Abstract
In recent years, technology, innovation, competition, corporate policies, and government regulation have caused dramatic changes in the music industry. These changes have resulted in new global music business models. In particular, digital technology reshaped the way music is created, licensed, distributed, sold, and consumed. Music consumption is the many ways that people “experience” music by listening, watching, streaming, and downloading of musical compositions. Digital technologies have made the worldwide distribution of music, books, film, newspapers, and magazines much easier and cheaper, while significantly lowering the operating costs in those industries. The music industry has been the fastest to adopt and monetize digital formats. As Table 1.1 shows, close to 60 % of recorded music revenue—when revenue from some performing rights organizations, touring and merchandising are excluded—is now derived from digitally distributed formats—such as downloads, streaming and ringtones—while it is less than 25 % in films, books, newspapers, and magazines, but growing year over year. The music industry is now adjusting to these changes in digital technology by focusing on maximizing copyright revenue from existing music content (music publisher catalogs) and future content creation using a more efficient distribution system or supply chain.
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Notes
- 1.
The term “distribution” as used in this monograph can have three different meanings depending on the context. First, a distribution can mean the quarterly royalty payments made by PROs to songwriters, composers, and music publishers. A second use can be a statistical distribution. Finally, the use of term can mean the physical or digital delivery of a product or service over a network.
- 2.
Some of these defunct record retailers have a small online operation. It was not just the digital shift that destroyed stand-alone record retailers, but also stiff price competition among big-box chains like Walmart, Target, and Best Buy that sold goods other than music that could subsidize the music discounts. The same can be said about PROs with infrastructure (and the associated sunk costs) in multiple states where doing more of what was once considered efficient makes little sense in the new digital environment.
- 3.
Google Play, eMusic, and Amazon MP3 are some of the other digital retailers of music.
- 4.
See Verrier (2014) and Ulin (2014). It is not just music that is digitally distributed, but movies as well. Paramount Pictures became the first major Hollywood movie studios to distribute movies entirely in a digital format—without the use of 35 mm film or film reels on which the industry depended on for over a century.
- 5.
See these important early court cases on peer-to-peer file sharing in: Langenderfer and Cook (2001). See also Ulin (2014, pp. 76–90) for his analysis of the seminal Grokster case and the novel copyright issues that were raised, just as Apple’s economic model was beginning to dominate the music industry. MGM vs. Grokster, US Court of Appeals for the Ninth Circuit, Case No. 04-480, argued March 29, 2005 and decided June 27, 2005.
- 6.
It is often the case of semantics when PROs are described. Academics view the PROs as monopolists—with the usual textbook examples—while the public tends to view the incumbent PROs as a cartel—with a sinister implication—whose intent is to restrict competition, raise prices, and erect regulatory barriers.
- 7.
See DiLorenzo (1996).
- 8.
See AdReaction: Marketing in a Multiscreen World by the consulting firm Millward Brown and available here: http://www.millwardbrown.com/AdReaction/2014.
- 9.
See Wixen (2014, p. 107).
- 10.
See Copyright Royalty Board (2012).
- 11.
- 12.
See DiCola (2013) for his survey results on musician’s self-reported income.
- 13.
See SESAC Buys the Harry Fox Agency, Billboard Magazine, July 7, 2015, https://www.billboard.com/articles/news/6620210/sesac-buys-the-harry-fox-agency.
- 14.
One of the major threats to live touring appears to be the practice of vocal performers miming or lip-syncing—the use of pre-recorded vocals in a live concert without the knowledge of the audience. It has been claimed that unlike previous generations of “real” singers who mastered the art of singing, today’s generation often relies on Auto-Tune and other digital voice-enhancing technologies that are capable of transforming mediocre singers into perfectly in-tune vocalists in the studio, and increasingly the technology is now being shifted from the studio to live concerts. It has been reported that the standard of perfection created by the widespread use of Auto-Tune software in a recording studio is almost impossible to hit in reality, even for some artists with great vocals. See Miming Will Be The Death of Live Music Performance, The Telegraph, January 23, 2013, http://www.telegraph.co.uk/culture/music/rockandpopmusic/9821284/Miming-will-be-the-death-of-live-music-performance.html and Britney Spears is a pop queen. And pop queens don’t need to sing, Vox, July 11, 2014, http://www.vox.com/2014/7/11/5888535/britney-spears-without-autotune-horrible.
- 15.
- 16.
See Artists weigh in on music streaming services: https://news.yahoo.com/artists-weigh-music-streaming-services-174801043.html that appeared November 24, 2014.
- 17.
The compensation for the company executives would be an entirely different matter and can probably be found in SEC quarterly filings for public companies.
- 18.
See Taylor Strikes a Chord, Time Magazine, November 24, 2014, pp. 42–48.
- 19.
See Why Streaming (Done Right) Will Save the Music Business, Billboard Magazine, November 29, 2014, p. 15.
- 20.
See the section, Web Music’s Bleak History for a list of defunct music services that included Napster (bought by Rhapsody) and Sony Connect in the following article: Eclipsed by Rivals, Rhapsody Reduces Staff and Ousts Key Managers, The Verge, September 16, 2013 that is available here: http://www.theverge.com/2013/9/16/4735512/eclipsed-by-rivals-rhapsody-reduces-staff-and-ousts-key-managers.
- 21.
See YouTube Launches Music Subscription Service, Financial Times, November 12, 2014, http://www.ft.com/cms/s/0/4c26b2d0-6a78-11e4-bfb4-00144feabdc0.html#axzz3L836mpOE.
- 22.
- 23.
See also Christman (2014), Blacc (2014), and Sisario (2014a,b).
Billboard 200 Makeover: Album Chart to Incorporate Streams & Track Sales: http://www.billboard.com/articles/columns/chart-beat/6320099/billboard-200-makeover-streams-digital-tracks, November 19, 2014.
- 24.
See Peoples (2014).
- 25.
See Dredge (2014).
- 26.
See Sisario (2014c).
- 27.
See Sisario (2014b).
- 28.
See The 5 Biggest Online Privacy Threats of 2013, PC World, April 8, 2013, http://www.pcworld.com/article/2031908/the-5-biggest-online-privacy-threats-of-2013.html.
- 29.
The millions in annual lobbying expenditures spent by media companies can be found here: https://www.opensecrets.org.
- 30.
- 31.
Most the author’s comments concern the old AT&T Consumer Services unless stated otherwise.
- 32.
See also Alchian and Demsetz (1996), Cairncross (1997).
- 33.
IBM was another company that faced a lengthly 13-year long antitrust lawsuit for their practice of bundling software and services with hardware. The lawsuit was eventually dropped in 1982. Microsoft faced a similar lawsuit for bundling their Internet browser with their operating system.
- 34.
AT&T’s advertising campaigns in the 1980s did feature a “reach out and touch someone” tag-line though it was meant for customers do so by calling the person.
- 35.
The word “analog” was probably chosen to reinforce AT&T’s mindset of an analog world of technology.
- 36.
See Stout (2012) for her critique of shareholder value.
- 37.
Share buybacks is discussed here because it was once suggested by an outside counsel to a PRO that one of the new business models for PROs could include a share flotation program to the public. Whether songwriters and composers would be wiling to place their royalties at risk in a stock market and Wall Street speculators is an entirely different matter.
See ZIRP and QE: Central Bankers’ Narcotics of Choice, http://www.economonitor.com/blog/2012/11/zirp-and-qe-central-bankers-narcotics-of-choice.
Apple Expands Capital Return Program to $200 Billion, https://www.apple.com/pr/library/2015/04/27Apple-Expands-Capital-Return-Program-to-200-Billion.html.
About 70 % of the $200 billion was allocated for share buy backs and the rest for dividends.
- 38.
See The Internet and the PSTN: Disparities, Differences, and Distinctions, Internet Society, http://www.internetsociety.org/sites/default/files/The%20Internet%20and%20the%20Public%20Switched%20Telephone%20Network.pdf.
- 39.
See The Verge Interview: Marty Cooper, father of the cellphone, https://www.theverge.com/2012/2/20/2811861/marty-cooper-interview.
- 40.
- 41.
See Cassidy (2002).
- 42.
See Doug Pitt’s article, What Really Happened to Lucent Technologies?, http://usphoenix.net/science,%20technology/what_reallyhappened_to_lucent_t.htm (no relation to the author) and Lessons from the Lucent Debacle Think Twice About What You Promise Wall Street. And Don’t Send a Lumbering Old Company to do a Startup’s Job, http://archive.fortune.com/magazines/fortune/fortune_archive/2001/02/05/296152/index.htm.
- 43.
See CenturyTel Gambles on Qwest Merger, Wall Street Journal, April 23, 2010 and accessed online: http://www.wsj.com/articles/SB10001424052748703876404575200042559183812.
- 44.
See Dish Network in Merger Talks With T-Mobile. Wall Street Journal, June 4, 2015, http://www.wsj.com/articles/dish-network-in-merger-talks-with-t-mobile-us-1433383285.
- 45.
- 46.
See Can you ditch your smart phone data plan for Wi-Fi?, http://www.cnet.com/news/can-you-ditch-your-smartphone-data-plan-for-wi-fi/.
- 47.
Selected data from How Much Do Average Apps Make?, http://www.forbes.com/sites/tristanlouis/2013/08/10/how-much-do-average-apps-make;
Planet Android’s Shaky Orbit, New York Times, May 28, 2015, p. B1; and
Tech Giants Make Move in Mobile Payments, New York Times, May 28, 2015, p. B1.
- 48.
See Christensen (1997) and Lepore (2014). The Innovator’s Dilemma occurs when new (disruptive) technologies displace the incumbent competitors in an industry. In an ironic twist to history, BMI was formed in 1939 by radio executives to weaken ASCAP’s stranglehold on performance royalty licensing by providing radio stations with non-ASCAP songs. Now both agencies have erected barriers to prevent new entrants from entering the music licensing business.
- 49.
See Wixen (2014, p. 51); SESAC Buys the Harry Fox Agency, Billboard Magazine, July 7, 2015, https://www.billboard.com/articles/news/6620210/sesac-buys-the-harry-fox-agency.
- 50.
See Schumpeter (1939). This happens all the time in American business and it is also often described as Schumpeter’s Creative Destruction. In other words, old business models, structures, companies, processes, markets, and jobs are destroyed as new ones are created with the introduction of new technologies.
- 51.
See http://www.youtubelicenseoffer.com for additional details. As this manuscript went to press, it was reported that SESAC had agreed to purchase Harry Fox for an estimated price of slightly more than $20 million in a deal that has to be ratified by the members of the National Music Publishers’ Association (NMPA), a trade group that has long owned HFA. See SESAC Buys the Harry Fox Agency, Billboard Magazine, July 7, 2015, https://www.billboard.com/articles/news/6620210/sesac-buys-the-harry-fox-agency; Music Rights Group Is Buying Harry Fox Agency, New York Times, July 7, 2015, http://www.nytimes.com/2015/07/08/business/media/music-rights-group-is-buying-harry-fox-agency.html?_r=0.
- 52.
See Wixen (2014, p. 60).
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Pitt, I.L. (2015). Introduction. In: Direct Licensing and the Music Industry. Springer, Cham. https://doi.org/10.1007/978-3-319-17653-6_1
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