The thesis of this article is that for the major recording labels to stay atop the music industry, they will have to embrace both technological and creative risks.
They will need to find ways to reach more users via the internet. Until recently, recording companies have viewed the internet as the enemy rather than an opportunity. They have gone with the strategy of litigating the fans that use peer to peer networks instead of finding a sustainable business model that will put their content online. As a result, sales decreased by a fifth between 1999 and 2003.
More recently, however, the recording industry has made inroads to accepting that the internet and digital technology will shape the music industry’s future. Apple’s iTunes service proved to music executives that the legal download market is viable. With this realization, recording companies are trying to figure out how to change their business model to take advantage of the internet.
Another problem which is just as important as piracy is the recording companies’ inability to develop new artists into strong sustainable brand names. The emphasis on one hit wonders is also to blame for the decline in CD sales. In fact, an internal report at one of the major recording studios found that between 2/3 and ¾ of the decline in CD sales was unrelated to online piracy. By embracing the internet, which bypasses more conservative retailers, the recording companies could gain the confidence to support new, innovative music.
Additionally, when an online business model unfolds, higher quality artists will be more profitable. Currently people buy single tracks much more often than whole albums. However, it is in the recording studios interest for users to spend 12$ on a whole album from one artist than to buy 2 songs from 6 different artists.
Importance to Thesis:
This article is important to my thesis in that it helps highlight the strategic mistakes that recording companies are repeating in response to peer-to-peer networks. Music companies are exaggerating the threat of P2P networks, just as movie studios exaggerated the threat of the VCR. In fact, the majority of the recent decline in CD sales is due to factors other than online piracy. In addition, recording companies ignored the new markets that they could reach through online distribution, just as movie studios neglected to see that the VCR would expand their viewer base. This article thus helps draw two parallels between the VCR and P2P networks, and allows me to apply historical lessons to the current situation facing recording companies.
This article discusses the futility of the proposed filtering system that Napster was trying to implement. Robert Schwartz, a well versed lawyer in media copyright cases made the point that "what the well-intentioned mind can invent, the not-well-intentioned mind can destroy." In essence, even if Napster were to stop all illegal file sharing, new services would become available. There were already many alternatives to Napster: Newtella, BearShare, Gnocleus, LimeWire, Napigator, and Gnutella.
While shutting down Napster would be irrelevant because users would just switch over to another service, the recording industry didn’t consider that there may be greater evils than Napster’s service. Gnutella and its variants allow users to download all types of media in addition to music. Furthermore, this second generation of peer-to-peer technology was smarter: there were no central servers, and thus no easy target to litigate. The unexpected consequence of forcing Napster to shut down was that programmers wrote better code which would be very hard for the recording industry to stop.
Importance to Thesis:
This article helps me in supporting my second argument. The grass roots birth and growth of peer-to-peer networks indicates that it shares similar traits to the VCR. The VCR and P2P networks were both born from the market’s demand. Also, Napster and its copycats represent the inevitable evolution of technology. Thus, recording companies are repeating the movie studios mistake of fighting an evolution in technology that can’t be beat. The second repeated mistake is that recording companies litigated Napster without considering that this new technology has changed the competitive landscape. The fact that at least 5 other alternatives existed at the time indicates that the recording companies didn’t see the technology in terms of a larger strategic perspective.