Impact of New Technologies and Globalization on the Music Industry Essay
- Length: 10 pages
- Sources: 3
- Subject: Music
- Type: Essay
- Paper: #91420643
Excerpt from Essay :
New Technologies and Globalisation on the Music Industry
The global music industry today is going through a series of disruptive innovations that are changing business models in the short-term and value chains over the long-term. The pervasive influence of the Internet, mobile and streaming technologies, and the shift from CD-based music to digital and online music also signals how quickly the global value chain of the music industry is changing today. Of these many disruptive innovations, the most significant is the shift from individual record labels and their relatively un-integrated approach to delivering digital music to the pervasive platforms that include Apple iTunes
(Hopkins, 2011). With the number of legitimate online sources for music growing from 60 in 2005 to more than 400 in 2010 the role of the platform as consolidator in this global industry is clear (Hopkins, 2011). Of the many types and forms of global music distribution, online music is forecasted to grow at a 31% compound annual growth rate (CAGR), increasing from $5.9B in 2010 TO $7.7B in 2015 (Apple Investor Relations, 2012). Apple's internal research shows that online music subscription services will also experience very rapid growth, with one of the most well-known being Spotify, which is predicted to grow five-fold between 2010 to 2015. The Recording Industry of America (RIAA) estimates that 47% of global music industry can be attributed digital music downloads and subscription services (Apple Investor Relations, 2012). Contributing to these exceptional levels of growth are the impacts of globalization, technologies that are making online digital music sharing highly price effective and reliable, and greater clarity in the area of copyright and licensing. The global impact of piracy and free source software is also having a very significant impact on the global profitability of the music industry (Preston, Rogers, 2011). These constraints will be assessed and analyzed throughout this report.
The Impact of Technology on Online-Based Business Models & Globalization
The most powerful catalyst that is revolutionizing the music industry today is the series of disruptive innovations in business models and the global value chain brought about by the convergence of Internet-based technologies, digital content encryption and more advanced forms of Digital Rights Management (Apple Investor Relations, 2012) (Lee, Jaimie, Kim, Kim, Moon, 2011). The three dominant business models emerging in 2012 that show the greatest potential of This forecast will look at revenue generated from online music across three dominant business models out of many that have emerged over the last three years. The convergence of these factors of ubiquitous Internet access via smartphones and tablet devices, more effective compression algorithms and greater configurability of DRM solutions are making subscription services, download services and personalization services flourish today with strong growth projected for the future (Apple Investor Relations, 2012). Of these three dominant business models of the literally dozens that have emerged over the last thirty six months, subscription services, download services and personalization services have the highest probability of significantly influencing the global music industry through 2015, generating significant revenue opportunities for content providers, internet service providers and artists (Apple Investor Relations, 2012). A subscription service is a music service accessible from any device that can support streaming of music tracks that are purchased or rented by the devices owner. Example of this type of business model are those early legal file sharing services that are often defined by their specific definition of security to the IP address level (Preston, Rogers, 2011). The second type of service is based on the Apple iTunes business model, which has served as the catalyst of Microsoft, Nokia and many other attempting to imitate the success of the most successful ecosystem in music today (Apple Investor Relations, 2012) (Pikas, Pikas, Lymburner, 2011). Download services from Amazon are the closest competitor to Apple with their breadth and depth of music catalog. This type of business model seeks to capitalize on the many advances made in digital rights management (DRM) and monetize them. Figure 1 shows the Apple iTunes ecosystem which according to the company's latest financial results, is responsible, either directly or indirectly, for nearly 30% of total Apple profits in FY 2010 (Apple Investor Relations, 2012).
Figure 1: Apple Product and Services Platform, iTunes
Source: (Apple Investor Relations, 2012)
Apple has been silent on how they plan to use their iTunes ecosystem from a social media standpoint, yet it is clear there are some exceptionally strong dynamics globally occurring with this ecosystem (Lee, Jaimie, Kim, Kim, Moon, 2011). It is now so pervasive that musicians say to check iTunes for their music while in concert, even more than mentioning they have an album out in stores. The immediacy and exceptional customer experience that occurs from being able to download tracks or even entire albums immediately, and have the songs on an iPhone, iPod, iPad or iTouch within seconds has forced traditional CD sales into a relatively quick free-fall in the U.S. And throughput Europe. The RIAA is reporting that CD sales globally are down 10% from 2010 to 2011 with the pace quickening during the last quarter of last year at a rapid pace due to the growth of ecosystems modeled on the iTunes model (Hopkins, 2011). The subscription service is now the new platform in music, and will eventually overtake adjacent markets incouding digital video entertainment. Download services are also completely re-ordering the economics of the global music industry, with very low prices per song and higher costs for the devices. This model has been designed to also support a much faster level of adoption and transition away from the more inflexible CD and tape format to support digital music that can be quickly transferred from one licensed device to another. Nowhere else in the music industry however has the shift of pricing elasticity and its ramifications been so immediate and impactful than in the context of the subscription model in general and the Apple iTunes ecosystems specifically (Spotts, 2010). As the price elasticity of songs has dropped very fast quickly, differentiation for artists is now in the frequency of production, the relative differentiation of their performances, and the innate creativity of their songs and music arranging (Preston, Rogers, 2011). The recording industry fears the economics of subscription models due to these factors, yet in reality these dynamics are highly effective in creating a greater customer experience for those purchasing songs and listening to them on their devices and PCs (Lee, Jaimie, Kim, Kim, Moon, 2011). The greater levels of competition are what the most established music labels fear about the iTunes ecosystem while this model and others comparable to it favor emerging artists who may not have had the chance otherwise to get their songs sold on such a pervasive platform (Apple Investor Relations, 2012). Apple, forever the nonconformist when it comes to defining business models that create disruption, sees the iTunes model As very egalitarian for the small, emerging independent artists (Apple Investor Relations, 2012). Throughout Apple's overview of DRM patents shared with record labels who have their digital content on iTunes and the RIAA, which acts as an oversight body on all licensing practices in the industry, there is example after example of how this very egalitarian-oriented approach to sharing access to iTunes has helped new artists find an audience and continue to create (Apple Investor Relations, 2012).
Another dominant business model that is revolutionizing global music today are personalization services. These are the services that offer digital content subscriptions which can be used for quickly customizing any mobile device, from a cell or smartphone to a tablet PC or full laptop PC. The primary channels of distribution for these services are the telecommunications providers incouding AT&T, Sprint and others. In addition many company cell phone provides offer these options including Boost Mobile and Virgin Mobile, two companies which significant subscriber bases in the prepaid marketplace. Typically companies with these business models of prepaid services look to personalization services as a significant part of their total gross margin adn profitability as the phones themselves are priced extremely low, often right on top of the demand curve for their specific industries. These prepaid phone companies including Boost Mobile and Virgin Mobile readily realize the markets they compete in are inherently inelastic. Despite this major limitation to the economics of this segment of the music industry, these prepaid companies are attempting to turn their very low-cost phones into platform as Apple has done with the iPhone, iPad and iPod Series of products (Hopkins, 2011). As can be seen from Table 1, Online Music End-User Spending by Type of Service, Worldwide, 2008 -- 2015, personalization services will eventually reach a saturation point in the 2013 timeframe and the market will begin to shrink. Download Services predicated on the iTunes ecosystem will flourish based on the latest forecasts of these markets from Gartner, and published in Apple's filings with the Securities and Exchange Commission.
Online Music End-User Spending by Type of Service, Worldwide, 2008-2015 (Millions of Dollars)
Taken together these…