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The Internet Changes the World of Music, But What Comes Next?

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Introduction

Stockholm School of Economics Quo Vadis Music Industry: The Internet Changes the World of Music, But What Comes Next? Course: 2101 Market Systems Fall 2002 1. Major points of conflict Today there are struggles between several different parts of the value chain. The labels are trying to stop customers from downloading free music from the Internet. This conflict is mostly between the sound carriers producers and the customers. Even the compositors of music, i.e. the artists are fighting against free downloading of their material. One example of this is Metallica who sued Napster for encouraging illegal use of their music. Napster responded by preventing the users who had downloaded Metallica songs from using the service. 1 We believe that these struggles will become more intense in the future. Another aspect not covered in the value chain are the new competitors that have entered the market. One example of this is the Internet suppliers and the electronic industry. The electronic industry has been on the market for quite some time but first now they have become indirect competitors to the music industry by providing empty CDs, CD burners and MP3 players. These products are not illegal but are often used by consumers to get hold off, distribute and listen to illegally downloaded material. It is likely that conflict will arise between these actors and the traditional labels. In fact, as examined below this is already happening. 2. Strategies Defining the business A very important step in forming a strategy is defining the business. The reason behind the difficulties faced by the labels can be analysed by using the structure - conduct - performance paradigm. ...read more.

Middle

8 Another approach is to compensate artists for loss of income by forcing companies that import and manufacture empty CDs to pay a fee. Today this is already in use - a fee is paid for every empty CD.9 As the problem becomes bigger this fee could increase. In this manner people would not save as much money by downloading instead of purchasing. Labels can also cooperate with Internet suppliers. One example of this is the so-called Piratbyr�n - an association with representatives from the film and computer game industry that try to stop illegal downloading. Piratbyr�n has recently started to cooperate with suppliers of broadband. As a result of this, several of the Internet supplier's customers were turned off from their Internet connection. 10 What has to be considered in this approach is that suppliers of Internet are indirect competitors of the music industry. They provide a service that enables their customers to illegally download free material from the Internet. If their costumers risk being shut down from the service by downloading they will probably use another Internet supplier. Therefore this strategy is most effective if all Internet suppliers agree on the same conduct. The Internet supplier also gains income from the customers' illegal downloading. If all illegal downloading stopped they would lose profit. Therefore such an agreement might be difficult to realize without legal reinforcement. 3) Exploiting industry change The progress in technology is here to stay and this will no doubt affect the labels. The labels will probably be unable to stay in their dominant position at least not without using the available technology. ...read more.

Conclusion

It would also be interesting to add time dimension to the value chain. Overall the value chain seems oversimplified and does not take into account horizontal and vertical relationships. These relations might be visualised better by using some sort of network model. The models used by the author do not take into account the new competitors after the virtualisation, neither the cooperation between companies. Progress of technology and knowledge is an important aspect that is not directly covered by the models. The view taken in the case is strictly economical and do not consider aspects such as culture. Since culture is a strong influencing force in consumer behaviour it should not be neglected. One aspect of purchasing CDs that the author does not mention is that barging records is a lifestyle for many people and for them it is very important to go in the shops, finding, spending time, listening, talk to people at the store and so on. All these factors presumably weigh up some of the authors arguments in the reality. Dr Hutzschenreuter introduces the word music as a product in the meaning of a thing you send forth and back over the Internet. We would say that 'music' today is even more than only music! The intentions from the labels today are all about to make as much money as fast as possibly. One example that illuminates that statement is the TV-program "Pop stars" in Sweden/Europe. In this program one single label gets a lot of free marketing. In general, our opinion is that the author made a well-illustrated and correct image of the musical industry. We think that Porters model is well known and is very suitable in this particular case. It might not be a model perfectly describing reality but it covers the most important aspects. ...read more.

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