Digital Distribution and Music IndustryEssay Preview: Digital Distribution and Music IndustryReport this essayThere are six key new market disruptions concerning the digital distribution of music: the creation of a new and broad customer base, the possibility of an annuity versus a per-unit revenue model, the gatekeeper advantage for a record company having proprietary access to a new digital distribution infrastructure, understanding of a technology that could be applied to other digital content, need for balance between physical and digital distribution strategies, the strategy the incumbent should adopt with respect to the evolving war over digital distribution standards. Was there a disruption or an evolution?
The Future
Digital distribution of music in the U.S. is expected to grow substantially at higher rates than ever. But the growth of these different markets will likely not have as much impact as traditional media, especially in markets where the music industry has become increasingly dependent on other industries such as media sales, online streaming, and online entertainment.
It is not difficult to understand why the music industry wants to continue its growth, but it could be because it does not have as much profit-producing revenue as traditional media. It has lost revenue of $44 billion in 2013, compared to $35 billion in the last 10 years. This decline should not be surprising given the revenue growth made with this growth rate. For an enterprise that relies on a certain type of infrastructure, like the radio, print, and the Internet, revenue that comes from the radio, print, and the Internet provides more than enough flexibility to grow its business, a well-regulated and competitive marketplace makes a huge economic difference.
Digital pricing, which is the primary revenue source for content in the U.S., has been growing fast as well. In late 2007, the Nielsen SoundScan survey said that, based on a recent study, 21.5 percent of U.S. adults still subscribed to digital music services. This figure is nearly two times higher than ever before. The study also shows that 41 percent of all digital music services in the country have digital music services.
At the same time, the growth opportunities for entertainment in the U.S. are so diverse that they face many different business models: The U.S. cable system with its multiple sub-segments of radio, magazines, online streaming services, and e-commerce is expected to become smaller by the year 2020. The growing number of online service providers will only continue to grow, as will the number of digital content creators and streaming services.
There are also likely long-term and long-lasting challenges that can create new problems like in the entertainment business.
In the entertainment business, there is little doubt that digital content can benefit the entertainment industry. Digital distribution models provide for digital subscriptions, which are now the largest sources of revenue for most digital content providers, and are increasingly being replaced with subscription services, including video and photo-sharing services, that are becoming more efficient with their digital delivery services. The success of subscription services is largely tied to the success of radio and online music. As a result, digital distribution is a key to digital entertainment.
As an entertainment business, the decline in streaming music in 2012 was the largest in history, with streaming in the United States accounting for approximately 15 percent of all revenues and 22 percent of total revenue worldwide. For all digital music services, Netflix, Spotify, and Substream accounted for 4 percent and 8 percent, respectively. In 2007, only one in three U.S. adults said they had access to streaming music services. There has been increasing concern about
The story really begins with Napster and its free software that allowed users to swap music across the Internet for free using peer-to-peer networks. While Shawn Fanning was attending Northeastern University in Boston, he wanted an easier method of finding music than by searching IRC or Lycos. John Fanning of Hull, Massachusetts, who is Shawns uncle, struck an agreement which gave Shawn 30% control of the company, with the rest going to his uncle. Napster began to build an office and executive team in San Mateo, California, in September of 1999. Napster was the first of the massively popular peer-to-peer file sharing systems, although it was not fully peer-to-peer since it used central servers to maintain lists of connected systems and the files they provided–directories, effectively–while actual transactions were conducted directly between machines. Although there were already media which facilitated the sharing of files across the Internet, such as IRC, Hotline, and USENET, Napster specialized exclusively in music in the form of MP3 files and presented a user-friendly interface. The result was a system whose popularity generated an enormous selection of music to download. Napster became the launching pad for the explosive growth of the MP3 format and the proliferation of unlicensed copyrights.
Peer-to-peer is a communications model in which each party has the same capabilities and either party can initiate a communication session. Other models with which it might be contrasted include the client/server model and the master/slave model. In some cases, peer-to-peer communications is implemented by giving each communication node both server and client capabilities. In recent usage, peer-to-peer has come to describe applications in which users can use the Internet to exchange files with each other directly or through a mediating server.
On the Internet, peer-to-peer (referred to as P2P) is a type of transient Internet network that allows a group of computer users with the same networking program to connect with each other and directly access files from one anothers hard drives. Napster and Gnutella are examples of this kind of peer-to-peer software. Major producers of content, including record companies, have shown their concern about what they consider illegal sharing of copyrighted content by suing some P2P users. Meanwhile, corporations are looking at the advantages of using P2P as a way for employees to share files without the expense involved in maintaining a centralized server and as a way for businesses to exchange information with each other directly.
PC became a powerful multimedia tool in the 90s with high bandwidth Internet connections. A digital compression format was born, the MP3. MP3 uses a lossy compression algorithm that is designed to greatly reduce the amount of data required to represent the audio recording, yet still sound like a faithful reproduction of the original uncompressed audio to most listeners. It was invented by a team of European engineers at Philips, CCETT (Centre commun dйtudes de tйlйvision et tйlйcommunications), IRT and Fraunhofer Society, who worked in the framework of the EUREKA 147 DAB digital radio research program, and it became an ISO/IEC standard in 1991.
MP3 is an audio-specific format. The compression removes certain parts of sound that are outside the hearing range of most people. It provides a representation of pulse-code modulation — encoded audio in much less space than straightforward methods, by using psychoacoustic models to discard components less audible to human hearing, and recording the remaining information in an efficient manner. Similar principles are used by JPEG, an image compression format. MP3s could be put on CDs easily through a process called “ripping”. CDs could easily be put into MP3 formats making them easy to distribute electronically to friends and family or through P2P networks.
MP3s were in demand, but threatened the music industries oligopoly. It threatened copyright protection. All of this contributed to a need for new strategies and standards when it came to the Internet as a distribution channel. DRM, Digital Rights Management, technology was a new term invented to solve the problem of this new distribution channel and was considered to be the “holy grail” for the media and entertainment industry. The real problem was the strategy the incumbent should adopt with respect to the evolving war over digital distribution standards. The industry needed to come together and adopt user-friendly, secure, standards to protect their intellectual proprietary properties in the new Internet, digital world that was starting to take shape around them.
The DRM-based piracy was a key part of the DRM-based Internet that allowed the proliferation of counterfeit material on the global web. As a result, there were many online pirate sites, such as pirate.ransom.net.
By 2008, Ransom.net began hosting illegal online downloads of movies on its own servers in a number of countries. The illegal downloads also allowed the illegal downloading site to remain accessible to the public and free of charge in many of the countries where pirated downloads had been viewed. The site had become popular in several developed countries for providing a forum to spread pirated content, and to allow its users to upload their own copies of these copyrighted movies on the site. However, this was limited by legal concerns, as there was little in the way of a physical link to a download. Users in each country who viewed the illegal and pirated movies downloaded from the site quickly lost any connection to the RTA and could not access them immediately, thus giving rise to a large piracy trade, which had to be confronted in order to find a new home for the movies. The situation grew worse with the passage of the GATT Convention in February 2011, a treaty which was followed by a series of laws aimed at protecting digital rights.
Piracy also led to the creation of a criminal system for distributing illegal downloading on the Internet. In 2012, five different “offenses” for which the Internet was defined as “for the purposes of the theft or distribution” were punishable by fines. The first offense was the most serious given its focus on money transfers, and that of a convicted person. For the second offense the government was required to produce “goodwill, professional expertise or training” to “preserve and protect the integrity of the information or property of the country concerned.” The fourth offense was for the crime of using the Internet to violate copyright law or any other international laws, without due process. In addition to the first, the penalties were very serious and involved the imposition of prison sentences.
In 2015, authorities were forced to use technology and technology not yet available for the enforcement of those offenses. According to the Federal Communication Commission, the number of violations at the time of the July 2013 ruling in the US Copyright Act had been dropping since the summer of 2014.
There was the first serious attempt at shutting down Ransom.net in 2012. Authorities have used technology which they called “tricks to keep the site online” to shut down or block the site, including automated software to automatically download files from a central site so they could be read online. The latest example from the US Copyright and Trademark Office comes in February 2016, when the Federal Communications Commission said that it had revoked all U.S. licensees from the site since it was developed based on the use of software developed and patented by an unnamed Internet service provider.
Ransom was also the subject of an unprecedented lawsuit by copyright attorneys who argued that these attacks only apply to websites and those whose names are used on the site, not for the copyright holders themselves. There were also many “confusions about who might have purchased the content” from Ransom
2003, music was a $37 billion global market. From 1991-2000 in the U.S. Market the total value actually decreased from 1999 to 2000 by almost 2%. The total value of the market had increased for every year prior. This was right around