Can the Music Industry Change Its Tune

1) The value chain of the music industry includes the artist, recording company, physical product, advertising, distribution, & the retail stores. For many years the music industry has had only one main form of product: CD’s, tapes, or records. However, in the past several years peer to peer networking services such as Gnutella, Napster, & Kazza have created a new form of product: digital copies of the music files. These peer-to-peer networks allow users to download and share files, whether copyrighted or not. While some files are legally downloaded, those files that are copyrighted are downloaded illegally. “Normally”, when a CD is sold, the revenues represent not only the cost to manufacture the physical product, but every piece of the value chain. It is important to know that there are other types of distribution channels like radio stations, which use music to make profits. These companies are known as professional users of music and in order to use any kind of music they have to pay fees for doing so. Due to the illegal downloading of music over today’s peer-to-peer networks is decreasing the revenues for every piece of this music industries value chain.

2) What role did the internet play in changing value propositions and the competitive environment? The internet plays positive and negative roles in the music industry. One of the most obvious negative roles is the illegal downloading of copyrighted music. The peer-to-peer providers have been able to create revenues from pop up advertisements while allowing users to exchange files, illegally & legally, for free.

The internet has played a positive role in the music industry by creating a new distribution channel and products. The recording companies finally realized that by providing a legal, convenient, & reliable downloading process they were able to charge a fee and help regain some the revenues lost to illegal downloading. The increase of downloaded music has also led to the introduction of many new portable music devices and other forms of revenues for the recording companies.

The internet has played a large part in declining CD sales. Illegally downloaded music that is then burned to CD’s is a less expensive way for listeners to get music. This has obviously created part of the decrease in CD sales. However, declining CD sales can also be attributed to a 20% decrease in album releases & 7% increase in prices while consumer prices had a negligible rise.

3) The response of the music industry has been slow. They began by fighting the peer-to-peer software providers like Napster & Kaaza. Once the software providers found a way to provide the software without being responsible for the illegal downloads, the music industry then began going after the individual users that were copying the files. Finally, the music industry realized that the downloading was going to be nearly impossible to stop, they decided to find a way to provide a service to do the same thing. They began to provide music downloads that were more convenient, better quality, & without the threat of criminal charges and fines. Charging around a $1 for these downloads provided the music industry with some new & refreshing revenues. The organization of the music industry remained unchanged for such a long period of time that it became