Failure of Digital Distribution

The Internet is apparently a double-edged sword for the music industry. It helps digital music businesses to strive but it also benefits the pirates by allowing them to illegally download free contents. Music companies recently seek ways to lower online music prices. They partnered with advertising-supported services such as Spotify and MySpace Music, ISPs such asTerra in Brazil and Sky in the United Kingdom, mobile operators such as Vodafone, handset makers such as Nokia and Sony Ericsson, and online video channels such as Hulu and VEVO (Greenwood, 2010). These partnerships try to yield revenues from advertising, subscriptions and actually reduce online music prices. Lower price gives law abiding music buyers incentives to purchase legitimate music in place of illegal file-sharing. The emergence of online music stores such as Spotify and iTunes are also the responses of these efforts.

For example, consumers can purchase individual songs for 99 cents with iTunes, rather than buying the whole album. All the songs downloaded from this music store are coded with DRM (Digital Rights Management), which prevents users from playing the songs on any other devices but iPod, iPhone and certain computers. These protective mechanisms are somewhat appealing to consumers who want to obtain music legally but fail to fight against the pirates. There are three undermining reasons explaining for this failure. First, unauthorized music is free. Secondly, they can be played on any device. Finally, these songs can be easily burned onto CDs.

Since 2004, the online music business has increased its revenues by 940%. However, in the same period, global physical and digital music market has suffered a decline of around 30% due to online piracy. Particularly in the first half of 2009, global music sales were down by 12% (physical and digital sales), and similar trends are expected until the end of the year (RIAA, 2010). Illegal file-sharing is clearly causing the music industry losses.

All these music channels of distribution could not stop piracy because they do not appeal to buyers. Therefore, distributors might need to seek for a more attractive offer.

The emergence of digital distribution is apparently responsible for the decrease of physical music sales (or record labels companies). Common belief is that digital piracy is killing the record industry.

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