The online downloading of music from the Internet has ripped apart the old business model of record companies controlling the production of albums which are purchased through record shops. The last few turbulent years have seen many high profile law suits; some of which went In favor of the music Industry and some of which went against. 1. Apply the value chain and competitive forces models to the music recording Industry. 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 your answer. 3. Analyses the response of the music recording industry to these changes. What management, organization, and technology issues affected this response? 4. What Is the current business strategy of the music Industry? Do you think It Is viable? Explain your answer. 5. What Is the effect on an author If people download copyrighted material from the web? If you were an author how would you feel? Introduction: For many years the recording industry has been threatened by the impact of genealogy.

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Before the CD and the internet, in the iii there was the cassette tape, which began the Issue of illegally copying music by individuals. Steven Hanford (2003) says that music is in transition from being a tangible commodity to becoming an intangible one and I*This side-materializing ” of music has the big five companies worried, and with good reason. I To address the Issues In the recording Industry It Is necessary to describe the industry business models bearing in mind the managerial, organizational and technological impacts in today society.

The value chain model Is an organization’s set of linked, value-creating activities, ranging from securing basic raw materials and energy to the ultimate delivery of products and services. The model is used to address specific business activities I OFF (such as lowering cost to provide better value to customers, producing a different product or, enlarging or narrowing the current market. ) The primary activities of the value chain model include the production and distribution of products and services and the support activities include organizational infrastructure, human resources, recurrent and technology (Lauded and Lauded 2006, p. 1). In the music industry the value chain model can be seen in the growth of companies which use the Internet as their medium ( egg. Aziza, Morpheme, Grosser, limier, torrent download sites). The internet has made it possible to create a new online digital product compared with the physical product in a store. Following from this is the ease of new entrants in the market due to price rivalry by providing lower cost products to consumers who enjoy the ease of use and the accessibility of the product. Porters competitive forces model (Lauded and Lauded 2006, p. ), outlines the need for businesses within an industry to cooperate to achieve strategic advantage due to market threats and opportunities which affect the firm. These threats include: OX New entrants OX Substitute products OX Bargaining power of customers OX Bargaining power of suppliers OX The positioning of traditional industry competitors Hanford (2003) is concerned about the way that the five major record labels (Universal Music, Sony Music, Warner Music, BMW and MI ) have continued to take over the minor labels. They belong to the Recording Industry Association of America (ARIA).

They also control about 80% of all titles produced, own distribution companies that control over 80% of the wholesale market and often have the rights to much of the copyrighted music iv and often not the original artists (Hanford, 2003). Despite the efforts of the five major record labels the success of new entrants and products is overwhelming. The new products are cheap and easy to use and are market driven due to the bargaining power of customers who want value for money and suppliers who aim to maximizes profit with lower costs.

Constantly, new substitute products are introduced to the market (egg. Pod and MPH players, MPH files replacing CDC and tapes). The Role of the Internet The internet is fast becoming the way in which consumers do business, where consumers once went to a retail store to select their product or any service they needed, now they only need to log onto the internet and make a purchase. The from warehouse to consumer. In turn the internet has reduced cost of marketing, information storage and to make their products or services more widely available and at reduced cost to consumers. His is having an effect on old business models and thus creating a new business del. For the music industry this has meant that consumers are not physically going into their stores but using the internet to obtain their information. They can order music over the net, see what is topping the charts and even find information about their favorite singer. Iris has also led to consumers legally and illegally downloading music for their POD or MPH players or burning CDC with their favorite songs..

This has also meant that some authors/artists are not receiving the royalties from their music. Research by Bacchanalian LLC state more than 1 billion songs per week are unloaded from file-sharing programs (Lauded and Lauded 2006, p. 143). These programs are legal, however, they do allow the individual to illegally copy and download. There is a consumer belief that the internet is available for all and downloading is a natural part of the internet.. Only a small handful of people ever get caught for illegal downloading and it is a very difficult area to control.

Consumers are attracted to I*freebies: or bargains and find the downloading option very appealing. ANAPEST had 80 million users until it was shut down, currently Aziza has most of the 7 million US users (Lauded and Lauded 2006, p. 143). Ere Internet and declining CD sales Downloading, (egg. I*peer-to-peer: through Aziza, Morpheme, Grosser, and later Apple tunes) has been accused by the industry of dramatically reducing sales and therefore profits. The music industry claims the cost due to music file sharing is billions of dollars per year (Lauded and Lauded 2006, p. 44). However, Bricklike (2002), stated that while there was a decline in sales (2000-2001) the revenue was up due to 7% rise in CD prices. Some critics say there are other contributing factors to the decline in sales. For example, consumers may be burning more CDC customers may have made a demand shift to DVD ( no US homes had DVD:s in 1999 but 35% had them in 2002). Also, CD prices have risen at a higher rate than the rise in consumer prices. Hanford (2003) puts it down to piracy I*kind Just plain unexciting music from the recording companies .

Figures released by ARIA on thematic. Com website reported a 250% increase in Australian wholesale music market has grown by 27. 12% but heavy price discounting caused the dollar value of sales to drop by 3. 11%. Other reasons for declining CDC sales can be attributed to new products such as Pods and MPH players. New products are creating more opportunity for increased information storage and the products can be tailored to the individual taste. It is becoming easier to find and download music from the internet either legally or through piracy.

In the words of Jeff Orphan a manager for artists and music producers: acids have become little more that advertisements for more-lucrative goods like concert ticks and T-shirts. I” sales are so down and so off that, as a manager, I look at a CD as part of the marketing of an artist, more than an income article_email/SB117444575607043728-1 Nonjudgmental) The Music Industry Response The initial response from the music industry is to pull rank and incur costly legal expenses in the face of consumer demand for cheaper products.

The industry has somewhat unsuccessfully sued firms and then has targeted individuals by using technology to message users about stealing or to obtain information on the identification of users who download. This has been challenged legally (Lauded and Lauded 2006, poppy-144). ARIA did identify and prosecute students and individuals for illegal music downloading. Letters were sent to colleges requesting that their students stop downloading music illegally. There have been prosecutions and compensation (not of much dollar value) was paid by university campuses where file-sharing was operating (Lauded and Lauded 2006, up. 43-143). ARIA sent Aziza and Grosser users messages stating sheen you break the law, you risk legal penalties. ARIA then filed lawsuits against 261 Americans. While the lawsuits have frightened some of the illegal downloaded there are still a large number who believe that there is nothing wrong with downloading or sharing music files (Lauded and Lauded), p. 144). In December 2003, the recording industry was dealt a further blow when the US Appeals court disallowed the method used by the recording industry (via ISP to determine online pirates (Did : Angelo 2003).

Another response was to try a new strategy with music delivered legally by the internet with pricing structures. With consumers paying $1. 00 per song turnover increase would be around $5 billion a month. In 2002 songs were licensed for legal Other responses mentioned later have stemmed from the fact that these reposes are not working. Management issues affecting this response could include: How to counter-attack the threat to the industry long term stronghold over the industry (power issues) Concern about the serious impact that they thought downloading was having on profits.

The issues of copyrights and the impact on the owners (even though many companies own the music, not the author/artist). Other issues would include the time, cost, effort involved in: How to compete within the industry at the new game Investigating other avenues for making money iv egg. Obtain income from artists other earnings (concerts, merchandise etc) Investigating ways to provide a product that cannot be downloaded ‘e. Bonus collectors item, books, pictures

Organization issues affecting this response could include: The threat of loss of control over the market forces such as production, marketing, distribution and retail The impact on the business model iv it would have to be redesigned if alternatives Nerve sort in order to compete The cost of redesigning business processes for a change in focus and production of new products The huge impact on sales and distribution and the people and businesses involved Technology issues affecting this response would be the how to use technology to satisfy management and organization responses to the issues.

For example: How to identify and address copyright lawbreakers. How the compete in the industry at the same game Ere current business strategy of the music industry In 2003, Apple Computers in conjunction with the recording industry implemented Tunes which was a legal and easy to use downloading product that has liberal copy laws (Lauded and Lauded 2006, up. 144-145). Another angle being pursued in Australia is a levy on blank CD and DVD media (a similar attempt to implement a levy on blank cassette tapes was rejected by the High Court).

This levy, between three and five percent, presumes that most CDC are used or the purpose of copying copyrighted material, but enables buyers to obtain a refund if used for a legitimate purpose. The Federal Government is considering this. : Discourses year? ). There appears to have been some attempt by the industry to lower the price of the CD from around the ADD$30 to less than half price. The phasing out of the CD I*singles: recently is an indication that the music industry is still working on their Issues. He viability of current business strategy Ere business strategy for online distribution of songs is still progressing and its fate is unknown at this stage. Some believe that is will only be good for selling other products that the companies market. Consumers can still obtain cheaper products illegally through legal means). Ere biggest costs to the music industry are talent and marketing. There have been suggestions of consolidation of the 5 companies to 3 to give the industry more power. : II try to find this source!! JAW) There have also been reports of breaking ranks within the industry.

In the New York rimes April 3, 2007 it was reported that MI skibobs ranks with the music industry biggest corporations yesterday by announcing a deal to sell songs online through Apple:s music service without copy protection”. This unprotected music sells for $1. 29 per song (compared with . 99 cents per song) and the albums is(without intricacy software and in higher quality” will sell for about $9. 99 (the regular price). Ninth Tunes being released the music industry was hoping for a rise in revenue in the digital music industry, this has not been so.

While sales have risen it has not compensated for the fall in CD sales from a year ago. Over 40 countries have similar schemes to the one being investigated in Australia. Obscured year??? ). Recreating individuals will not stop file sharing ‘e. Ill sharing will continue regardless . In fact, targeting individuals may cause a rejection of buying CDC in itself. Generally, it is quite clear that the current business strategy of the music industry is not working. The best way to stay viable in the industry would be to focus on cost reduction and to offer more value to the consumer.

If consumers doom:t see value in buying CDC they are likely to download the music they want at a fraction of the cost. Ere impact on the author on downloading material from the web Assuming that this was illegal downloading and the author of the material in this ease was also the artist and held the copyright over the product, the author would miss out on the royalties that are payable in relation to the sale. In this case tit not Just the companies that miss out on a cut from sales, tit also the authors/artists etc.

The author may not get the recognition that they deserve for how popular their music may actually be. The music charts, for example, are determined by CD sales, but while an artist may be popular, people may not be purchasing the music legitimately. This can lead too reduction in the artists image as they may be seen as not being as popular as they actually are. This could impact on the artist in a number of ways. Firstly, they may see a drop in ticket sales for their concerts due to reduced media exposure.

Secondly, offers for advertising campaigns, movie deals etc may also decrease. There are many changes in the music world that impact on the artists/authors. For example, the authors of music produced by the recording industry are not always the same person as the artist. Another recent change has been the artist taking control over free internet distribution in order to create interest. Just recently, Radioed has shocked the industry by making the new album available online for a nominated price (Gibson 2007).

The new album I*Len Rainbows” to be released for download on 10 October 2007 is I*the most high-profile attempt yet to restructure the economics of a music industry struggling with the effects of digital piracy: (Gibson 2007). On the first day of sale more people had committed to paying 40 pound for the I*bonus: album than had ordered the download. The band had refused to use tunes because the Apple service sells individual tracks and not whole albums (Gibson 2007). How would the author feel? Therefore, an artist contracted to the companies within the music industry who was acquired illegally.

However, if the artist/author has some control over the process it can be used to their advantage as with Radioed mentioned above who are not contracted to a major label (though they were previously with MI). With production and distribution costs down it is quite normal for many artists to manage themselves. Loyal fans will continue to support them via live performances, merchandise and the need to have the physical product. Conclusion Hanford (2003) suggests the continual mergers of the recording companies. MI, Nile the only one not part of the conglomerate, is vulnerable.