.

The results were as follows in Figure 11:


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The most interesting interpretation here shows that individuals anticipated purchasing approximately 2 CDs for every 12 downloads, about double the tangible content over the digital, for-purchase content. While this interpretation may be skewed because of the absence of free downloading, it does show that even among an extremely wide variety of consumption opinions, tangible music is still very relevant.

Additionally, these numbers indicate that while alternative entertainment products are pulling a lot from potential tangible music sales, they are not completely wiping out the medium;

the relative value of alternative entertainment products is high, but not stifling. The biggest competitor seems to be DVDs, which are extremely popular with the student demographic because of time availability. While many adults prefer to spend their disposable income on music—a less time intensive entertainment product—many younger consumers have the time to devote two full hours of undivided attention to viewing.

The above results of the survey—student music consumption patterns and motivations, tangible music utility drivers, price elasticity, and alternative entertainment solutions—all add valuable insight into the tangible music market. All four of the above-described results validate the importance of a tangible music market and also offer insight into potential improvements for the markets.

4.2.6 MANAGERIAL IMPLICATIONS The above results all lend evidence to the viability of the tangible music market. First, the study shows that there is a small but fervent population of music enthusiasts who value tangible music over its digital alternative (10% of sample who indicated a likelihood of purchase of “7” or higher), similar to an 80/20 effect. Second, the study illuminates attributes of tangible music that add utility to the product. Third, the pricing investigation shows that while there is a market among the student demographic at current CD prices, improvements in pricing structure would likely greatly increase the size of the market and the strength of the demand. Last, the study shows that while tangible music faces strong competition for student’s disposable income from entertainment alternatives such as DVDs and books, CDs still represent an important portion of student expenditures.

All of these factors lend themselves to the viability of a continued market for tangible music among the student demographic. While many pundits are suggesting the disappearance of the tangible music market and the complete replacement with downloadable alternatives, the above described primary research results strongly suggest the future viability of a tangible market. As Burgess states, As in all other areas of life, the new technology will not entirely replace the existing ways of doing things but will take its place alongside them. Newspapers and books were not replaced by movies, which in turn were not killed by TV. Radio was modified by TV but not replaced. The Internet has not yet superceded TV and most likely will not. History shows us that new technologies eat away at the market share of old technologies but rarely completely replaces them in the short-to-medium term (Burgess, 2005, p.252).

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While I am confident in the process and results of the above-described survey, there are certainly many limitations that could not be avoided given the nature of the research. First, because of the limited time and resources inherent in undergraduate study, I was limited in scope and depth of potential investigation. For instance, it would have been valuable to gather more responses from non-NYU students to avoid potential biases. Additionally, it would have been very helpful to conduct additional, post-survey, filtered focus groups. While I attempted to gather students for these types of groups, response was very low and time limited. Additionally, as is inherent in any survey based study, flaws such as survey fatigue, and ambiguity can affect results.

If given with more time, or a second round of investigation, I would have honed the survey questions further and delved deeper into the motivations for tangible music purchase.


Drawing from industry opinions and primary research results, I will now explain my prediction for the future of the music industry and explain how tangible music and digital music should ideally interact in the music industry of tomorrow.

With the increasing prevalence of and alternative options in the digital music realm, the world of music consumption is changing rapidly and drastically. In order to survive the evolution of the market, music labels will have to learn to adapt to the new formats, create new strategies, and reassess their business structures. First, I will discuss the role of tangible music in the future of the industry and the outlook for retail stores, then I will conclude with my outlook for the future formats, strategies, and structures of the music industry.


Despite a few expert opinions (and as evidenced in the primary research above), the CD will remain relevant in the marketplace until another tangible alternative challenges its rein.

Digital media is simply not an adequate replacement for tangible product but, instead, a supplement.

From the consumer’s perspective, the differentiating qualities of both types of products guarantee nonexclusivity and are often why downloaders continue to purchase CDs. As discussed in detail in the earlier section, a few of the attributes of tangible music that create a market for the product include: authenticity, collectability, displayability, perceived safety, and enhancements. As Katz summarizes, “To put it bluntly, people like things” (Katz, 2004, p.186) and often it is the physical object that people, especially collectors, value most, not necessarily

the music. In the context of collecting music, Katz says:

Collecting is about the thrill of the hunt, the accumulation of expertise, the display of wealth, the synesthetic allure of touching and seeing sound, the creation and cataloging of memories, and the pleasures (and dangers) of ritual. Record collecting represents a relationship with music that helps us, in some part small or large, to articulate and, indeed, shape who we are (Katz, 2004, p.11).

To many, an album is a piece of art; one cannot just buy part of it to experience the full impact of the artist’s intent. There are cultural costs to unbundling an album: the loss of artist continuity and the inability to access lesser known music.

Additionally, digital music is only prevalent for a small (but growing) demographic.

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