By way of introduction, the paper makes two points – first the obvious point that a complete abandonment of traditional property rights in favor of totally open licensing would have taken away the very thing that had made these companies successful in the first place – the proprietary differences between their software and their competitors. It points out as well that an initial hurdle for a potential alliance between corporation and open source is the latter’s lack of central management – with whom can a corporation negotiate without a central leader to definitively represent an open source project as large as, say, Linux?
The first case study is that of Apple, a company that faced increasing obsolescence of its core operating system (Mac OS) by the mid-1990s, and was unable to come up with a viable proprietary alternative. Apple’s strategy was to “embrace and enhance” existing open source technologies, and to this end it made headlines when it released the core of its new operating system, Mac OS X, as a fully open source project. It retained its competitive advantage, however, by releasing only material which was essentially already available, keeping proprietary the graphical interface which differentiated its product from competitors’ and other high-level components.
IBM embraced open source products in a similar way when the chose Apache, the open source web server, as the basis for their new line of server products. This adoption proved to be a boon for the Apache project, which received support from a major corporation. IBM’s adoption of Linux came later, but its portability (one of the foci of the open source movement) eventually allowed IBM to use Linux as the standard platform for a variety of products. In IBM’s commercial model, money isn’t made off the products themselves, but in the pairing of software with hardware, support, consulting, and other services.
Sun, although initially hesitant to embrace open source, eventually opened up several of its projects under restrictive licenses that allowed people to view and modify the source, but not to redistribute it for profit without paying royalties. In this way, Sun protected its property rights and proprietary advantage while reaping the benefits of community involvement with and contribution to its products.
Two important points can be drawn from these cases and from the article itself: firstly it is interesting to note that in the first two cases, where companies adopted previously existing products, they adopted products whose licenses allowed commercial derivative works. The license governing Linux and many other open source projects does not allow this; this is an important distinction. The second point is the contrast between Apple and Sun’s strategy – open parts vs. partly open. While Apple retains competitive advantage by opening only parts of their product (open parts), Sun retains their advantage by opening their products with important limitations that preserve that advantage (partly open).
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 explains the current dominance that Apple exerts on our digital music experience and how it could potentially become the epicenter of media consumption. Currently, it is impossible to download, organize and listen to music without iTunes. Furthermore, iTunes has created a “network effect” whereby its immense popularity spurs demand for other artists and advertisers to be on iTunes as well. iTunes is thus cemented as the face of our interaction with digital music. This same relationship could soon exist with video media if Apple gets access to Disney’s large library of movies and TV shows. One analyst forecasts that the iPod will become a “Tivo and a music player that you can take anywhere.”
This scenario, however, may be further down the road. Hollywood still opposes distributing copyrighted material over the internet. Additionally, being the epicenter of digital media consumption is not “itself a business right now.” In the future, Apple may find a way to turn this large audience into advertising revenue, and thus a legitimate profitable business.
Importance to Thesis:
This article is relevant to my third argument, which is that Apple represents the way media companies should react and adapt to changing technologies. Apple, through its iTunes and iPod, took advantage of the changing methods of media consumption. By anticipating that consumers would need both a device to play their music, and an interface that makes dealing with a large library manageable, Apple made itself the name brand associated with digital music. The dominant position both iTunes and the iPod enjoy is a testament to this foresight. Furthermore, the position Apple is putting itself in with regards to video media is a repetition of Apple’s ability to see how peer-to-peer technology has changed the competitive landscape for media consumption. In contrast to media companies who fight to save the status quo, Apple has placed itself where a business does not even exist, but when it does, Apple stands to benefit enormously.
This article discusses the Disney-Pixar merger and its implications for Apple and the future of online media delivery. As a result of the merger, Steve Jobs solidified himself as one of the most powerful executives in the continuing convergence of media content and online delivery, especially as movie studios now look to extend their digital reach.
Apple stands to benefit from the ability to distribute Disney’s animation studio’s content as well as its array of broadcast networks, namely ABC and ESPN. However, video media has been available online in the form of Pixar short films and more recently since the merger, Disney animated shorts.
As Jobs has already proved the viability of the online delivery of music, video-on-demand makes sense as the next step in rounding out the iTunes platform. By now gaining access to Disney’s video content, it makes developing the video on demand stage easier. Before, Apple was dependent on apprehensive third parties for content, specifically the record labels who doubted the viability of a legal download market. Apple needed large scale support because iTunes would only be successful if there was a large collection of downloadable music. In contrast, the dynamics of video on demand are different in that Apple can start with Disney and add more networks further down the road.
If Apple pursues the video content road, it will likely replicate its revenue model with online music. The majority of Apple’s money is made on sales of iPods, not on sales of legal downloads. Thus, Apple’s strategy was to drive consumer demand for its iPod devices through the access to digital music media. In this vein, Apple will most likely launch a new device, most probably a home entertainment center, to deliver its online video content.
Importance to Thesis:
This article helps support my third argument, which is that Apple has become the example of how media companies should adapt to technological change. By developing the preferred user interface for access to online media content, Apple has positioned itself not only as a technology company, but now as a major player in the media industry. Where 5 years ago Apple wasn’t even involved in media, it now controls the future of content delivery. Thus, by seeing the peer-to-peer phenomenon as an evolution in consumers demanding online media content (both music and video), Apple has put itself in the position to take advantage of the this technological evolution.
Summary of business strategy section:
Apple explains its business strategy in its annual 10-k filing. It seeks to continue to capitalize on the “convergence” of digital consumer electronics and the personal computer. Thus far, Apple has realized success in this area through its iPod and iTunes innovations.
Apple’s larger vision of the digital world is that we are in an age where the personal computer functions as the digital epicenter for cutting edge digital devises such as the “iPod digital music players, personal digital assistants, cellular phones, digital camcorders, DVD players and televisions.” Apple has thus positioned itself to offer both products and solutions for this new era.
Along the lines of offering new products, Apple recently introduced an iPod that can display photos and play video. In terms of solutions, all iPods work with the iTunes software on both Macintoshes and Windows computers. In addition, the iTunes Music Store is fully integrated with the iTunes software. This allows users to “preview, purchase, download, organize, share, and transfer” digital media to an iPod all with one software applet.
Importance to Thesis:
Apple’s business strategy is important for developing my third argument, which must prove that Apple has formed its business model to fit the future of media consumption. From the summary, it is clear that Apple has a vision of where the digital media age is, and where it is headed. Thus, Apple’s hardware and software products are the result of a large scope competitive strategy. In addition, the contrast between Apple’s forward looking business strategy provides a contrast to recording companies’ narrow minded focus on eradicating peer-to-peer networks. While recording companies have been fighting lawsuits, Apple has positioned itself at the forefront of the digital media revolution. This contrast can help explain the recent success that Apple has enjoyed.
This article, although brief, is interesting because it shows how Apple responded to a threat to its control of an industry. This article was written very soon after RealNetworks announced that it had created a version of Harmony that allowed iPod compatibility. It shows how the immediate response to a threat like this is the DMCA. Apple immediately turns to the laws not because of copyright, but because they want to maintain control of their iPod empire. This shows how the DMCA is used to protect monopolies and prevent widespread compatibility and interoperability. The nature of copyright law changes with the DMCA, which is exploited by technology companies and used as a means of market control and monopolization.
I will use this paper for the examples it gives of how the DMCA functions against the intentions behind copyright law. I will also use it as a starting point and further research some of the examples it provides. The paper gives a good, clear analysis of the major issues of the DMCA and shows how it is being used as a means of exploitation rather than as copyright law. The DMCA violates the principles that copyright was founded on.
This article, published in early November 2005, focuses on the fiscal woes of the large media companies. Even though many of them were not hemorrhaging money, their stocks had been seriously underperforming: since August, most stock prices were down between 6 to 17 percent at a time when the major indexes had lost only a handful of percentage points. The main argument is that even though the major media companies (including the conglomerates such as Viacom and the more focused newspaper companies such as Knight Ridder) had been shaking up and revitalizing their business models to prove that they were ready to capture new markets in the evolving economy, many institutional investors were not warning up to their actions and plans. Indeed, you could even say that there are some corporate civil wars going on in board rooms. The article specifically mentions that a large shareholder of Knight Ridder wants the company to put itself up for sale, and it makes a reference to Carl Icahn’s efforts to get Time Warner to divest itself of some of its assets to begin a large stock buyback program (since the publication of this article, Carl Icahn has become even more confrontation when dealing with Time Warner’s current board of directors and management). The writer does not mean to say that all media companies are having trouble, for Google and Apple have been steadily increasing for quite some time (the continue to do so). Rather investors are not feeling the least bit sanguine when it comes to traditional ‘big’ media companies. Perhaps they are all just dinosaurs waiting to be extinct.
Here are two interesting and important quotes from the article:
”Beyond those concerns, they worry that with slower advertising growth, the profitability of media properties like television and radio stations could be affected. And even if the ad market were to become robust again, just how many of those dollars might flow to the Internet and away from traditional media is an open question.”
''There is a buyers' strike,'' said Dennis Leibowitz, general partner at Act II Partners, a media hedge fund. ''People are afraid to touch the old media. No matter how cheap they have gotten, people are fleeing. The environment is scaring them, and they can't figure it out.''
September 20, 2005 Steve Jobs makes a statement opposing the record labels' demands for variable pricing at the Apple Expo, accusing them of being greedy.
A slightly longer and much more biased article can be found at http://arstechnica.com/news.ars/post/20050920-5328.html
August 29th, 2005 New York Times article discussing the RIAA's push for a variable price structure. The article includes basic statistics about iPod and iTunes sales as well as an overview of the RIAA's proposal.