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”.
