Digital distribution music services and the demise of the traditional music industry: three case studies on mp3.com, Napster and Kazaa

Field: Business, Management and Accounting (Social Sciences)

The Internet has changed the traditional supply chain of the music industry. The shrinking of music into the Moving Picture Experts Group Audio layer 3 de-facto standard has resulted in the global sharing of digital music online. This type of sharing potentially causes the disintermediation of record companies and retailers from the traditional supply chain and allows artists and consumers to be directly connected through websites and peer-to-peer technology. As a result, stakeholders are currently uncertain of their role in the emerging music-on-demand model of purchase. This research project examines the relationship between digital music distribution services and its role in the destruction of the music industry. The aim of this research project is to assess the role of digital music distribution services in the downturn and restructuring of the music industry. Furthermore, research will explore the interplay between technical, social, legal and economic dimensions with the purpose of understanding how the traditional supply chain has changed. Due to the exploratory nature of this thesis, the multiple case study methodology will be employed, with case studies completed on MP3.com, Napster and Kazaa. Multiple sources of evidence will be used to collect data for the multiple cases, including documentation review and interviews. Interviews will be used to gather the opinions of the various stakeholders of the music industry on the issues to be covered as part of this thesis. The results of the case studies demonstrated that the creation of digital music distribution services initially resulted in the disintermediation of record companies and retailers. The record companies reacted by trying to close and takeover each of the three online music sharing services. This proved unsuccessful, and initiated the product life cycle trend, where digital music distribution services are continually evolving to avoid the threat of legal action. Eventually the record companies and retailers have established themselves online, causing reintermediation through the introduction of a pay-per-download (PPD) and subscription payment system. Of the dimensions covered it was found that technology will always outpace law and thus impact on social behaviors and attitudes. The principal conclusion of this thesis is that digital music distribution services will not lead to the demise of the music industry as evidence from the three cases suggested that the online music industry is growing and that consumers have simply shifted their spending rather than stopped purchasing altogether. Furthermore, the three cases of MP3.com, Napster and Kazaa reveal how technology can shape society and identity the underlying desire of the record companies to control the supply and demand of music by resisting change. Recommendations for future research include quantitative research into the success of online business models, the establishment of an integrated digital rights management system and an investigation of the possibility of technological advancements for the creation of a converged MP3 device.