Internet speeds and media convergence have increased the promise of new delivery of content and information. This change has been strongly driven by increasing technological advances; combined with the increase in the rapid uptake of broadband technologies has lead to the increase in broadband penetration. The Internet, due to several factors such as; the increase number of competitors, scale and the increase of speed, have largely affected how the public consume information and have therefore forced companies to re-evaluate their current distribution models but also invest more into technologies that support this upward trend.
One such technology product at the forefront of this economical and socialocial change is music distribution. Online Music distribution market is due to grow significantly within the next few years, forcing record labels and retail giants to reconsider their current business practices and model to accommodate this trend.
The music industry has always been at the forefront of technological advances, and has the ability to transform its product to multiple mediums to promote the message.
Understanding how music is digested is key to understanding how the diversification of the product has significantly changed over the years. Radio lead to records and the compact disc, while now due to the increase of sharing platforms online and the popularity of MP3 players such as the ipod have allowed or some would say encouraged users to licence unauthorized downloading of copyrighted content.

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Although the music industry has pushed for and placed more pressure in convergence of technological products both software and hardware, developments in online music also raise significant challenges that are likely to be relevant for other digital content sectors as well. The below paper aims to indentify the opportunities and disadvantages the Internet has had on the music industry. The first part of this paper aims to give a brief history of the music industry and what has essentially how it now uses the Internet as a key distribution network. Part two of the paper aims to specify the key opportunities that the Internet has provided the music industry. For all the opportunities, several key challenges the Internet has placed on progression of music industry. Part three aims to analyse these challenges in depth. Finally this paper does not provide a solution towards the challenges identified rather provides a framework in where these challenges are identified and discussed.
MUSIC INDUSTRY: A BRIEF RECAP
The music industry has always been at the forefront of technological developments. It has contributed or some would say encouraged developments within the commercial environments, entry of new players and new ways to consume music and generate revenue. The Internet allows for new forms of advertising and allows easier access and lower entry points for artistic creation and distribution of music.
In 2004 a stream of legitimate music sources became available, which up until then the majority forms of music distribution were illegal. Apple iTunes lead the charge and significantly changed the music landscape by offering a one stop shop that provided a consistent easy to use format that allows customers to pay for songs they want rather then have to purchase full albums as previous forms have focused on. By the end of 2004, there were 230 sites offering over 1m tracks online in the United States and Europe. “In 2004, over 200 million songs were downloaded from legitimate services up from 20 million the previous year, which grew streaming on demand, Internet radio and personalised services.” (http://www.key4biz.it/download/Digital_Broadband_Content_Music.pdf)
2005 saw the rise of mobile music i.e. ring tones, and saw the increase in popularity of other formats such as music DVDs. It appears demand for music has increased through digital distribution methods and has lead to other forms of music consumption (streaming radio, video clips on DVDs as previously seen on network such as MTV and channel V). Although having gained such popularity the online revenue accounts attributed from these products only accounted for 1-2% of the total revenue.
The digitalisation of music has been the main drivers in global technology markets. Although revenues derived from online music sales (hardcopy & softcopies); the increase in revenues for hardware for PCs are currently higher then that being derived for music sales/streaming.
Through a combination of new business models, new technologies and innovative services provided for consumers the market is developing rapidly to realise the potential for online music. The biggest challenge still remains to be controlling piracy while developing models, which are still economically suitable to consumers that also allow for new participants to enter the market.
OPPORTUNITIES
The digitalisation of in high quality sound provided an additional boost to the music industry with the compact disc being the lead seller for many years; although new formats such as Sony Mini Disc and Digital Compact cassettes (DCC) were introduced they did not provide to be a huge success. Mainly due to the lack of groups of hardware and software not being compatible. Funnily enough CD’s still make up for the majority of sales being made online.
Apart from booming CD sales, the rise of digital technology and the Internet in at first and due to digital unauthorized downloading – proven to be more of a challenge than an opportunity to the music industry.
EASE OF ENTRY INTO NEW MARKET
Entry into the music industry through the Internet is no longer reliant on record deals with major labels rather allows for up and coming musicians upload and distribute their music via other means. English singer Lilly Allen is a perfect example as Allen success was largely due to the fact she was able to release and promote her own record on the social networking page MySpace. It was only when her songs grew their own fan base reaching over tens of thousands online streams she was offered a record contract with Regal Labels. (Wikipedia) Such an examples exemplifies the Internets impact on artists being able to distribute their own records without the support or aid of larger corporations.
EASIER ACCESS TO THE PRODUCT
A Larger volume of distribution methods allow for an increase in overall competition; which in turn have an overall effect on the cost of products available. Retailers and record companies had far more control over pricing of products when limited to physical products when confined to gaining foot traffic. Now with introduction of online sales methods whether it be ordering the physical copy from Amazon.com or simply purchasing through catalogue like stores such as iTunes price has become a key differentiator on whether uses purchase their music (whether digitized or hard copy) online.
DISEMLING OF PRODUCTS
With that in mind, the evaluation of how users consume the products have also been called into question. As the Internet has allowed record labels and artists to critically evaluate how consumers utilise their product. Although in 2003 CD sales were at an all time high, the increasing number of Peer-2-peer networks brought down the volume of CDs being sold and had record companies evaluate cost models. The “ipod/iTunes effect has been forcing record labels to re-evaluate business models as there has been increasing importance placed on selling single’s rather then full albums became a more advantageous for consumers as they could purchase songs are a more cost effective rate that were more valuable to them then purchasing full albums. (http://www.wikinvest.com/concept/IPod_Effect)
TECHNOLOGY CONVERGENCE
The convergence of products such as digital audio players, have been able to establish themselves independent of other electronic device and replace older listening devices. The main reason for such devices are to provide portability but also ability to replace dedicated products such as walkmans with converged devices such as the mobile phone or PDAs. Such developments of these products are strongly influenced by the Internets growth and uptake of e commerce networks such as iTunes. The overall influence the Internet has had on such an ecommerce transaction places the importance on having the sufficient hardware and software to continue these advances.
MALAUABLE
The ability to download digitalised versions has several added benefits for customers. The ability to make copies if the hard copy or device becomes defective. While customers are able to customised their libraries and make CDs and play lists according to their tastes rather then have to conform to Record Company choices for a customer. Also the music becomes more valuable to the customer if they’re able to adjust and include the music into their own productions such as multimedia videos or presentations.
CHALLENGES OF THE ONLINE MUSIC INDUSTRY
The online music distribution has provided one of the greatest platforms for technological developments and also helped in the uptake of e commerce practices in OECD countries. (BIBLIOGRAPHY)
PEER 2 PEER NETWORKS AND THE AFFECT ON PIRACY
The Internet’s early success was significantly due to the file sharing capabilities otherwise known as peer-to-peer networks. The innovative technology is becoming increasing important in expanding communication. Such programs that have reaped the benefits of this technology include Skype, on demand video streaming or share proprietary information in the services industry.
Although the ability to share large volumes of data easily and quickly is appealing to the vast majority of consumers there is significant concern has about P2P networks and the ability to transfer large volumes of unauthorised content without the consent of the relevant owners. The majority of file sharing software transfers music files but has now expanded beyond that into digital content areas as well. Piracy not only affects copyright owners; essentially impedes business funding legitimate avenues of distribution. The biggest challenge businesses face with piracy is finding ways to control piracy while attempting to develop new revenues streams from digital distribution networks. Music Labels and other content providers have placed significant pressure on governments and ISP providers to help aid in the prevention of the use of illegal distribution of content. Some Film distributors have gone as far as suing Internet providers for their lack of intervention in use of illegal downloading. In the case of Film Company’s iiNet sued ‘for allowing piracy’. The Australian film and television industry has launched a major case against ISP provider iiNet for allowing infringement of copyright. Although the case is still under way the no known legal action has been started by Music Companies but seems to be the way large corporations are facing if governments do not start intervening.
The digital revolution happen significantly quickly while the infrastructure and legislation of rights lagged behind, leaving behind several issues that have yet to be properly addressed.
The unauthorised use of file sharing presents a significant challenge to copyright owners; although these programs allow for the music or product to have more mass appeal and spread more conveniently the transference of intellectual property is the equivalent of intellectual theft. The RIAA (Recording Industry Association of America) a trade group representing the Music Industry charged P2P groups enabling them to effectively steal and share music. Which has essentially have lead to the decline in CD sales. Such lawsuits saw the removal of Napster being available for the public to utilise. The interest of the music industry affects many stakeholders within the value chain, from artists to ISP providers who also seek to derive revenue from online music distribution.
LACK OF GOVERNING BODIES TO MONITOR BEHAVIOUR
To essentially survive, the market needs to create new business models and allowing for new solutions that adequately addresses the challenges that have been identified above. One such solution has seen increased pressure on government to enforce solutions that don’t stifle creativity but are able to maintain the effective copyright protection in the online environment is required. However this will be reflective of individual markets while the problem is seen to place global pressure.
LACK OF INTEROPERABILITY
One significant challenge for the Internet within the Music industry is with the increase of technology; the array of incompatible audio and DRM formats essentially could lock consumers into specific standards, which therefore could hinder the growth of the music industry i.e. songs purchased within the Apple iTunes Music Store can’t not be used on other devices which make this virtually impossible to share music with friends or resell the CDs if the customer tires of the song/product.
LOSS OF SOCIAL COMMUNITY
CD’s and albums have survived on the talk ability factor of the products. Customers often recommend songs to their friends and social networking sites to promote their favourites artists. The inability to share the hard copy of songs through DRM systems prevent the ability to provide friends a copy of the songs as the products downloaded are generally limited towards a number of computers. Having said this, although it breaches on issues of privacy the talk ability function of these products and therefore limit the ability to advertise their product to the core audience group.
CONCLUSION
The Internet has provided a new platform for distribution for both the physical product but new formats of music as well. The industry as a whole has significant increase and support on its products; key challenges highlighted tend to be on a larger scale where increasing government pressure to reform and fix piracy issues transcends not only just within the music industry but transcends across all aspects of digital content. It is important that ways are found to harness the technological capacity of innovations so that incentives for the creation and distribution of original works are not only maintained but also enhanced.