The Digital Music Distribution Revolution

26 01 2010

Dominick DeVito

Managing Innovation

Case Study: Protecting Innovation

1. What industry conditions led to the revolution in audio distribution? Which stakeholders stand to benefit the most (or least) from this revolution?

An industry condition that led to the revolution in audio distribution was the transformation of music (songs and albums) to be available in a new digital recorded format (mp3). The MP3 format allowed songs the ability to be downloaded and played digitally on personal computers. Software programs allowed CD tracks to be converted to the new format. A larger industry condition was the birth of media sharing applications, the most popular being Napster, that allowed users to freely share and distribute mp3 formatted songs amongst other users (of the same file sharing application). The stakeholder that stood to benefit the most from this revolution is the music customer, particularly one that has a personal computer to take advantage of the new digital format.

2. Why did the music stores created by the record labels fail to attract many subscribers? What, if anything, should the record labels have done differently?

The music stores created by the record labels failed to attract many subscribers because they used proprietary file formats, severely limited digital rights management schemes, and did not offer the extent of selection offered by unauthorized peer-to-peer services such as Napster (although they were already shut down from an agreement with the RIAA), Kazaa or Gnutella. If nothing else, they should have at least used the widely adopted mp3 format for their songs.

3. What will determine how long the success of the iPod and iTunes endures? Should Apple allow its iPods to play non-iTunes songs? Should Apple allow iTunes songs to play on non-iPod MP3 players?

There are factors that will determine the longevity of success of the iPod and iTunes. One would be Apple’s “cool” factor that many younger generations consumers enjoy. Their cunning marketing strategies have also allowed success with a strong relationship with music labels, which have discovered such a “cool” factor that Apple, has with consumers. Other factors of long enjoyed success will be determined by its use of widely adopted digital formats, competitive prices for song and album downloads, and strong licensing agreements with music labels which enabled an offering of one-stop digital music shopping for consumers. Apple already allows its iPod to play non-iTunes songs; however, when “burning” music to blank audio CDs iTunes will not allow users to burn non-iTunes songs. Apple should allow iTunes songs to play on non-iPod MP3 players, simply because it won’t matter anymore at this point. Apple’s iPod line already owns 73% of the MP3 player’s market share[1]. They achieved this by only allowing iTunes music to be played on iPods.

4. Why would musicians sign away their copyright privileges to their songs through Creative Commons?

Musicians would sign away their copyright privileges to their songs through Creative Commons because of the varying degrees of openness that consumers would be able to share their music. This openness was highly successful for file sharing applications, and that model could be used to blueprint success. It allows musicians to make it easily known that their music is available for downloading, but without the risk of infringement lawsuits.

5. How is podcasting likely to impact the appropriability of recorded music, radio broadcasting, or other types of audio transmissions?


Podcasts are likely to impact the appropriability of recorded music, broadcasting and other types of audio transmission in that a podcast can be created by anyone. Podcasts are not regulated, and therefore, anyone can record anything, and that content can be downloaded openly over the internet so consumers can listen to such an open type of format on their MP3 players. The music labels can suffer greatly from this because this openness can be utilized by music bands that want to share their music with the world and not have to use a traditional music label to have their music distributed. This trend, although in its infancy stages, has already begun. In 2007, British rock band Radiohead released their album In Rainbows entirely over the internet via download. But what made this innovative was their pricing strategy. The download was available in the (now standard) MP3 format, and rather than paying the standard price for the album ($.99 a song), the band posted comments that listeners would be able to pay whatever they wanted for the album. They did not use a music label to distribute their album.[2]






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