University of Wollongong Research Online Faculty of Engineering & Information Sciences - Honours Theses University of Wollongong Thesis Collections 25-10-2004 Digital distribution music services and the demise of the traditional music industry: three case studies on mp3.com, Napster and Kazaa K. Alves University of Wollongong Follow this and additional works at: https://ro.uow.edu.au/thesesinfo University of Wollongong Copyright Warning You may print or download ONE copy of this document for the purpose of your own research or study. The University does not authorise you to copy, communicate or otherwise make available electronically to any other person any copyright material contained on this site. You are reminded of the following: This work is copyright. Apart from any use permitted under the Copyright Act 1968, no part of this work may be reproduced by any process, nor may any other exclusive right be exercised, without the permission of the author. 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Faculty of Engineering & Information Sciences - Honours Theses. 10. https://ro.uow.edu.au/thesesinfo/10 Research Online is the open access institutional repository for the University of Wollongong. For further information contact the UOW Library: [email protected] Digital distribution music services and the demise of the traditional music industry: three case studies on mp3.com, Napster and Kazaa Abstract 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. Publication Details This thesis was originally submitted as Alves, K, Digital distribution music services and the demise of the traditional music industry: three case studies on mp3.com, Napster and Kazaa, Bachelor of Information and Communication Technology (Honours), University of Wollongong, 2004, 171p. This thesis is available at Research Online: https://ro.uow.edu.au/thesesinfo/10 Table of Contents TABLE OF CONTENTS ..........................................................................................................................1 LIST OF FIGURES...................................................................................................................................4 LIST OF TABLES.....................................................................................................................................4 ACRONYMS..............................................................................................................................................5 ABSTRACT................................................................................................................................................6 ACKNOWLEDGEMENTS......................................................................................................................8 1 INTRODUCTION............................................................................................................................9 1.1 OVERVIEW ................................................................................................................................9 1.2 RELEVANT BACKGROUND ......................................................................................................10 1.3 AIMS AND OBJECTIVES ...........................................................................................................12 1.3.1 Aims ...................................................................................................................................12 1.3.2 Objectives ..........................................................................................................................12 1.4 RESEARCH DESIGN..................................................................................................................13 1.4.1 Case studies .......................................................................................................................13 1.5 JUSTIFICATION ........................................................................................................................14 1.6 LIMITATIONS ...........................................................................................................................15 1.7 REPORT OUTLINE....................................................................................................................16 2 LITERATURE REVIEW .............................................................................................................17 2.1 INTRODUCTION........................................................................................................................17 2.2 POST NAPSTER- THE CURRENT STATE OF PLAY ......................................................................17 2.3 THE ECONOMICS OF DIGITAL MUSIC DISTRIBUTION..............................................................18 2.3.1 The Disintermediation Phenomenon.................................................................................19 2.3.2 P2P Popularity Rise Blamed for Decreasing Online Music Sales...................................19 2.4 LEGAL UNCERTAINTIES ..........................................................................................................21 2.4.1 Digital Rights Management ..............................................................................................21 2.4.2 Intellectual Property Protection .......................................................................................22 2.4.3 Consumers Rebel from the Law ........................................................................................22 2.5 SOCIAL IMPLICATIONS- STAKEHOLDER PERSPECTIVES ..........................................................24 2.5.1 The Consumer- Claiming a right to download.................................................................24