The music recording industry has been rocked by the peer to peer file sharing technology. The distribution of music Is now available as a digital product (Bloodstock, Kauffman, Riggings 2004). The industry claims that the file sharing technology has caused a reduction in their profits. The increase in popularity of devices that play the digital music, such as the MPH player, Apple pod and the Dell JukeBox, are driving the demand for MPH-formatted music.

The digital music format Is here to stay and Is fast becoming the preferred product choice for music customers (Bloodstock, Kauffman, Rig;NSA 2004). 1. Apply the value chain and competitive forces models to the music recording Industry. U. S. Retail sales of recorded music dropped from $1 billion in 1999 to $10. Bun in 2003 (Keenan 2004), while the popularity of digital music has grown. Meanwhile, Apple Attunes’ customers grew from 861,000 In July 2003 to 4. 9 million In March 2004 (Borderland and Fried 2004), reflecting digital music’s new role as a “strategic necessity’ of the music industry.

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Analysts predict that in five years 20% to 33% of all music sales will shift from CDC to digital distribution (Keenan 2004). With this In mind the music recording industry may have to change Its value chain and business models to adapt and survive in this modern digital world. The following figure demonstrates the traditional value chain. Figure 1: Traditional Music Industry Value Chain: Figure 1, shows the main drivers for value In the traditional recorded music value chain Include copyright and licensing, production, distribution and Inventory, and promotion and marketing costs (Bloodstock, Kauffman, Riggings 2004).

For digital music, there is no longer a physical product to manufacture. Instead the product itself is information: the digital music recording (Bloodstock, Kauffman, Riggings 2004). The nature of the new digital music format Is a key driver of the new virtual value chain in the industry. The following figure illustrates a new outlook on the digital music value chain. Figure 2: Digital Music Industry Value Chain Figure 1 2: distribution is decreasing, but digital music retailers add new value.

With Internet distribution and music piracy, they can now add value through marketing, promotions, copyrighting and licensing. There is also value added through enforcement of IP rights and piracy prevention (Bloodstock, Kauffman, Riggings 2004). He competitive forces model can be used to evaluate the music recording industry’s current situation and what business strategy they may employ to maintain and generate new sales. Figure 3: Porter’s competitive forces model Figurer: Forces Driving Industry Competition. Source: M.

Porter, ‘Competitive Strategy: Techniques for Analyzing Industries and Competitors’, New York: Free Press, 198. Rhea Internet has completely remodeled the competitive forces model for music industry over last few years. Digital technology meant that media, including Cad’s, could easily be copied without loss of quality. The arrival of MPH meant that the opted version could be compressed without any noticeable drop in quality, this makes the distribution much easier. The internet offers a network where the copies can be exchanged.

After Peer-to-Peer programs such as Anapest were invented the general population was able to obtain a near-perfect copy of a CD for nothing. The competition arises from: Industry competitors: Five major recording labels MI, Sony Music, BMW, Universal Music Group and Manner Music Group account for about 75% of the market share worldwide. The companies which embrace new business models/strategies will gain a competitive advantage which ultimately will help them to survive in the new digital music environment.

Potential Entrants: Rhea five major labels can not take their market share for granted anymore as many artists are cutting out the record companies and establishing their own website from Inch they can promote their music, the competition naturally becomes more ferocious. Companies such as Anapest, Grosser and Apple limits the recording label’s profit as the sales of CDC drops and the downloading of digital music rapidly increases. Substitutes: If a record companies’ product isn’t priced right, or not delivered in the right format, t from the internet or burn the CD from a peer. Errs: Rhea power of the consumer has increased due to the availability of music online. Consumers can now download music for free, instead of having to make a lager purchase for a CD in a traditional music store. This requires record companies to sell their product at a lower price and through different channels. Luckily, they have begun to do this (tunes from Apple for example). Record companies need to listen to the wishes of consumers as they cannot prescribe a format or a channel. Suppliers: Due to the introduction of the internet, artists have become less dependent on the rotational networks of the record companies.

Authors can directly promote their material through their own website. Some completely by-pass the record company all together. The author gains more control over their own product and the record company now has less control. 2. What role did the Internet play in changing value propositions and the competitive environment? To what extent has it been responsible for declining CD sales? Explain [our answer. Rhea value proposition of CDC has decreased due to the increase in music available did the internet and new technologies.

With the introduction of larger memory yester and digital music the need to physically own a CD has declined. Rhea competitive environment of the music market is changing, new forms of entertainment and technology are taking over and altering the way we use and play music. Compact discs are not obsolete but the way we use and access music is changing. People are relying more and more on other forms of entertainment. Many internet users choose free music downloads over purchasing music. It is estimated that 37 million Americans have downloaded music (Lauded p. 143).

In 2000, CD sales Nerve about $35. 5 billion, in 2001 sales fell to $33. Billion, a decrease of 5% (lauded p 144). The Recording Industry Association of America (ARIA) is amongst those that blame the access to, and downloading of, free music for the declining CD sales. But not everybody believes this is the full reason. In an article in Necessities (flexible Borehole-gee, Harvard Business School Massachusetts, and Coleman Strumpet, University of North Carolina concluded with their research that ‘…. At most, file sharing can explain a tiny fraction of this decline’.

In that same article Amy Weiss of ARIA states that “countless well respected groups and analysts have all determined hat illegal file sharing has adversely impacted the sales of CDC”. Research by people Independent of the Music Industry seems to suggest other factors for the decrease in CD sales. These include – other forms of entertainment introduction of new technology and storage systems rising prices of Cad’s weak economy Some researches believe that digital downloads have in-fact increased the sales of music.

A survey by Jupiter Research found that “Of a survey of 3,319 people 0 found that file traders were reporting that they now bought more music than they had before” From his research Borehole-Gee suggests that file sharing has little or no effect on the amount of sales saying “[File sharing] is not as dangerous as many have believed. The music industry’s ability to influence what people listen to seems almost unbroken,” and that “That industry marketing – video play on MET, for instance – seems to affect downloads as well as CD sales”. . Analyze the response of the music recording industry to these changes. What management, organization, and technology issues affected this response? Response of the recording Industry The recording industries response to the changing market was to try and stop advances. 0 Testator with they went head to head with Anapests, a website roving software and services’ that allowed consumers to download MPH music for free, they sued them for “violating copyright laws” (Lauded, Peggy). Anapest was sued in 1999.

In 2003, the Australian Music Industry (AM’) took an internet service provider to court involving alleged music piracy, followed by an 11 month investigation. (Pearce 2003). In 2006, Sherman Networks, Sydney, Australia agreed to a payout for compensation to record companies, rumored to be IIS$1 million. (Gonzales 2006). Also in 2006, in Germany, the IF took action against illegal file sharing, with 3500 individuals facing criminal prosecution for uploading large mounts of copyrighted material on peer to peer networks. (if. Org 2006). The industry have also targeted other software providers, unsuccessfully in 2004 and individuals, sending “cease and desist” letters. 0 Have sent instant messages to “Aziza and Grosser accessories said, “When you break the law, you risk legal penalties. There is a simple way to avoid there risks: DON’T STEAL MUSIC” (Lauded, peg 144). 0 How far can they take it? A report by Alexandra Center (University of Chicago) suggests that “The development of broadband facilitates music swapping. A soundtrack that takes more than 12 minutes with a dial-up connection can be unloaded in as fast as 20 seconds with a high-speed connection”. Teaming up with sites that provide legal low cost downloads has increased legal download sales, Bandsman (2005) reports that “During the first half of 2005, legal downloads accounted for IIS$790 million in sales compared with IIS$220 million for the first half of 2004. That’s an increase of more than 350 percent in download sales”0 Finally realizing that these methods while sometimes successful would not solve the problem a major recording company finalized a licensing agreement and Mishmash, the first APP legal downloading site was created.

Since many other sites have also reached agreements with the recording companies and low cost, legal downloads are available. 2; The music industry deems internet piracy as the sole reason for the reduction in sales of CDC and loss of revenue. ▪ Parts of the music industry has not embraced the new technology and most still have the old school mentality. 2; The music industry decided that it was time to get more involved with the digital world by offering music at competitive prices and removing some of the downfalls of file sharing, like mislabel or infected song files (US News, 2003). The Music recording labels’ section within the music industry will have to transform their traditional role which is the physical distribution of albums, to managing a smaller set of artists, multiple distribution channels and customer information (Krueger, Eastman and Van Deer Beak, 2004) Technology 2; With the new digital music technology artists are able to promote and sell their music directly to the customer by the internet. #9642; Labels do not have the necessary technological infrastructure to allow for the distribution of digital music Labels would require the rights to produce the same music in a digital format Krueger, Eastman and Van Deer Beak, 2004). ▪ To prevent illegal copying of music over the internet digital fingerprinting and digital watermarking are put in place. The digital material is encoded with information such as the author and copyright date. The digital product’s location can be monitored when the digital fingerprints and watermarking are combined with tracking devices (Harvey, 2002). What is the current business strategy of the music industry? Do you think it is liable? Explain your answer. Despite some success with suing individuals, the music industry is unable to stop illegal downloading and copying of music. Obviously it had to come up with a way of benefiting both the downloaded and the music industry. This resulted in internet users now being able to swap music freely and legally with the success of sites such as tunes.

Grosser, a file sharing network, and Synonyms Nortek together to come up with a system combing free music sampling with paid downloads. This resulted in Mishmash, finalized in June 2005. This was the first APP to complete a licensing deal with a major recording company. This allows a person to download and listen to a track for a number of times, before purchasing it for accents. Their success now allows the music industry to make money from downloading music. Record companies say they made 1. 7 billion from digital downloads last year. ABACI. Net 2006). Phonographic industry said in 2006, Delayed in the I-J and Germany, two of the biggest digital markets worldwide, legal buyers from sites like tunes, Musically and MS actually exceed illegal file swappers’. Target Groups Rhea target group of the music industry’s sales is all ages from babies with relaxation music through to the old classics from yesteryear. Other target groups the music industry must focus on are the recording artists they are producing. The music

Industries compete with: other recording companies illegal download sites friends burning copies of music the companies that produce new technology like the MPH player that only requires {o to download the song onto the memory card etc There are really only 5 major recording companies, providing 80% of recorded music, (Lauded, peg 143) Each company must not only compete with a changing market but also the competition that exists between each recording provider. The number of companies allows artist to shop a round and find the best deal before committing.

Universal music groups current e-commerce ventures including: 0 digital download obstruction web casting interactive radio pay-per-play through all digital channels of purchase such as computers set top boxes portable devices. (wry. Universalistic. Com) Rhea long term goals of the music companies involve expanding business increasing sales and profit TV finding ways to advance their production and distribution of music with new technologies. The record companies are focusing themselves on the profit or lack of profit rather than embracing the changes in the market.

They cannot change the new technologies created or the way people are choosing to listen or obtain music. O continue being profitable they must embrace changes in the market and find new Nays to continue providing their services New technology means new opportunities in the market they need to focusing on providing: cheap safe downloads. Consumers are more likely to pay for music downloads if they know that what they are downloading is from a safe, virus free source. Some sites for downloading music, consumers risk downloading a virus with the song. Changing the contracts that they have with the recording artists so that they are making a profit off all their efforts including endorsements and sponsors. Suing your potential customers is not positive strategy that will increase sales, instead it produces negative feedback and bad publicity. Sending letter seems like a waste of time and money, the $10000 they got from each of the students wouldn’t even make a dent in the amount of money 5. What is the effect on an author if people download copyrighted material from the N.B.?

If you were an author how would you feel? One of the main problems as confirmed by Ted Cohen, MI UP of New Media, is that “nobody feels wrong about doing what (downloading free Amps on the Internet) they’re doing”(Doubloons-Turbot t al). When music is downloaded illegally, artists are deprived of royalties from their songs. With this in mind and the increasing rate of internet music downloading/file sharing an author may need to think of new ideas and solutions to advance into the digital future.

Some artists may feel angry and cheated due to the loss of royalties, as opposed to others who might use the technology to their advantage. The internet Mould allow authors to boost their exposure, promote and market their music through a web site. Rhea use of legal downloading of copyright music through online distribution allows ewe opportunities for the music industry to develop new business strategies that Nil in turn be profitable for artists and musicians (Krueger, Eastman & van deer Beck, 2003). According to the musician Mob, “the record industry will have to throw out its current business model.

Once the record companies have less marketing clout, and Ninth internet distribution, artists will be in powerful position. Why is a record company any more qualified to send an MPH to tunes than I am? “(Doubloons-Turbot et al). Rhea Recording Industries Association of America (Aria) suggests that “Unauthorized striation of music is killing both sales growth and profits. The result is music costs more to produce, there’s greater risk in signing smaller acts with uncertain audiences, and the lower sales volumes have forced the labels to raise the retail price of CDC”.

As an author initially I would feel annoyed, robbed and vulnerable as I would not receive my full entitlements. I would be concerned about the future and have to start thinking how I could make the most of the digital era. Conclusion Nile studies show that early on free downloads and music piracy had a major effect n the sale of Cad’s, later studies and statistics also show that if the music industry and the APP sites work together, then a happy medium can be reached, with the benefits all around.