This paper will examine how Apple’s concept of cheap online content influenced the growing trend of online digital distribution of entertainment and other media. It will attempt to asses the impact on consumers and businesses as the traditional methods entertainment retail are giving way to the new online distribution model. Introduction : In 2003, Apple Introduced the tunes store, a digital store from where customers could legally download and purchase Individual songs for $0. 9 and entire albums for Just $9. 9 (2). At a time when music sales were starting to decline due to online piracy, Apple provided customers with a cheap and feasible option of buying music. The system saved customers the hassle of physically going to the store and buying expensive music while giving them a cheap alternative to downloading pirated material. This business model has started being adapted widely in the entertainment and software industry, and for consumers this has meant an expanding choice of cheap digital content.

The main purpose of this paper will be to examine how Apple’s digital marketing incept influenced a change in the way movies, music and general entertainment media are distributed and sold. In particular, It will look Into how different retailers and artists are adapting Apples philosophy and offering reasonably priced online content directly to customers. Research for this paper will Include articles on the changing trend of retail and the growth of online media entertainment sales.

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It will also include a look at the influence of Apple’s model and how companies like Nettling are using it to provide cheap legal alternatives to illegal downloads for customers. Finally, we will look at how customers in general are benefiting from this new growing trend, and how it is challenging the traditional way of doing business. The Decline of the Music Industry When peer to peer (POP) network systems like Anapest started emerging in the late 1 sass, it started off the trend of online file sharing and pirated downloads. Users could download their desired songs for free and then share their downloads with as many people as they wanted.

This marked the beginning of the music Industry downfall. In the year 2000, the total accounted US retail sales of music was $14 lion. By 2003, the figure drastically fell to $1 1. 8 million, and continued to decline. Instead of trying to embrace and adapt the system, they chose to fight it. Legal action led to services like Anapest closing down, however, online piracy itself had become too big to shutdown. The record companies stuck to their old and traditional way of thinking and did not try to be innovative or learn from the new system.

They reacted aggressively when they should have adapted and therefore they were unsuccessful in combating piracy. Many record labels tried to combat piracy by offering their own inline music subscription services but these were also unsuccessful. It is only when Apple entered the market that things began to change. Exhibit 1: Music’s Lost Decade- Sales Cut in Half ere Beginnings of the Digital Marketplace Apple’s venture into the digital marketplace started out in 2003 with the tunes store. The service gave users the option of downloading individual songs for $0. 99 and entire albums for $9. 99.

This was in contrast to other online music service that charged premium fees from users for downloading music. (1) When file sharing started gaining popularity towards the end of the sass’s, many large music labels such as SONY and MME tried launching their own online music services. AOL Time Manner, Bertelsmann and MME Jointly introduced a service called Music Net in 2001. Users were charged $9. 95 a month for which they could download 100 songs. These songs however could not be transferred to Cad’s or portable MPH players, and could only be enjoyed for days before they expire and had to be repurchased.

SONY and Universal went another way offering a service called Precisely that allowed users unlimited downloads for a fee of $179. 40 per year. (10) The problem with these services were that they were competing in a market where users could Just get unlimited music for free, with which they could enjoy in anyway they liked. Compared to this, the paid online music available seemed like a very impractical option and in some cases it was probably cheaper or practical to physically purchase a music album. By offering single downloads for $0. 9, Apple gave customers the cheap alternative to buying expensive records at the store, paying for costly digital subscriptions or downloading illegal copies. The ease and convenience of purchasing music from tunes along with the very competitive price made it a very viable option for customers. By offering material at a uniform price, they standardize the price of music and making the buying experience much more simple for the customers. The main benefit of this system was that it focused on giving the customer and music fans the most convenient way to access music, while still benefiting the artists.

Music fans no longer had to buy whole albums, but instead had the choice of purchasing songs they liked at a very cheap price without having to leave their house. There has been a lot of debate over whether tunes benefited or harmed the music industry, and opinion on this is still quite divided. Many believe that by making individual songs available for purchase, tunes led to the decline in overall album sales. However, it also helped salvage the industry in a time when it was being than good to the music industry, but it did make it easier for them to sell music to customers and fight off some of the effects of piracy.

Apple itself does not make a lot of money off tunes. The system is designed to give music fans a better experience, Nile supporting the company’s other products. (7) While Apple has used this system to expand its own sales, consumers themselves have more options in terms of purchasing and enjoying music and other entertainment. Customers themselves have of course reacted positively to tunes; leading to an increasing trend of paid digital downloads, as of early 2010, Apple had sold 10 billion songs through tunes and the service made up a substantial portion of 70% of online digital sales. 11) By focusing on the user experience, and giving customers exactly what they want, Apple has managed to make itself the leader in the distribution of online digital entertainment. Exhibit 2: The App Store After the success of digital music, Apple expanded its tunes store and started to offer things like movie rental, TV show downloads and so on (4). Today, Apple has expanded this concept to the App Store where it offers a variety of downloads including software and games for Apple computers and mobile devices.

Additionally, the tunes program is also available to PC users, offering the ease of digital shopping to a wider variety of people. Even though tunes and other similar services are growing in popularity, the system of online sales did come with some initial limitations, the most significant of which was probably Digital Right Management. Digital Rights Management When record companies started selling their music through tunes, they gave the Apple strict conditions that the digitally purchased music could not be copied. This led to the creation of Digital Rights Management (DRY).

This was a sort of encryption that made it difficult to make multiple copies of downloaded music. It seemed like a logical step on the part of record labels, as they did not want digital sales to translate onto greater piracy. For consumers, the hassle didn’t seem like much as they were getting cheap legal music without having to look too search extensively for it. However, the restrictions placed by the DRY made purchasing digital music much more inconvenient for consumers. If consumers did something simple like change their computer operating system, they would lose all their music and would have to repurchase everything.

The copying restrictions made it difficult and even illegal to Ironically, this was not a restriction that people faced with pirated music. The hassle created by DRY made purchasing digital music online less appealing. It made more sense to Just download pirated material that could be copied, backed up and retrieved multiple times, without payment. The DRY system was actually punishing customers for genuinely purchasing music, while at the same time making piracy look eke a better alternative.

Apple had always insisted on the removal of DRY, and after considering its negative effects, record companies started to do so. Nowadays the restriction is no longer placed on digitally purchased music, and online music sales have been growing, although it is not possible to say that this is due to the removal of DRY. The removal of the restriction however has made it more practical for customers to get paid digital downloads, by making them Just as convenient as pirated copies. Exhibit 3: Digital Rights Management Even though the DRY system has been removed from downloaded content,

Apple employs a sort of restriction of its own. Music and other content downloaded from tunes are only compatible with Apple products and cannot be played on other devices (18). This has not affected the company’s sales though, as the popularity of its mobile devices like the pod was pivotal in making the tunes store a success. Growth in popularity of the tunes concept As mentioned before, Apple’s pricing and selection made purchasing music through tunes very appealing to customers. The concept became even more popular Ninth the introduction of Apple’s pod. 3) The first generation pod was a revolutionary up player that allowed users to listen to music on the go. This device only worked Ninth tunes, and as it gained in popularity, so did Apple’s tunes store. It became more convenient for pod owners to download music directly from the tunes store and transfer it to their pod, instead of going through the whole hassle of purchasing CD or looking for a reliable pirated copy online. In essence, Apple made it mandatory for pod users to have tunes and once they had it, it only made sense to purchase the wide variety of cheap online content that Apple offered.

What fractionated Apple from the competition was that they offered a convenient all- could get the music and provided them with a fashionable device to enjoy the music anywhere they went. Exhibit 4: tunes Global Market Share Exhibit 5: The Revolutionary MPH player “pod” The pod was not successful in its initial few years and took some time to gain in popularity. Apple kept making improvements to the product as it brought out newer models with features like color display, video playback and PC compatibility.

These developments along with Apple’s creative marketing helped boost product sales making it the leading MPH player in the market. The pod + tunes complementary product combination proved very successful for Apple, and as more people started buying pod’s, the volume of digital downloads from the tunes store also increased. 18) The biggest appeal of the pod was that it allowed users to take different songs from their Tunes library, and create their own custom plastic. People no longer had to carry around Cad’s of whole albums or waste time making mix Cad’s.

People could now carry hours of music in their pocket, and had more control on how they chose to enjoy it. Apple extended the concept of the pod to create many more mobile devices eke the phone, the pad and the pod touch, all of which have been very successful mobile devices. Tunes has also been made available in all of Apple’s devices making it possible for customers to purchase digital content wherever they are. Apple had taken the concept further, and people no longer had to physically use their computers to purchase digital content.

The company also introduced a service called cloud that made content purchase from tunes instantly available on all of the Apple devices that a user owns. (9) This added another level of convenience for customers En purchasing digital content, which has grown to include movies, TV shows, games and software. All of this convenience has helped popularize tunes even more Ninth consumers. Apple also offers something called the App Store where its users can download various application, software and games.

The company revolutionized the way people purchase and enjoy entertainment and made it a more user-oriented experience. How the tunes system works Tunes, which initially offered digital music downloads, has expanded to offer a Med variety of content such as TV shows, movies, books and bedposts. Customers are harmed a reasonable price and again have the ease of purchasing content from the comfort of where they are and taking it along on any Apple device they own. Customers can purchase a wide variety of content through their tunes account and pay for it either through their credit card or by redeeming tunes gift cards.

Like special offers available to them. For customers, the whole process of shopping for entertainment has been moved online. Tunes, works as a middleman between the record label and the final customer. For every song sold at $0. 99 Apple keeps $0. 35 and gives the rest to the record labels/artists. 13) While this might mean that artists receive less money, it is still than receiving nothing at all from an illegal download. While music is the primary item sold through Tunes, Apple also offer TV shows and movies from its online digital store.

TV shows are made available very quickly and are uploaded as soon as the program is shown on actual television. TV shows on Tunes are actually available before pirated copies appear on the Internet. Users can pay a reasonable fee to purchase HAD quality versions of shows, which they can enjoy on their computers or various mobile Apple devices. Apple has also introduced meeting called Apple TV, to take this concept a step further. This is a small device Inch when connected to a television, allows users to access and enjoy all the content that they have downloaded from Tunes.

This is quite convenient as it allows users to take all their purchases with them wherever they go, without having to physically carry a lot of items. This is Just another additional way Apple is making it easier for customers to purchase and enjoy entertainment regardless of where they Catering to a wider market A lot of new artists and bands are bypassing traditional music labels and releasing materials themselves online. A lot of new emerging artists sell materials directly through tunes, in addition to other outlets.

What this has done is given some artists more control over their material, while allowing consumers to discover new music they might not have heard of normally. Tunes has a feature called the Genius’, which recommends music to users depending on their tastes. This has also given customers a wide variety of choice while giving a lot of exposure to artists. Consumers now have a much wider array of choices than ever before. Back in the day, the only way to discover new music was through the radio, word of mouth, magazines or channels like MET.

The problem with this is that radio and other media outlets only cater to what is popular, and the programming does not really appeal to everyone’s tastes. With the Tunes system, customers are not forced to listen to what is popular, but rather get custom recommendations based on their own tastes and preferences. In a way, Tunes has really personalized the whole process of discovering new music. The system is indeed very user-oriented, and seeks to satisfy Never is using it. From a business perspective, the Tunes system of customized recommendations is very profitable since it allows access into niche markets.

In an article for wired magazine in 2004, author Chris Anderson talked about the Long Tail-the niche market that traditional retailers were not tapping into. The article argued that normal record stores, only sold popular music, movie theatres ran popular movies but no one really catered widely to people with less mainstream tastes. This market was called tapped into this Long Tail market. Unlike traditional record stores, Tunes doesn’t have to worry about shelf space, inventory, or stocking items that they known will sell.

It can sell as wide variety of music and other content regardless of popularity, cause it doesn’t have to worry about the things normal retailers do. In this regard, Tunes is reaching a much wider audience than artists and record labels did, with their traditional system. Customer choice is no longer limited to what is popular; Tunes can cater to almost any music taste, as it does not face the challenges and limitations of normal music retailers. Adaptation and application of the Apple Model Apple’s business model introduced the concept of providing customers with cheap digital content.

This kind of innovative thinking is what helped the company stay ahead in times of rampant online piracy. Many different companies and even artists themselves are slowly adapting the online distribution philosophy outside of Apple’s own industry. Companies like Nettling for example, offer customers a wide variety of choice of online programming for only $7. 99 a month. (21) Traditionally, when people Anted to rent a movie, or video, they would have to make the trip all the way to a ‘died rental store like Blockbuster.

After Apple started successfully selling digital content online, companies like Nettling took notice and adapted somewhat similar strategies. Nettling is an online video service that allows users to watch a very large ND growing collection of TV shows, movies and other content, all for Just $7. 99 a month. (5) This is sort of consistent with the Apple system of providing customers Ninth quality online entertainment at cheap prices. With Nettling, customers can select “hat they want to watch from the comfort of their own home and they can watch as many programs as they want for a fixed flat fee.

The service is quite popular in North America and serves as a good example of a company successfully selling legal entertainment online in an age of digital piracy. Not surprisingly large video chains such as Blockbuster that followed a traditional business model went out of business after failing to stay competitive against online piracy and then against Nettling. (5) Exhibit 6: NETTLING and Blockbuster store out of business As mentioned before, digital music stores like tunes do not have to worry about things like shelf space like normal retailers.

Additionally, they can sell almost any kind of music regardless of popularity, as the problem of carrying excess unsold inventory is eliminated. Nettling enjoys these same advantages due to the similar nature of its business model. By offering content online it does not have to worry bout inventory storage and store space. Just like tunes also, Nettling is able to offer a ‘ere wide spectrum of entertainment options. Since everything is online, the service can offer both popular mainstream content, as well as things like less popular items documentaries, independent movies and other content.

A greater market segment that would have been ignored by normal retailers is getting serviced solely due to the convenient nature of online distribution. The new system is both more accessible customers. This is why people have largely embraced tunes and other systems like Nettling that follow the same philosophy. Exhibit 7: Radioed Album “In Rainbows”- You decide what you pay for it Source: http://reeked. Org/radioed-in-rainbows-you-decide-the-price/ The fair pricing and online distribution philosophy is also being adopted by many artists.

A growing number of artists have started bypassing record companies and studios, and adopting an online distribution philosophy similar to Apple’s. In 2007, artists band Radioed, released their new album online through their website and fans could pay whatever their liked for downloading it. (12) The move was very successful for the band, and serves as an example of successful online distribution. In 2012, American comedian Louis C. K. Released a self produced stand up special that fans could download off his website for $5. The downloaded video could be copied and even duplicated, there were no restrictions.

Despite all this, the material was legally downloaded and purchased enough times to generate $1 million in sales in lust twelve days (17). The basic core of both these business models is offering fans a convenient and reasonably priced product. The principal is very similar to the way tunes sells digital content. The process focuses on the end users and giving them the most satisfaction. The Apple model showed that people are willing to pay for music and entertainment content if the price is right. This philosophy is essentially being adopted as a viable business model in today’s digital age.

The end effect is a system that may be an actual viable solution to the problem of piracy. It is a mutually beneficial; system where consumers get to enjoy quality entertainment at reasonable prices, while artists also make the money they deserve. Growing competition in the digital music market The popularity of its products combined with the convenience and accessibility of he tunes store have made Apple the dominant player in the digital music business. New companies are trying to break into this lucrative market. Google recently launched its own music service, Google Music to compete against Apple’s tunes (19). He growth in competition is good news for customers, as it means newer Innovations, greater content and maybe even lower prices. Exhibit 8: Google Music ‘ruses tunes vs.. Online Distribution and the decline of traditional retail In 2011, online music sales surpassed the sale of physical records (19). Piracy is growing but so is the legal sale of online music. The online music industry itself is a growing market, estimated to be worth around $6. 3 billion a year (20). The market is dominated by Apple, but as new companies like Google enter the field, it will mean greater choice and lower prices for consumers in the future.

As more people purchase content online, traditional retail outlets like HEM are dying out. The growth distributed and purchased, and as the trend of online selling grows, it could lead to a Madders decline in traditional retail outlets altogether. Conclusion Apple’s unique business model has redefined the way we purchase and enjoy entertainment. In an age of piracy and free downloads, it has created a system where consumers willingly pay for content. Businesses like record stores and video rentals have gone under, after not being able to adapt to the changing world.