Nowadays, while the physical discs market of music industry declines, more and more trends indicate that the music industry is replaced by digital commerce. Most of people, including me at first, assert the decline is due to the large file sharing on Internet initially. But after reading the research done by Felix Oberholzer-Gee and Stephen J. Dubner about the relationship between file sharing and decline of records sales[1], I sort of changing my mind. According to the assumption that if file sharing hurts record sales, then albums that are more heavily downloaded should experience lower sales than comparable albums that are less downloaded. But, after controlling for the role of popularity, they found that downloads had little effect on album sales. The reduction is leaded by many other causes. For example, the industry has failed to find genres that capture the interests of consumers and it has had trouble competing against other products that vie for consumers’ entertainment spending, such as cell phones and video games. Based on this founding, it reveals that digital commerce is not a fatal threat to current music industry but the future of it.
Firstly, the digital commerce brings much convenience to the consumers. Take MP3 for instance, it can provide high-quality sound while requiring dramatically smaller file sizes than any previous formats. And the portable device enables users download music and listen music anywhere and anytime.
Secondly, it changes the traditional value curve and the way to deliver the music. (See Graph01&02) There are not distributers and retailers between musician and listeners which shorten the time as well as the cost of logistics. Instead, the record companies only need to build an accessible platform online to sale the music to customers. I think Apple is the model of future form of music industry. It builds a strong relationship with record companies through its software iTunes and sets a price standard on the market, which is 99 cents for any track. More importantly, music purchased from iTunes could only be played on the iPod and users can copy the song to share with friends for only 5 times. In this way, Apple prohibits pirates efficiently in the physical discs market and protects record companies’ licenses, which means no more free-download music on Internet.
Last but not least, it creates a new market space. By saying new market space, I mean the niche market. Comparing to the traditional music formats, such as tape cassettes or CD, they much depend on producing “HIT” to sell the products and after 1 or 2 years, they stop producing the physical dics so that the music lying on it stops as well. But in the future, the cycle of one song may last decades. We may employ the “Long tail” theory to explain the advantages (see Graph03). The revenue of several local songs may be the same or even higher than one “HIT”.
2 comments:
First of all, the study made by Felix Oberholzer-Gee and Koleman Strumpf is interesting. I am not sure that I think that the assumption that albums that are more heavily downloaded should experience lower sales than comparable albums that are less downloaded is the right assumption to make. There must be a reason why the comparable albums are not downloaded. When you think about your own situation, have you brought a CD the last five years? I am sorry, but even if the study was done at Harvard Business School, I am not sure that I agree. As far as I know there are other studies made from Harvard that says when people get things “for free” the demand for the same good to a higher price will decrease. For me it is obvious why the albums do not sell any more. First of all, it is the physical from that takes up space we don’t have now that it is possible to have mp3 instead, second it is the illegal downloading. To come up with explanations like “the industry has failed to find genres that capture the interests of consumers” makes this debate quite silly. If the industry does not produce the music people want, why do people download the music? The music downloaded is not mainly new artists no one has heard about, it is the music that the record companies have advertised.
Before I read the essay written by Zhang Xiaofan, I also thought that the quick development of the Internet including the platform of Peer-to-Peer file sharing caused the decrease of records sales directly. But according to the research done by Felix Oberholzer-Gee and Stephen J. Dubner about the relationship between file sharing and decline of records sales, they conclude that the reduction is leaded by many other causes. So I start thinking about other factors which may affect the records sales, except the file sharing through the Internet. Because of the reduction of records sales, record companies want to find more and better ways to earn money from their consumers. They already slowly react, and they need to face the problems, but not try to illegalize the new technology, such as Peer-to-Peer software, and then look for a new business model to solve the problems. For example, Apple uses the iTunes service to promote its iPod device, and it succeeds. Maybe the iTunes service is not so profitable, but it can attract consumers to buy and use iPod. Nowadays, some record companies try to make use of the Internet to promote their new records and also provide old records to niche market. In order to realize that, they just need to create a music library based upon their resources which they already have, and then to offer consumers the service to download music with subscription or listen to the music online for free. And they also can use the Internet to test the new records, and attract more audience to listen or buy. Meanwhile, records companies can hold the concert for their megastars to increase their profits.
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