Sample Business Paper: Online Music Economy



Sample Business Research Paper: Online Music Economy 

Online Music Economy






Online Music Economy


The late 1990’s saw significant economic stability changes in the online music industry with the advent of P2P file sharing. P2P file sharing contributed to a long tail, where music industry players sold volumes of music with relatively small quantities sold for each as a retailing strategy. The long tail theory opened up economic opportunities for autonomous record labels around the globe, hence making it a yardstick in the music sector for new economic concepts. Over the years, the online music industry has undergone a massive transformation with new technologies and innovations taking the center stage. With the advance in new technologies such as social media networks and streaming services, online music businesses and artist are able to achieve commercial and financial success. A transformation in technologies over the years is clear evidence 2017 promises an optimistic future for ‘new music’ discovery and exploitation in the music industry.


Economic and Cultural trend Shaping Online Music Industry

Technology innovation in the music industry began shaping in the 1980s when digital music formats were introduced. This progression broke the traditional and rigid infrastructure widely used in the recording industry progressively. Anderton, Dubber & James (2013) illustrates that this advancement reduced production costs when new technologies allowed individual musicians to own recording pieces of equipment in the 90s.Anderton, Dubber & James (2013) posits that collaboration between leading music companies, Sony and Philips introduced a Compact Disk (CD) and in 1981, the technology surpassed selling of records in less than a decade possibly a symbol for music industry transformation. It thus was widely used as a new digital recording format. Recording music on a CD was effective and efficient for recording houses compared to other changes that would come into place later. The downside of digital formats was piracy. Piracy made it possible for digital formats to be replicated infinite times without losing fidelity. This made the copies replicated a perfect substitute for the originals. In mid 1990s internet usage had significantly grown and personal computers were finding their place in more homes.


Anderton, Dubber & James (2013) point out that a new format called MP3 took the music industry by a storm. The technology compressed audio files that would easily be transferable over the internet. The increased use of the internet and development of new digital formats was a technological breakthrough that prompted innovation in online music business (Christensen, 1997). At close end of the twentieth century, broadband capacity had gained significant growth leading to reduced prices from Internet providers while increasing users. This was a major factor because it allowed files to be easily transferred over the internet.


The growth of online-based music business in the turn of the millennium became a reality with Peer-to-Peer (P2P) file sharing technology pioneered by Napster.Napster was a successful business case for music distribution online. The business rendered music online for the audience to listen and share. McCourt & Burkart (2003) says that the company was of the view that when a person pays for a given album or a song, he/she possessed ownership rights to "share”. This was the case during the pre-internet period. The tradition of sharing was widely used. People shared video cassettes with no attention of copyright infringement.While copying is a fair use for non-commercial purposes, in the digital era, the climate has changed because of infinite volumes of copies can be replicated.


Knopper (2010) explains that in the 1990’s business related to the distribution of digital music failed to establish a fitting business model. This was because some were not compliant with the Digital Millennium Copyright Act, DMCA. Other services such as subscription distribution survived but had no widespread usage. Similarly, consumers were used to purchasing music than renting. Security of the internet was also a hindrance. It only guaranteed few songs to be selected; hence, it was not easy to justify a person’s subscription fee (Knopper, 2010). Apple was a business that significantly altered the legal framework for digital distribution of music. The business adopted by Apple used purchasing as a strategy, unlike other online companies that were synonymous with the subscription.


The Apple music, popularly known as iTunes store established in 2003 allowed Mac users to purchase albums and songs without any subscription. The loose digital rights management the business owned allowed a customer to sample thirty seconds of each song, play it on iPod and five times on Apple Pc without limits. Apple was able to penetrate the online music industry because it had MP3 in iTunes. It had also incorporated it in its computer package.Other factors include its experience in consumer-based design to align with its online store requirements. This factor was important because the company could reach all levels of consumers and age groups. Today, Apple’s iTunes music has grown steadily. In 2010, the company had sold over a billion songs making it a top music retailer worldwide. With over twelve million songs in 2010, Apple was the world largest collector of music (Knopper, 2010).


Online music industries have also faced issues ranging from legislations, ethics, and technology and political among others.While these challenges were seen as a major obstacle for realizing thriving online music business, they have driven music business players’ coin effective strategies to maintain their online presence. In the last two decades, government agencies in collaboration with music industries have come up with legislations, technologies and policies to monitor and control usage of media technologies devoid of compromising the intellectual property rights. Digital Rights Management (n.d) point out that most widely used legislations to guide digital media are the EU Copyright and the Millennium Copyright legislations. These legislations have significantly played a role in ethical use of digital materials, hence, supporting online music business to thrive (Intellectual Property Online 58). The Acts make it illegal to skirt copy-protection technologies in quest of accessing unauthorized content and other materials. Further, the Acts prohibit unauthorized production, distribution and rendering contents with a sole purpose of encouraging circumvention. Such legislations, among others has enabled online music restrict their contents thereby increasing their profit margin.


Recently, social media networks explosion has made a huge impact in the music industry. Naughton (2012) posits that social media has altered the design marketing teams work in promoting an artist. Traditionally, social media were seen as everyday lingo; however, the sites are being used to brand the artists and generate online advertisement revenue besides selling tickets. The social media have defined artists in a variety of ways. They are no longer measured in how much money they make on their album but, today, an artist has to make their presence in the real world through an online presence. Fans like associating with their favorite artists and bands because of social media technologies. Social networking and media sites open infinite possibilities for blogging, sharing of favorite bands or artists to virtually anyone on the web.


Hagen (2015), further, illustrates that social sites have helped the artist establish a community. The strategy has been beneficial. The Community helps to build the artist fan base encouraging them to listen to his/her music while playing a leading role in promoting the artist. Case (2016) points out that Warner Music Group, Sony BMG and Universal Music in collaboration successfully created MySpace music in 2008 to amalgamate social media sites and music labels. The collaboration was instrumental in assisting artists represented by these labels to generate revenue on the artist page.


Streaming services now completely control the way in which audience consumes music as a generation. More and more people are increasingly using this service to listen to their favorite artist. Hagen (2015) explains that in the United States, streaming music online revenue increased from 57 percent to $1.6 billion during the first half of 2016. This figure was nearly a half of the total music industry sales. Further, Hagen (2015) illustrates that since 2016, streaming services has become the industry’s major source of income and it is poised for a continued growth in the future. The major players in streaming services include Spotify and Apple. Spotify was established to mitigate the challenge of music piracy and ride the tides of new music technology platforms, providing a seemingly unlimited, list of music for audiences to listen. Instead of getting paid by download, an artist would be entitled to a royalty for every play funded by advertisements and Spotify’s ad-free premium subscription service.


Hagen (2015) illustrates that Spotify success in streaming business is attributed to being aware of digital rights in relation to music content. The company viewed that protected content ensured that it develops relationships with music artists so that there are no conflicts (Marshall 2015). As a result, Spotify was capable of serving a large market without compromising on ethical issues of piracy. The research and development sector is also a key component for streaming services. Case (2016) posits that most online streaming businesses have invested heavily in research and development. A classic example is Spotify Company. Spotify streaming services have innovative features that enable consumers to interact effectively with music (Marshall 2015). Besides, the ability to use highly skilled and innovative employees makes Spotify a competitor in the music streaming industry in the long-term.


Spotify services are in the Americas, Europe, and the Oceania. The company renders music on a variety of platforms such as Smartphone, and Pc’s which has attributed to its success in streaming business. Hagen (2015) points out that the high levels of revenues and a profit the company accrues is as a result of millions of users using their services.


In conclusion, a transformation in music technologies over the years leaves no doubt on positive discovery and exploitation of online music in 2017 and beyond. Technology has faded record company’s control that once enabled them to keep prices for music and profits high as a result of the long tail theory. Technological aspects such as online streaming services, social media networks among other technologies have fundamentally changed the distribution, production, and promotion of music. This has been brought about by transformed new business opportunities, economic climate, and redistributed profits.




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Case, S., 2016. The Third Wave: An Entrepreneur’s Vision of the Future. New York: Simon & Schuster

Christensen, C., 1997. Innovator's Dilemma: When New Technologies Cause Great Firms to Fail.Massachusetts: Harvard Business School Press

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Marshall, L., 2015. Lets keep music special. F—Spotify: on-demand streaming and the controversy over artist royalties. Creative Industries Journal, 8(2), pp. 177–189.

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Naughton, J., 2012. From Gutenberg to Zuckerberg: What You Really Need to Know about the Internet. London: Quercus


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