Impact Of Technology On The Music Industry

Music industry has been most significantly affected by such revolution of technology during the past few decades. The most significant innovation in the music industry has undoubtedly been the “digitalization” of music. Digital music technology has completely changed the underlying dynamics and economics of the music industry. From time to time, this has been an issue of debate and has seen many legal actions and sanctions (Matsuura, nd).

Along with innovations in music technology, the issue of “piracy” has become the single most challenging and threatening problem in the music industry which has from time to time raised serious concerns and warned of the consequences on the industry. “Music piracy” can be formally defined as any form of duplication along with distribution of music without the formal permission from the entity holding the copyrights to that particular music. Directly interlinked with music piracy is the role of internet and related phenomenon such as file sharing or peer-to-peer sharing (P2P).

Internet growth and innovation are largely to be blamed and held responsible for the crisis in the music industry circles that affects its three major players including “recording companies”, “artists” and “consumers” (Patokos, 2008). Not only the music industry is facing losses but the “quality of music” is also threatened by piracy.

According to Hull (1998), the music industry profits from its three major revenue streams:

Purchase of recorded music.

Broadcasting recorded music.

Industry for attending live performances.

Here is the music industry vale chain as described in Meisel and Sullivan. (2002).

The Music Industry Value Chain

Source: Meisel et al. (2002), p.18.

We all know how easy it is to gain access to the authentic and copyrighted music through duplicated CDs and file sharing (without paying any royalty to the owners of music) on internet (Bozina, Dumancic and Knezevic, 2007).

Research Purpose

The major purpose of carrying out this research is the importance of significant technological developments on the music industry circles and the ways in which issues such as copyright, authenticity, illegal production and distribution of music affect the various participants of the music industry circle.

It will bring into focus the particular technological changes over the past two decades and evolution that has come to impact the way music is produced and distributed. It will also help the readers understand the legal implications of the issue.

Finally the research will investigate the major problem areas that threaten the music industry, particularly emphasizing on the revolution of MP3 technology and Compact Discs and it will conclude with quantitative and qualitative analysis of the relevant variables that influence the revenues of music industry.

Research Questions

Is the modern music industry suffering from pervasive effects of internet theft, piracy and flouting of copyright rules?

How important it is to critically analyse the legal and technological implications of the MP3 technology on the business of music?

Importance of Research

The issue of “piracy” needs the special attention of industry and law experts as we cannot let the phenomenon continue to wreck the music business.

The “MP3 effect” influences the sales of music albums, though the law can spur legal actions in favour of ban the MP3 use but it is not a practical solution.

On the one end technology eases and improves the production and distribution of music and on the other it should provide the end listeners easy and cheaper access to high quality authentic music.

Brief Literature Review

Until the 1990, music business was correctly anticipated but soon after this period, the forces shaping the business began to change. The first ever music cassette was introduced in 1963 by Philips©. It became a very popular mode of entertainment exploited by the car makers (Morton, 2004). The year of 1979 revolutionized by Sony© which the first hand held music player device. It came to be known as Sony Walkman© (Thomas, 2006). Both Philips and Sony collaboratively brought in the most advanced technology (still remains so with more advanced variants such as DVD and Blu-Ray© technology) called as Compact Discs (CDs) and the players used to play the media known as CD players. By 1988, the CDs became the most popular technology for distributing music in standardized format which became universally accepted by the music industry and CDs outsold Long Playing record albums (LP) (University of Minnesota, 2008). The technology called Digital Audio Tape (DAT) was introduced by Sony the next year. It remained the most popular recording technology for professionals during the 1990s (Sony Group©, 2010). The other leader in musical innovation Philips© launched Digital Compact Cassette to counter Sony’s© DAT technology.

Sony© released the Mini Disk (MD) in response to DCC. MD provided with professional high quality recording to the professionals (Sony Group©, 2010). The music was most dramatically distributed on the CDs and hence their use was most widespread. CDs were used by all of the major recording labels due to persistent decrease in the prices of CDs (Sony Group©, 2010). The following Table 2.2 presents the change in the prices of CDs in the US music market between 1983 and 2006.

Table 2.1. Decline in the prices of CDs from 1983 through 2006.

Source: RIAA, 2007

The technology called “CD- Recordable” (CD-R) was introduced in 1990 and it was the first opportunity for the consumers to successfully duplicate the contents of the music albums without compromising on the quality of music and this allowed for “piracy” to be practised by consumers and other players such as illegal music uploading sites (O’Malley, 1998). In US, 288 million CDs were sold only in one year, 1990 (Amoah, 2005). The role of computing and internet technology proved instrumental in spreading the crisis in the music industry. It was only in 1991 that computers came with the technology that played its users to play and listen to music. This development was attributed to Ad Lib and Creative Labs who introduced the technology of sound cards integrated into personal computers during manufacturing stage (Dixon, 2010). It heightened the interest of consumers to reproduce the authentic contents on CDs, CD-Rs and more advanced recording media such as DVD© and Blu-Ray©.

However the real trouble was the introduction of the technology that made it possible to encode music as digital files on the computers, the most critical one was MPEG3 or MP3 (Motion Picture Experts Group-1 Audio Layer 3). MP3 was introduced on 26 November 1996 (Belis, 2010). MP3 became so critical because it allowed users to create copies of music albums to near perfection. The fact that MP3 files could be stored on computers and handled as any other file stored on it, the exchange of such music files was facilitated with an extreme ease. With MP3 came the MP3 players to play them on standalone basis. Elger Labs was the first one to develop and commercially release the “MP3 player” known as “MPman” and was priced at whopping $250 only to store some eight songs. The revolution in MP3 players was brought about by Creative Labs in the year 2001 when it released an MP Player with much higher storage capability of 6 Gigabytes in comparison to MPman. But this was just a phase of development and it saw the launch of the world’s most foremost technology in MP3 players, it was the release of the device called IPOD by Apple (Menta, 2004). In today’s time most of the youth carry an MP3 player and IPOD remains the most favourite among all the options available.

The problem would not get aggravated if mp3 files were restricted in the hands of individual users but the use of internet provided a platform that allowed sharing of music through online modes. The pioneer of music sharing technology was a website known as “Napster” (Patokos, 2008). This was a platform for various internet users for sharing of music files stored on the computer’s hard drives between the users. This is known as peer-to-peer (P2P) sharing of files. Napster assumed profuse growth in P2P sharing market until it was successfully busted down by the Recording Industry Association of America (RIAA) in July 2000 with the help of judicial order (Riedel, 2006). The most recent and devastating innovation in the recent years has been the illegal use of a “collection of files” known as “torrents”. These torrents are downloadable through applications known as “torrent downloader”. There are sites such as Pirate Bay and BT Junkie which provide a collection of torrents downloadable by using applications such as Azureus and µtorrent.

The torrent era is most destructive because sharing is not confined to sharing of music files. Such sites are now being used for sharing anything from music files, audio books, movies, software and other miscellaneous files. It has almost become a social networking cult among the youth and value of such networks increases as they become larger and more extensive. While the RIAA was successful in cracking down Napster’s services, they have been unsuccessful in preventing the expansion of torrent based programs as mentioned ahead in the report. Since the conception of P2P the sale of physical CDs has been steadily declining every year (Powell and Smith-Doerr, 1994).

Table 2.3 clearly represents the huge growth in the digital modes of music access and significant declines in the sales of physical music media. The newer and more devastating impact has been inflicted on music industry by applications like torrent downloaders as such networks differ from Napster like technology because they do not rely on a single centralized server but the download is carried out by a user from various servers or “seeding points/seeders”. Even the law becomes impotent in such situations because no single entity can be blamed for legal action.

Manufacturers’ Unit Shipments and Retail Dollar Value

Data Collection

The data for the research will be collected from the Consumer Expenditure Survey tables available from the US Bureau of Labour Statistics. It is an extensive database which provides minute details about the buying habits of the US consumers, their income and various household characteristics. It also provides survey micro data for individual consumers’ demographic and expenditure patterns (CES, 2010). I will also consult a range of websites for the purpose of collecting information and statistics related to the music industry.

Music industry websites- The Nielsen Company, www.soundscan.com, Recording industry Association of America, http://www.riaa.com, Sony Music, http://www.sonymusic.co.uk, Universal, http://www.universalrecords.com, Warner Brothers Music, http://www.warnerbros.com/music.

Audio technology sites- Diamond, http://www.diamonthrun.com, Microsoft, http://www.microsoft.com, Music Match, http://www.musicmatch.com, Real Networks, http://www.real.com.

Internet industry sites- Amazon, http://www.amazon.com, CD Baby, http://www.cdbaby.com, Emusic, http://www.emusic.com, MPEG, http://www.cselt.it/mpeg/, Napster, http://www.napster.com.

Broadcast sites- BBC, http://www.bbc.co.uk, Broadcast.com, http://www.broadcast.com, Cyberville Radio, http://www.cyberville.co.uk.

Marketing sites- ViralMarketers.com, http://www.viralmarketer.com, Musicpromotion.net, http://www.musicpromotion.net.

Another major database that I will gain access to is the comprehensive statistical analysis known as the “Shipment Statistics Database” available from The “Recording Industry Association of America” (RIAA). I will need to contact RIAA through email to inform then regarding them my project’s vital features and they will decide whether to permit access to the database. In the event of permission not being granted I will subscribe to it by paying a nominal fee (RIAA, 2010)

Methodology

This particular research work will focus on utilizing a research model that enables to exploit the benefits of methods such as qualitative analysis through behavioural questionnaire and interviews with the industry experts. Since the research fundamentally proposes that MP3 CDs and internet file sharing technologies impact the sales of original works of music. It is important to keep in mind the argument that such facilities decreased the CDs sales.

To effectively deal with this question of importance, I will collect micro-level data from the US Consumer Expenditure Survey (CES) available from the Bureau of Labour Statistics (BLS). It will certainly provide the answer to the debatable question whether file sharing has decreased the CDs sales figures. Similar studies have been carried out by experts such as Liebowitz (2004).

I will also examine the connection between ownership of computers by households and figures for expenditures on music. It will help me analyse whether increase in computer ownership increases file sharing by consumers and subsequent decreases CD sales. Thus this study will constitute a blend of qualitative and quantitative methods to answer the mentioned research questions.

Is there a solution?

The diagram 5.1 below proposes the possible go-ahead for the music industry to survive profitably in the coming future. The first file sharing site, Napster was legally challenged in the court and was finally forced to shut down its illegitimate activity.

Source: Bized, (nd).