Technology has stepped into the forefront of how music is now created, delivered, and listened to. The emergence of music as a computer file has created a brand new realm of possibilities and potential for problems.
Jefferson Graham explains some of the issues facing companies like Sony, “The music industry hasn’t been the same since then – college freshman Shawn Fanning developed a tool for finding online music in his dorm room in 1999. Fanning’s original Napster – coupled with the growth of CD burners – showed the world how easy it was to get free music from the internet, simply by clicking a mouse and saving song files to a hard drive.” (Firestorm 2005)
“More people than ever are using file-sharing programs. Music sales, meanwhile, sank 10 percent from 2000 to 2004, according to the Record Industry Association of America.” (Firestorm 2005)
Keith Regan explains that, “About 36 million Americans, or 27 percent of U.S. Internet users, download music or video files without using legal sources or peer to peer networks.” (“Music Swapping,” 2005) Regan goes on to explain that, “E-mail and instant messaging has emerged as one of the top choices for moving files. That’s not surprising given how prevalent use of those tools is and the rapid growth of high-speed web accessÃ¢Â?Â¦about 10 million American adults are currently swapping files that way.” (“Music Swapping,” 2005)
In an effort to combat the increasing file-sharing issues Sony began to slip an anti-theft program into the new CDs they released. The technology implanted a program into the user’s computer to restrict the ability to share or even play the songs on the computer. Right away consumers and musical artists cried out against the software pushing Sony into a state of damage control, pulling millions of CDs off the market and losing not only sales, but face value as well.
Content protection software has come under fire from other companies as well, but Sony’s particular software was designed as a form of spyware, that was installed unknown on the consumer’s computer, tracked the consumer’s habits and increased the threat of viruses. By working with an outside software security company, Sony was put in the unfortunate position as a scapegoat for the artists and consumers who felt slighted.
Sony would be best suited to make a quick rebound into the world of digital music as the opportunities grow exponentially. John Kennedy, Chairman and CEO of IFPI, explains a few of the opportunities waiting in the digital world.
Record companies have digitized and licensed over a million songs. In 2004 the available services doubled from around 500,000 to around one million tracks.
The number of online services where consumers can buy music as increased four-fold to more than 230 worldwide – and over 150 of those are in Europe.
The digital download market is growing geometrically – in 2004 downloaded tracks rose more than ten-fold to over 200 million in the US, UK and Germany combined
Record companies have seen their first year of significant revenues from digital sales – from practically zero to several hundred million dollars
Legitimate online music services have done what some thought only a year ago was unthinkable; they have proved that they can take on the unauthorized free alternatives. Online music today offers unbelievable value for the consumer: for 99 cents in Europe the price of a loaf of bread, a bus fare, a can of Coke, you can download a piece of music that will stay with you for life. For those who claim they took music for free because there was no digital legal alternative, there is no longer an excuse. (“Digital Music”, 2005)
New trends in the music industry open up a wealth of opportunities for record companies to capitalize on digital media and expand into new territories, for example:
“The development of different strategies appears warranted and alternate strategies should be pursued such as diversification, for example, expansion into the merchandise and concert business will help turn the music labels into music marketing companiesÃ¢Â?Â¦Lately, many labels have added merchandise production, concert promotion and artist management to their business”
“As the recorded music market has shrunk the merchandise and the concert segments have actually grown. The worldwide concert audience of US artists has grown $32 million to 39 million between the years 2001 and 2003 in spite of rising ticket prices.”
“Unauthorized copies do not seem to be significantly correlated with licensing revenuesÃ¢Â?Â¦Intuition would suggest that the increased distribution and consumption of recorded music of a specific musician, no matter if authorized or unauthorized, augments the popularity of the specific artist. Increased popularity leads to increased sales of the artists licensed goods.”
“Interdependencies between the marketing activities of record companies, concert promoters and licensing agencies are a reason to organize all of them in the same company, since the necessary conveyance of knowledge between them causes transaction costs.” (New Trends in the Music Industry”, 2005)
When played correctly, the music industry offers a wealth of opportunity for a company. Keith Regan encapsulates the music industry well when he writes, “The recording industry’s success is primarily as an investor in human creativity. Record producers worldwide, independent and multi-national, invest billions of dollars in local cultures. They underpin in the livelihoods of a diverse array of artists across the world. Only a tiny minority of these will ever prove commercially successful. Those that do succeed have the chance of reaching out to a national and international music-loving public.” (“Music Swapping”, 2005)