DIGITAL DISTRIBUTION AND THE
MUSIC INDUSTRY IN 2001
Year s events
1900 Edison’s cylinder begins to decline in
1910 Electrical recording was in expt stage.
1920 Record sales were significantly
depressed by the growing popularity
of the ratio.
1930 The Gramophone Co. and the
Columbia Graphophone Co. combined
to form Electrical and Musical
1940 RCA Victor Presented the first ever
“Gold Disc” to Glenn Miller for the
million selling ‘ Chattanooga Choo-
1980 The Walkman II was introduced
1990 Philips introduces its Compact Disc Interactive(CD-I)
that could play audio discs and films as well as
1950 Cinerama presented multi sound track replay to the
public for the first time.
1960 Stereo replaces mono as the recording mode.
1970` Quadraphonic records appeared on the market but
public reaction was unenthusiastic.
• Napster-connect to a sub-network which allowed
them to share files they each stored on their
• In 2001 ,US government banned as it is against
intellectual property right.
Fall of Napster, Rise of True P2P
• In March 2001, a US court ordered Napster to block
the sharing of all copyrighted songs.
• The number of people using Napster went from a
high of 15 million to 12 million in 2001.
• In true P2P technology, where no central file server
• P2P networks allowing consumers to distribute
music to each other without paying fees to retailers,
or royalties to producers or artists
The most likely paths
• Scenario 1: On-Line Selling Becomes the Standard
• Scenario 2: P2P Systems Succeed in Capturing
• Scenario 3: Future Technology Makes Individual
Music Purchases Obsolete
• Scenario 4: The Internet Redefines the Nature of
Implications for the Strategy of
the Key Players
• Strategic Option 1: Do nothing.
– The illegal distribution of free music amongst
younger trend-setters, as with software, could
become a key means of marketing it,
• Strategic Option 2:
– Attempt to develop a competing on-line music
service to the free P2P systems,
– Provides a more complete catalog of music at a
discounted rate, with benefits that only a fully legal
system could provide,
• Napster’s claim (supporting Scenario 1) is that they
believe their system merely helps to sell more records.
• Current data suggest that this is not correct but this
should be tracked, by closely monitoring key indicators
– Number of downloads from free services
– Sales of CDs to key demographics
• Some leading indicators which may help predict the
– Sales of MP3 players
– % of the population that has broadband internet access
– % of the population that believes there’s nothing wrong with
downloading music illegally
– Number of users of popular file sharing systems
• All four Scenarios presented suggest that there will be significant
erosion of legal sales of music.
– Roughly 20 CDs downloaded for free in every US household,
compared with only 10 CDs purchased.
• P2P systems mean greater mass appeal for artists than ever before.
• It seems clear is that there is no first mover advantage in a market.
• The best strategy in the short term may be simply to press on with
• law suits against software developers – including P2P software
• continue pilot projects to see exactly how consumers do react to
convenient, commercial subscription based systems.