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Global music sales are presently around $US 37 billion, however there are indications that physical music sales - predominantly compact discs (CD's), mini discs (MD's), cassettes and vinyl - have reached a state of market saturation,

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Introduction Global music sales are presently around $US 37 billion, however there are indications that physical music sales - predominantly compact discs (CD's), mini discs (MD's), cassettes and vinyl - have reached a state of market saturation, and may even be declining for some music formats. For example, Diebold, a leading German management and technology consultancy company, observed that global music sales fell from $41.5 billion in 1995 to $38.5 billion in 1999 (1). This decline is possibly because of the increase in Internet users worldwide and the creation of MP3's and companies such as Napster. Understandably, these research findings raise concerns about the future of music as a product, particularly with regard to youngsters, whose future music purchasing habits are being influenced by the availability of free music over the Internet. Offsetting these concerns about the future of music, as a product is the fact that delivery of music over the Internet (i.e. music as a service) is expected to expand significantly over the next five years (2). For example, sales of digital downloads are forecasted to increase from $22 million in 2001 to $1.6 billion in 2006. However, most online music sales will come from subscription services, which are forecast to increase from $56 million in 2001 to $2.3 billion in 2006 (3). ...read more.


This upswing is significant in light of the historical role that broadband has played in the popularity of downloading music over the Internet. A survey of students at the University of Southern California found that the downloading of MP3 files was significantly correlated with access to high-speed Internet connections. For example, only 52 percent of those with a bandwidth of less than 56k downloaded MP3s, compared to 85 percent of those with access to high-speed T1 connections (10). In the year 2000, 18 to 25 year old males had the highest user penetration for Napster (9). However, the development of broadband technology will make downloading more popular among all consumers, given such technology's capacity to reduce the time involved with downloading. In addition to the increased speed associated with broadband technology, the other major trend that has significance for the music industry is the combination of computers and telecommunications. This development is important because it increases the overall speed and flexibility of communications. As Robert Picard (11) observes: "The most revolutionary aspect of the technology is that it creates new economies of scope and integration that change the economics of content distribution. New technologies permit the combination and integration of the other existing means of communications and allow readers/viewers/listeners more control and choice. ...read more.


Historically, independent music labels have provided an alternative avenue to the Big Five for artists to get their music to the marketplace. True, owing to the high costs associated with promotion and distribution, it has been rare for independent labels to reach the large audiences of the Big Five (17). Furthermore, the independents have historically relied on the Big Five to distribute music products by independent artists. However, attracting talent, a major problem for start-up labels, has become easier in some respects owing to the cost reductions made possible through the distribution of music via the Internet. In addition to providing higher royalties and additional opportunities to sign with independent labels, an enticing lure to would-be artists, digital technologies make the production and commercialisation of music easier and less costly. Additional issues of relevance to the cost structure of music labels involves cost savings associated with inventory control and having a more informed basis for deciding which artists careers to invest in. Music labels presently need to forecast how many copies of a compact disc that consumers will purchase. Inaccurate estimates can lead to over- or under-production, a problem that would not occur were music distributed digitally via the Internet (20). In summary, Internet-based business models appeal to the music industry because - even if they were to lower prices - they still could increase their present profit margins. ...read more.

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