The Effect on Sales of Digital Music Through Legal and Illegal Distribution Channels - Research Paper Example

? Table of content I. Introduction Why Digital Music 2. Comparative analysis on Apple iTunes Store with other legal and illegal distribution channels. 3. Research Structure II. Aims and objectives 1. Aim 2. Objectives III. Literature review IV. Research Methodology 1. Introduction 2. Data Collection 3. Data Analysis 4. Reliability and Validity 5. Limitations V. References VI. Gantt Chart I. Introduction 1. Why Online Digital Music? In recent days illegal music downloads are far more than the number of music tracks sold. International Federation of the Phonographic Industry also mentioned that between the year 2005 and 2006 the sales of the global music industry fell by 11% and the ratio between pirated download to music track sold was 20 to 1 in the year of 2007. (Sherwin, 2008) The main reason behind decline of sales was due to the dawn of online music marketplace. The music distribution through these online distribution channels gained prominence due to its lower transaction cost (Elberse, 2010, pp. 74, 107-123), instant availability of music tracks, easy file sharing options and no loss in intrinsic quality of the music tracks when replayed and even after being shared several times. This enabled Apple iTunes Store to flourish and become the leader as a digital music distributor. But this tech savvy nature of the music lovers also fuelled the rise of online music distribution market as well as led to illegal distribution of the music tracks through internet. 2. Comparative analysis on Apple iTunes Store with other legal and illegal distribution channels. This study will elucidate the researcher with a comparative analysis about the strategy of the Apple iTunes Store with other legal distribution channels i.e. Sony Entertainment as well as illegal distribution channels i.e. online piracy websites. This study will address the positive factors which enabled the growth of Apple iTunes Store to a major music distribution channel by selling over 6 billion songs till beginning of January 2009 (Schonfeld, 2009). Though emergence of Apple iTunes provided global music industry a thrust but the major concern lays on the fact that is globally 95% of the music track downloads are acts of online piracy (NME, 2009) which is making the legal distributors lose huge amount of revenue. Now as market leaders, it is essential for Apple iTunes to understand the negative factors causing this downslide of revenue due to losing of market share and how to counter the negative forces with its strategies to increase profitability. 3. Research Structure Initially this research paper will categorize the online music distribution channels similar to the iTunes business model. It will help to demonstrate the functioning of the online distribution channels and gain familiarity with their marketing techniques and strategies. It will also help to analyze the impact of other music distribution channels on the digital music distribution i.e. both legal and illegal distribution channels to be considered. This study will also help to establish a relation between pirated online distribution channels and its effect on the legal distributors like Sony Entertainment, iTunes, etc. Furthermore the outcome and analysis of the study will help to recommend and suggest marketing strategies so that the legal music distributors can avail measures to generate higher revenues in this prevailing market conditions. II. Aims and objectives 1. Aims The aim of the research is to analyze the impact of piracy on the legal music distribution channels and recommending steps for the crisis resolution. 2. Objectives To evaluate the functioning of the online music distribution system using iTunes. To analyze the difference in distribution methods between legal online providers and legal hard copy CD and DVD providers. To evaluate the extent to which music piracy effect legal distribution of online music. To find whether piracy initiated the emergence of online music distributors like iTunes. To define the user types for both legal and illegal music distribution channels. III. Literature Review Last two decades of the 20th Century brought in technological advancement in each and every aspect of life. The high tech gadgets like personal computer, mobile telephony, pagers and internet fascinated the people. In this era the music, film and television industry also started to feel the strong need to embrace these path breaking technologies to modify their business model. The music industry also felt embracement of new technologies will help to sustain their business by catering the ever increasing demand of the consumers promptly.(Swingler, 2005) This literature review will elucidate the scenario of the music industry before pre-iTunes age, pre-iTunes age and rise of the iTunes age. This literature review will also help to understand how piracy initiated in this sector and engulfed the global music industry. Before Pre-iTunes Age During late 1960’s to 1980’s music lovers used to purchase vinyl albums. After late 1980’s the new digital technology of compact discs (CD) entered the music market with frenzy and displaced the analog format of vinyl album technology. (Fisher, 2000) Pre-iTunes Age Today the music lovers throughout the globe accepted the digital format instead of the analog format and in the last few years a new phase in digital music sector came in where the music files are being distributed through internet and stored in the computers. It was the impact of several technological progresses like increased bandwidth of the internet connection (Zhang, 2002), the change of music file format and technologies to copy the music files into external devices. (Fisher, 2000) New technologies mentioned earlier, played a major role to help this digital format of music to gain acceptance from the consumers. The increased bandwidth of the internet connection helped to decrease the gap between the music lovers and the music providers. It also enabled to acquire the music tracks faster with less transaction cost. (Varian, 2000) The new technology of copying the music files by CD burners for replaying them with devices like computers, stereo systems, portable music players i.e. mobile phones, mp4 players, mp3 player, etc. without losing the intrinsic quality of the music due to its mp3 format also gained acceptance from the consumers (IFPI, 2006). The technology mainly centers on the format of the music file. The compressed mp3 format occupies less memory space of disks and also enables faster transmission through internet. This technology is well accepted by the lesser known musicians, the high school and the college students. The reasons for acceptance are modest cost and during transmission of files no intrinsic change in the quality of music occurs. The consumer demand and advanced technology finally made high percentage of pirated mp3 format tracks available in the market without consent of their owners violating the copyrights. (Fisher, 2000; Sherwin, 2008) But the acceptance of this system from the consumers’ side allowed entrance to more legal and illegal players in this online distribution channel. (Zhang, 2002)  Rise of iTunes A revolutionary approach from the Apple iTunes Store to distribute legal online music changed the market scenario and they eventually became the top music distributor selling over six billion songs till the end of December 2008. (Schonfeld, 2009) Apple implemented a new model of innovation through diffusion of two technologies to produce a superior quality product. Apple was quite confident towards this approach and they were able to successfully store the iTunes music product in the Apple iPod and replay them. The merging of these two technologies can be explained by using the Diffusion of Innovations model by Rogers. Rogers explained that innovations could be summarized into five different categories: 1. Relative Advantage - the advantage from the new product in comparison to its predecessor. The advantage can be in respect of price, availability of tracks and quality of music. 2. Compatibility - the way a new product fits into the market taking into account the predecessors’ values, attitudes and user experience. 3. Complexity - difficulty of learning to use a new product or innovation. 4. Trainability - the extent to which a new innovation can be tested before being launched in the market place 5. Observability – the distinct features of the innovative product perceived by the market. (Rogers, 2003) The success of iTunes according to the Rogers model was the culmination of the higher degree of relative advantage, compatibility, trainability and observability in relation to the overall complexity in methods of distribution before iTunes music store. (Swingler, 2005) This made iTunes the leader of this music distribution market in respect to number of downloads as well as revenue by 2005. (Smith, 2005) To make this technology easily available in market Apple also reduced the price of iPods significantly which helped them to flourish in the online music distribution segment. (CBS, 2009) The New Age of Piracy: Currently online music distribution is more evident and a significant decrease has been noticed in the sales of CD’s and DVD’s. (ARIA, 2005) The reason for this scenario is the substitute (i.e. online digital music) of the predecessor (CDs and DVDs) is far superior and cheaper. This forced the music providers to embrace the new way of distribution for their products to accommodate the change in consumer demand. (Swingler, 2005) Now-a-days the most popular form of illegal music distribution is primarily internet server based. In this system the users download the contents which were posted at open servers having limited filtering technologies. (IFPI, 2011) The recording companies and the artists are extremely vocal about these open servers because they are not responsible for the contents openly updated in their servers. Alexander (2002) reviewed the relationship between the digital distribution and market structure in this industry. He concluded that music companies and artists must invest huge sum of money to remove this posted contents from these servers legally. But still now this recommendation is not adopted by the music industry. Furthermore, Yoon (2001) looked at the different copy right protection procedures for the contents to protect the artists and recording companies. He concluded that the increase in copyright protection may have a positive or a negative effect. (Zhang, 2002) This paper will aim to scrutinize and relate all the forces related to online music distribution industry in order to offer a positive recommendation to this industry. This online music distribution industry is going through a fast ever changing evolutionary process. So these companies need an innovative approach to incorporate the pirates inside their business model. The strategic partnerships of ISP’s with the pirates will enable the ISP’s to integrate the illegal distributors into their core-operations. (IFPI, 2011) IV. RESEARCH METHODOLOGY 1. Introduction Research design development is a very important part and it helps to attain the research objectives. Formulation of an effective research methodology is very important to attain the research objectives. There are two types of approach, namely deductive and inductive approach. The deductive approach part deals with the hypothesis testing part which the researcher deduces. Whereas the inductive part deal with the computation of raw data collected by statistical tools and its analysis. Here the survey is conducted through secondary research design i.e. the data are to be collected from published journals, articles, valid sources providing data for the industry, etc. Now the researcher decides on the nature of data to be collected to attain the research objective. This type of research methodology saves time, effort and financial resources. Secondary research methodology is necessary to analyze both the qualitative and the quantitative data. This will also enable the researcher to achieve his objective with minimum level of deviation from the real life scenario. As mentioned earlier, to attain the research objectives this research investigation will need both quantitative and qualitative data. The quantitative technique will help to generate a numerical data where as the qualitative techniques will help to generate the non-numerical data. So due to this mix of both the techniques the researcher will be able to achieve the objectives and answer the questions raised during the study. 2. Data Collection The secondary data are to be collected from different sources. The source should be easily available as well as it should provide accurate and very recent data. This will help to correlate different factors. So, collection of recent data about number of iTunes download, cost of each download, number of pirated musical content download and sales of legal hardcopies like CDs and DVDs are necessary. It will help to find the ratio of legal to illegal download, the market share and revenue of iTunes and other legal distributors. The market share of illegal distributor will also come in front and will help to cast light on the revenue loss by the legal distributors due to this piracy. The different online music distributors functioning in business model similar to iTunes will also come to forefront. The collection of data about adoption of copyright protection by recording companies and artists as well as non-adoption of this protection by artists and recording companies with supporting information about their revenue will be very important. It will help the researcher to compare their revenues to correlate the copyright protection with decrease in piracy and increase in revenue of the recording companies and artists. The collection of data about the revenue generation of artists and recording companies pre and post adoption of copyright protection will also enable the researcher to elucidate the extent of impact of piracy in this industry. It will also help to decipher the user profile of the legal and illegal distributors. Thorough research of technical issues of distribution from Massachusetts Institute of Technology (MIT) sources will also enable the researcher to distinguish the distribution method of the online music distributors and hard copy content distributors. Furthermore a comprehensive analysis of the literature review will also enable to evaluate the extent of consumers’ acceptance of iTunes type distribution model. During carrying out this study the International Federation of the Phonographic Industry will act as a very reliable source of data for analysis. IFPI conduct thorough annual analysis of the music distribution channels internationally in order to identify the recent trends and problems of the industry. They also protect and preserve the ownership rights of the artists and recording companies, both online and offline. To find data on a more localized level than international level Recording Industry Association of America (RIAA) and Australian Recording Industry Association (ARIA) websites should be used. 3. Data Analysis During this study the analysis will be done through correlation and historical trend analysis. Historical data from the earlier mentioned organizations i.e. IFPI, RIAA and ARIA will enable the researcher to understand and pinpoint the problem source. It will also help to analyze about the extent of contribution of various factors in the music distribution industry which impacted on sales and acted as key drivers for change. The information from the source about the current and historical data will also enable the researcher to forecast the future trend. The information about the future development of technologies and its usage in music industry can be easily found from the MIT sources. It will help to analyze the affect of new technologies on music sales statistics and new possibilities in piracy. This analysis will help to form new strategies for the legal music providers to counter the future threats. The suggestions of IFPI will also help the researcher to find an effective and resolvable method to solve the issue of content protection. Furthermore the forecasted information by IFPI will also benefit the music producers and the music lovers in future. (Swingler, 2005)  4. Reliability and Validity During answering the research questions there remains a possibility for occurrence of mistakes. To avoid these mistakes the research design must emphasize on two aspects namely the reliability and validity of the data. (Saunders, Lewis & Thornhill, 2009) Here validity refers to the precision during the research work. These emphasizes on the fact that the findings of the research are reflecting the same information which can be observed in real life scenario. Whereas reliability of the study refers to the fact that if the study would be repeated it would generate similar findings i.e. the research findings should remain consistent. (Maylor & Blackmon, 2005) The validity of a study can be achieved by comparing different sources to observe and cross check the data. It also helps the researcher to examine the consistency of the data. While to improve reliability of the findings the one and only trustworthy way is to compare the analysis of same data by various researchers. (Silverman, 2001) 5. Limitations In secondary research methodology there are many advantages like easy availability of data and saving of cost, time and effort etc. but a secondary researcher needs awareness about the limitations of the methodology. It is so because information and data may not be accurate if they are not collected from reliable and reputed source. This will been addressed in this research. Data always must be cross checked by comparing data from other reliable sources as an out of date or wrong data may lead to findings which may not have parity with the real scenario. Another demerit of secondary data is the sales reports and database provided by them are of existing customers. So these are some limitations mostly faced during the secondary research study. (MacQuarrrie, 2005, p.10) References 1. Alexander, P. (2002). Peer-to-Peer File Sharing: The Case of the Music Recording, Retrieved on June 23, 2011 from: http://www.peterjalexander.com/images/Peer_to_Peer.PDF 2. ARIA. (2006), 2005 ARIA Yearly Statistics, Retrieved on June 23, 2011 from: www.aria.com.au/pages/documents/YE12-05.pdf 3. Elberse, A. (2010). Bye-bye bundles: the unbundling of. Journal of Marketing, Retrieved on June 23, 2011 from: http://www.people.hbs.edu/aelberse/publications/Elberse_2010.pdf 4. Fisher, W. (2000), Digital Music: Problems and Possibilities, Retrieved on June 23, 2011 from: http://www.law.harvard.edu/faculty/tfisher/Music.html 5. International Federation of the Phonographic Industry, (2011). IFPI Digital Music Report 2011, Retrieved June 25, 2011, from: http://www.ifpi.org/content/library/DMR2011.pdf 6. Maylor, H., & Blackmon, K. (2005). Researching Business and Management. Hampshire: Palgrave Macmillan. 7. Macquarrie. (2005), Secondary Research, Retrieved on June 25, 2011 from: http://www.sagepub.com/upm-data/5411_McQuarrie_I_Proof_2_Chapter_3.pdf 8. Music industry claim 95% of all downloads are illegal (2009), NME, Jan 16, 2009, Retrieved on June 23, 2011 from: http://www.nme.com/news/various-artists/42116 9. Prices Down, Memory Up For iPods., CBS News: Tech., February 11, 2009 Retrieved June 23, 2011, from: http://www.cbsnews.com/stories/2005/02/23/tech/main675918.shtml  10. Rogers, E. (2003). Diffusion of innovations, New York: Free Press 11. Saunders, M. Lewis, P. & A. Thornhill (2009). Research Methods for Business Students. Essex: Pearson Education Limited. 12. Sherwin, A. (2008). Digital music growth slows as pirates thrive, The Times, Jan 25, 2008, from: http://business.timesonline.co.uk/tol/business/industry_sectors/media/article3248009.ece 13. Silverman, D. (2001). Interpreting Qualitative Data. London: SAGE Publications Ltd 14. Schonfeld, E. (2009). iTunes sells 6 billion songs, and other fun stats from the philnote, Tech Crunch, Retrieved on June 23, 2011 from: http://techcrunch.com/2009/01/06/itunes-sells-6-billion-songs-and- other-fun-stats-from-the-philnote/  15. Smith, T. (2005, July 22). Global music download stats spill beans on subscriptions., The Register, Retrieved June 24, 2011: http://www.theregister.co.uk/2005/07/22/ifpi_download_stats/  16. Swingler, E. (2005). The Diffusion of Legal Music Download Services, The University of Western Australia, Retrieved on June 24, 2011 from: http://smib.vuw.ac.nz:8081/WWW/ANZMAC2006/documents/Swingler_Evan.pdf 17. The International Federation of the Phonographic Industry. (2006), The Recording Industry 2006: Piracy Report, Retrieved on June 25, 2011 from: http://www.ifpi.org/content/library/piracy-report2006.pdf 18. Varian, H. (2000). Buying, Sharing and Renting Information Goods, University of California at Berkeley Berkley, Retrieved on June 24, 2011 from: http://people.ischool.berkeley.edu/~hal/Papers/sharing.pdf 19. Yoon, K. (2002), “The Optimal Level of Copyright Protection”, Information Economics and Policy, pp.14, 327-348.  20. Zhang, M. (2002). A Review of Economic Properties of Music Distribution., Retrieved on June 24, 2011 from: http://web.mit.edu/zxq/www/mit/15575/musicreview.pdf VI. Gantt Chart Activities January February March April Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 Week 10 Week 11 Week 12 Week 13 Week 14 Review of Final proposal                             Data collection and research of topic                             Data analysis                             Start IRS writing                   M         Tutorial                   I         Tutorial Correction                   D         Write and improve IRS                   T         Mid-term                   E         Review introduction and referencing                   R         Conclusions and Recommendations                   M         Final correction                             Review and Print                             Submission                             Read More