Digital Music Distribution

1. Path and milestones
from analogue to digital
music distribution
Miguel Rodrigues
BSc Music Informatics
Student Number: 11511645
Module: 2MUS414 – Anatomy of the Music Industry

2. Miguel Rodrigues Student Number: 11511645 Course: BSc Music Informatics
Digital Downloading is said to have been the major cause of the
difficulties currently facing the Record Industry. In this essay I will try
to trace the path of delivery from analogue to digital, highlighting and
explaining the significant milestones which have allowed digital
downloading to have made such a massive impact on the record
business and looking forward over the next few years, I will give my
opinion of what changes and the impact that digital music delivery
can have on the record music industry.
The role of the distributor is to get music from labels or artists to
sales outlets, be that in the traditional form of supplying high street
retailers (HMV or Virgin Mega store), other music outlets or
supermarkets with a physical product such as cassette, CD and vinyl,
or supplying digital files to various online outlets including iTunes,
Rhapsody, Napster, eMusic and the multitude of other digital stores.
Before the arrival of the internet, analog or the traditional
distribution channels were divided in four channels; record
manufacturer, record distributor, retail outlet and record clubs. Record
manufacturers (or we can say the major labels) control around 75%
of the music market, and as such, control the distribution of most of
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Path and milestones from analogue to digital music distribution

3. Miguel Rodrigues Student Number: 11511645 Course: BSc Music Informatics
the music available today. While the major labels distribute their own
products, record distributors also exist as small independent
companies who are paid by bands or independent labels to deliver
their products to retail outlets. Finally, record clubs offer CD, cassette
or vinyl at reduced prices, bypassing distribution and retail costs by
acquiring the products directly from record companies.
According to several studies, sales of physical format are
declining and being replaced by digital formats. A particular concern
for major labels is that album sales could suddenly drop dramatically
being replaced by song downloads (singles). However, the
independent sector is a congregating force. This means that
traditional record companies are signing fewer and fewer artists and
that the artist can sell their music immediately without the backing of
a record company.
The popularity of song downloading, expanding digital
catalogues and the rising demand for music videos are factors
contributing to the growth of the digital music market. According to In-
Stat, by 2011, online sales of digital music will represent 26% of all
music purchased worldwide. The internet is now an essential
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Path and milestones from analogue to digital music distribution

4. Miguel Rodrigues Student Number: 11511645 Course: BSc Music Informatics
distribution channel for digital music and online social networking
sites such as YouTube, MySpace, Facebook, hi5 and iLike will
develop as key drivers for music promotion. In the near future they
will substitute the traditional independent promoters such radio and
TV stations. Music downloaded to mobile phones is also an important
factor for the rise in digital music distribution.
The path of digital distribution it is much shorter and easier for
record labels, distributors/aggregators and consumers. The paths
are: Aggregators acquire the right to distribute music from different
sources, aggregators sell music via the World Wide Web and the
consumer acquires the music from the web.
Web technologies, electronic payment and the appearance of
new devices, such as the iPod, that play digital audio formats are
increasing in popularity and driving the demand for the MP3-
formatted music, creating new marketing forms and new promotion
channels such as podcasting and digital radio. It is not always
necessary to sell CDs and it is often more cost effective for the artist
and the consumer to go through a digital channel.
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Path and milestones from analogue to digital music distribution

5. Miguel Rodrigues Student Number: 11511645 Course: BSc Music Informatics
Major online retailers are finally making music available without
copy protection, meaning that consumers will fully enjoy the ease of
use made possible by digital technology.
According to IFPI, in 2007, the demand for music continues to
grow. In the US the unit sales (including online downloads and
physical sales) totaled 1.37 billion, an increase of 14.7% in
comparison with 2006. The unit sales of CDs fell to 449.2m, which
represents a fall of 19%. On the other hand, digital albums and single
tracks sales rose 50m, up to 54% (10% of the album sales in the US)
and 844.1m, up to 45%, respectively.
In the UK, the BPI 2007 retail sales figures show a growth of
29.3% on single sales and that the albums sales dropped by 10.8%.
Globally, the digital music market continues rising. Broadband
lines growth 34% in 2006, the song catalogue online rose by 100%,
single tracks downloaded had a growth of 89%, subscription service
users, mobile subscriptions and 3G mobile subscriptions rose by
25%, 11% and 52%, respectively. Finally, portable player sales had a
growth of 43% (comparison between 2005 and 2006).
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Path and milestones from analogue to digital music distribution

6. Miguel Rodrigues Student Number: 11511645 Course: BSc Music Informatics
The value to consumers is massive now that consumers have
the ability to choose singles, they can spend a lot less to get the
music they want and they have been liberated from the domination of
the album because they no longer have to buy 10 or 12 songs to get
the one or two they want. There are more than four million tracks
available online.
A big milestone is the introduction of download sales into the
charts. This is another positive step in leveling the playing field
between small independent artists and established acts.
Another important mark on the download sales is the use of
mobile phones as portable music devices – the move from ringtones
to real music. Mobile music is becoming an important revenue stream
for record companies, already accounting for almost half of digital
music revenues.
Digital music distribution creates new marketing opportunities
and gives the opportunity for the emerging new labels (digital-only
labels).
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Path and milestones from analogue to digital music distribution

7. Miguel Rodrigues Student Number: 11511645 Course: BSc Music Informatics
New digital distribution channels such as podcasting and digital
radio (key licensing issues need to be resolved for these new
channels to reach their market potential)
The vast majority of artists would appear to be benefiting as
well from digital distribution. It would appear that many more artists
are selling singles than are produced by the established members of
the recording industry and the star system of physical album sales did
not afford the majority of artists the ability to sell directly to the public
as digital distribution does.
The traditional value chain treats information as a supporting
element of the value-adding process (recording, reproduction,
packaging, promotion, marketing and distribution activities), not as a
source of value.
A virtual value chain exists when value-adding steps are
performed through and with information. For digital music distribution
there is no longer a physical product to manufacture. Instead the
product itself is information. Companies that create value with digital
assets may be able to regenerate income with an infinite number of
transactions because a song is recorded once, but in a digital format
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Path and milestones from analogue to digital music distribution

8. Miguel Rodrigues Student Number: 11511645 Course: BSc Music Informatics
it can be replicated and distributed an infinite number of times with
low costs. With the changes come new opportunities for artists to
bypass production of physical CDs and avoid royalty contracts that
depend on recouping production costs. Meanwhile, record labels and
production companies lose their shares but this changing on the
structure of the value chain can have major impacts on the
distribution of profits within the industry.
Internet demographics of young, educated and well-off
customers are suited to music purchases because there are low
consumer and seller risks due to relatively low product costs. The
digital music market is a newly vulnerable market: easy to enter,
attractive to attack and difficult to defend. The vulnerability of record
labels is forcing them to adopt new strategies to maintain profit levels.
The record labels can provide promotional and production
management services, offer piracy prevention and copyright
protection, or they can attack online channels to lock out independent
distribution.
With internet distribution and music piracy, digital music
retailers can add new values through marketing, promotions,
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Path and milestones from analogue to digital music distribution

9. Miguel Rodrigues Student Number: 11511645 Course: BSc Music Informatics
copyrighting and licensing, as well as an enforcement of intellectual
property rights and piracy prevention. There will be new incentives as
the roles of the players in the value chain shift and it is likely to be
affected by issues related to intellectual property rights.
For the future, the music business needs more support for
Digital Rights Management (DRM), which is the key enabler of digital
music services allowing new and flexible uses by the consumers.
Digital Rights Management is an essential tool, helping to increase
consumer choice while protecting the works of music creators from
unauthorized distribution and unfair use. The biggest challenge with
DRM technologies is to make them operate smoothly enough so that
they are largely invisible to consumers, as this remains a very
significant problem in the current digital music market.
The ultimate structure of the music market is in flux, but these
milestones indicate that the music industry is moving in a consumer
and artist friendly direction. It remains to be seen how far distribution
spreads within the music sector.
To support my idea about digital distribution I have included
some quotes about digital visions of some industry leaders:
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Path and milestones from analogue to digital music distribution

10. Miguel Rodrigues Student Number: 11511645 Course: BSc Music Informatics
"The expansion in digital music is providing us with more and
more new ways to add value for consumers, artists and an ever-
growing circle of business partners and brands. Now we - the music
industry, retailers and technology companies - must work together to
maximise this unique opportunity." Alain Levy, Chairman and CEO,
EMI Music.
"The proliferation of digital music platforms means that
consumers can now, more than ever, enjoy music virtually anytime,
anywhere. The digital music revolution is also contributing to the
transformation of Warner Music Group from a traditional record and
songs-based company into a diverse, music-based content company
capable of delivering not only songs and records, but ringtones,
master ringtones, music video downloads, album art, lyrics and other
content across an ever increasing array of distribution channels,
digital devices and music services. Warner Music Group will continue
to make digital music and new media a core part of the company's
global mission." Alex Zubillaga, Executive vice President, Digital
Strategy and Business Development, Warner Music Group.
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11. Miguel Rodrigues Student Number: 11511645 Course: BSc Music Informatics
References
• IFPI: 07 – Digital music report. Available at
http://www.ifpi.org/content/library/digital-music-report-2007.pdf
• IFPI, Music Market Data 2007. Available at
http://www.ifpi.org/content/library/MUSIC-MARKET-DATA-
2007.pdf
• Chiariglione, L ,The Digital Media Manifesto, Use case no. 05:
Music distribution. Available at
http://www.chiariglione.org/contrib/2003/030810chiariglione01.h
tm
• Bockstedt, J., Kauffman, R., Riggins, F (2004), THE MOVE TO
ARTISTS-LED ONLINE MUSIC DISTRIBUTION: EXPLAINING
STRUCTURAL CHANGES IN THE DIGITAL MUSIC MARKET.
Available at
http://misrc.umn.edu/workingpapers/fullpapers/2004/0422_0912
04.pdf
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