Internet Is Changing The Music Industry Computer Science Essay

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This essay explores the transformation of music industry with the fast development of E-commerce. Over the past decade, digital technologies have not only changed the way of how people live, but also the market structure of some traditional industries. To investigate how the Internet affect the traditional business models. This article discusses the online and traditional supply chain of music industry, the strategies the supplies have used and how may the music market develop over the next two years.

Introduction

Globally, the music industry is a multi-billion industry with sales exceeding $5 billion dollars annually in the United States alone, is very much a serious business(Noyes, 2009). In the past years, the global music industry is dominated by major record companies. The market of music began with the sale of sheet music in the nineteenth century, but it really took off in the twentieth century, with the emergence of recorded music in the form cassettes, CDs, etc. (Fillett, 1996). The bandwidth restrictions have impeded distribution of music in digital form over the Internet in the past, but these restrictions are disappearing due to advances in networking technologies and better music compression algorithms. Consumers are now able to download and play high-quality music in their portable device such as mobile and MP3(Calvin, 2001). According to the report of Strategy Analytics, Overall digital(including mobile) music spending will increase by 17.8 percent($1.3 billion) in 2012 to $8.6 billion compared to a 12.1 percent decline($1.9 billion) in packaged sales. (See chart below)

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This means that digital music will increase its share of global recorded music spending to 39 percent in 2012. However, this is still much smaller that packaged music sales which will account for 61 percent of spending. Strategy Analytics forecast digital spending will overtake physical on a global basis in 2015(Strategy Analytics, 2012). This essay will show how the Internet and related software or hardware developments, are causing the huge shift in the way music is distributed, and how the traditional record companies respond to these changes, and the future of music industry.

Supply chain of music industry

In general, supply chains can be described as a series of linked suppliers and customers. And traditionally, a successful investment was required to establish a broad distribution system such as a chain of stores, but with the development of E-business, this is no longer necessary. To individuals, the e-business usually means conveniences, more choices, lower price or personalization. Sometimes consumers can purchase directly, and intermediaries are no longer required. This led to radical changes in business and supply chain structure. Thus Graham(2004) indicates that business models that have been built on limited access to distribution channels could lose their competitive advantage. In order to have a intuitive view of the traditional supply chain and establish the nature of the transformation in the music supply chain, Graham(2004) showed four interrelated dimensions involved in the design of supply chains:

the structure of activities

the choice of actors

the governance mechanism

the co-ordination structure

1. The structure of activities in the music supply chain:

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The structure of a supply chain emerges over time and it is influenced by factors.

The value chain of traditional product in the music is a package of pre-recorded music captured on a physical format. The activities contain discovering new musicians, recording their work in a studio, music selection, creating master tapes, followed by the production of a CD, etc. And then the product is packaged, promoted, and distributed. The music promotion including radio or TV programme.

The Internet change the way record companies carry out their business activities. The music products are increasingly shared electronically, internally and externally. It means that music can be distributed in digital format through legally and illegally. To avoid this, some record companies have tried to establish their own online sales services, but none have been successful. But some of the major companies’ strategy has changed recently towards collaborations with specialist online distribution companies. As wen can see from the figure, business activities appear to be more networked than structured in sequence. Thus the Internet is transforming the structure od activities in the music industry both in terms of virtual structures replacing physical ones, and network structures replacing sequential ones(Graham, 2004).

2. The Actors in the music supply chain

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Traditional, the actors in music industry supply chain have been well established and the choice of actors is very limited. As the figure shows, there are five actors in the process and three intermediaries between artist and consumer: the record company, the distributor and the retailer. All these intermediaries add the costs and take profits that lead to a higher final product price.

Due to the entry barriers to the music industry have been significantly lowered with decreasing transaction and production costs, the Interne allow both consumers and those actors involved in making and distributing music to communicate more easily. Therefore, new specialist companies are entering the market, and also with variety of partners. According to Evans and Wurster(1997), the music industry is undertaking a process of supply chain deconstruction, which will lead to a proliferation in the number of potential actors involved in the supply of music, each of which will have its own unique source of competitive advantage. Meanwhile, even though the major record company still see a role for long term relationships, new suppliers and business partners are emerging to replace the dominance of the pervious major record company.

3. The governing mechanism in the music supply chain

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The governance mechanism relates to the ownership and the control of various actors in the supply chain. As mentioned in the introduction, the traditional music industry is dominated by the few major record labels. Because the traditional music industry is characterized by high entry costs and a scarcity in the number of distribution channels. Record companies not only control other links in the supply chain but they also achieve economies of scale and are able to average the unit costs. They do not need to negotiate a manufacturing or distribution deal each time they sign a new artist, thus avoiding high contract costs. In this situation, artists have either keep independent and concentrated on the small market, or have signed long-term and restricted contract with major record company.

Recent years the rise of new media channels such as YouTube, which allow user upload their music or video products, an increasing number of artists create and distribute music on their own. Some artists have got significantly success in this way, such as Justin Bieber, even though he still sign a contract with record labels in the end. The figure above shows that the supply chain for music is likely to split between some artists who seek to sell direct to their fans and some who still cooperate with record company. Anyway, the opportunity now exists with the Internet to link artists and consumers directly.

4. The co-ordination structure

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Graham(2004) indicates that co-ordination in the music supply chain occurs through a vey hierarchical structure and is primarily dyadic. Some old systems such as EDI and POS have been used to help communicate and exchange information between different companies more effective and at lower cost that with a basic paper-based system. Nevertheless, the traditional dyadic relationships are still maintained, those systems are not universally used.

Compare to the traditional co-ordination structure, the Internet-based network technologies are allowing music industry bodies to operate in a virtual environment and deal with multiple suppliers and customers. The virtual marketplace has become widely accepted for music sales and distribution, although it is not clear if physical products will completely disappear.

How have traditional record labels responded to the change?

Most of the suppliers to the music industry, recording studios, graphic designers, CD manufacturers are numerous and small scale, so pose little competitive threat to the majors. Artists and bands, also a source of supply, are a scarcer resource, hence the importance of strong A&R in a successful music business. With the rapid development of IT technologies, some traditional music companies have tried to maintain their competitive advantage by using different ways. They are divided into short-, medium- and long-term here(David):

Short Term(6-12 months)

Launch interactive web site, to allow the purchase of catalogue records, through secure e-commerce. With postal delivery of media direct to customer.

Use the new social media tool such as YouTube, Twitter, Facebook and Google+ to communicate with the customer.

Launch interactive mobile application.

Establish alliances or agreements to distribute records for indies.

Co-operate with online music store, e.g. iTunes, Google Play.

Medium Term(12-18 months)

Push the emerging technologies of media storage, to provide enhance fidelity, e.g. surround around sound, videos, interactive media.

Increase sales and distribution over the Internet, direct to customers. Provide access to artist interactive interviews, videos of concerts, music on demand.

Provide stores with the facilities to enable the in store creation of CD on demand.

Medium Term(18 months onwards)

Supply music, film, concerts on demand direct to houses, through cable modems with high band widths and satellite communications. On pay as you listen basis.

Music on demand kiosks, located in shopping centres, stations, stores to enable customers to create CDs.

Direct sales to customers, allowing the development of customer preference databases, to improve direct marketing on an individual basis.

The Future

Most of what we take for granted in the music business today is brand new. A decade ago there was no Twitter, YouTube, Facebook or Apple iTunes store. A decade from now, the industry will be very different than it is today. For the music market, there may some new thing will happen the next two years:

The young generation are prepared to pay subscriptions for mobile phones, broadband and pay-TV.

Licences to use music for digital services may be easier and cheaper to obtain from record label and publishers.

Better integration of digital potable devices and music market.

The strong copyright system will be enforced.

More artists sell their own records via social media.

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