A Business Model for the Digital Distribution of Music in the South African Context by Briét Louise Coetzer A mini-dissertation submitted in partial fulfilment of the requirements for the degree Master of Music (Music Technology) in the Department of Music at the UNIVERSITY OF PRETORIA FACULTY OF HUMANITIES SUPERVISOR: WM de Villiers September 2009 © University of Pretoria Abstract Increased technological capabilities in the realm of independent audio production coupled with online trends of Social Media, e-commerce, m-commerce and user-generated content have created unique opportunities for content providers to use Web 2.0 as an innovative distribution platform for mass dissemination of content. Artists not contracted to a record company, who are able to produce low cost, high fidelity audio recordings, are able to utilise this web-platform to connect directly with consumers without reliance on record companies, who have traditionally retained control over production and distribution in the music industry. This paper presents elements of an emerging business model which aims to re-architect the traditional value chain by linking artists and consumers directly through an Internet platform. A key component of the model is utilising new technologies and integrating existing service providers through web- services to provide an aggregated value-added service package to both artists and consumers in a cost- effective manner. The model is aimed at the South African market with the assumption that proposed ICT infrastructure upgrades will enable increased broadband Internet access at substantially lower cost. The model also aims to capitalize on the high mobile phone penetration in South Africa and utilise this as an additional distribution channel, particularly in rural areas. ii Plagiarism Declaration I know that plagiarism is wrong. Plagiarism is to use another’s work and pretend that it is one’s own. I have used a recognised convention for citation and referencing. Each significant contribution and quotation from the works of other people has been attributed, cited and referenced (including the full referencing of my own work from previous courses, programmes and degrees/diplomas). I certify that this submission is all my own work. I have not allowed and will not allow anyone to copy this essay/assignment with the intention of passing it off as their own work. Name Briét Louise Coetzer Student Number: 26521602 iii Table of Contents Abstract ..................................................................................................................................... ii Plagiarism Declaration ........................................................................................................... iii Table of Contents .................................................................................................................... iv Acknowledgements ................................................................................................................. vi List of Figures ......................................................................................................................... vii List of Tables ......................................................................................................................... viii List of Abbreviations and Acronyms .................................................................................... ix Notes to the Reader .................................................................................................................. x 1. Introduction ................................................................................................................. - 1 - 2. Rationale ...................................................................................................................... - 3 - 3. Problem statement and research questions .............................................................. - 4 - 4. Aim of this study ......................................................................................................... - 5 - 5. Value of this study ....................................................................................................... - 6 - 6. Overview of this study ................................................................................................ - 7 - 7. Theoretical Framework .............................................................................................. - 8 - 7.1. Phase 1: Investigate existing configurations .............................................. - 8 - 7.2. Phase 2: Identify the influence of technology ............................................ - 9 - 7.3. Phase 3: Change ....................................................................................... - 10 - 8. Methodology .............................................................................................................. - 12 - 9. Literature Review ..................................................................................................... - 14 - 9.1. A Short history of the recorded music industry ....................................... - 14 - 9.2. Traditional industry value chain ............................................................... - 15 - 9.3. Piracy ........................................................................................................ - 20 - 9.4. The influence of Peer-to-Peer Networks and file sharing ........................ - 21 - 9.5. International trends in the music industry ................................................ - 24 - 9.6. The move to m-commerce........................................................................ - 31 - 9.7. Current digital distribution models .......................................................... - 33 - 9.8. The South African context ....................................................................... - 36 - 10. A Business Model Ontology ................................................................................. - 41 - 10.1. The artist in the context of the Firm ..................................................... - 41 - 10.2. What is a business model? .................................................................... - 42 - 11. Strategy .................................................................................................................. - 45 - 11.1. Threat of new entry ............................................................................... - 45 - 11.2. Threat of substitute products or services .............................................. - 46 - 11.3. The power of suppliers ......................................................................... - 47 - 11.4. The power of buyers ............................................................................. - 48 - 11.5. Rivalry among existing competitors ..................................................... - 50 - 12. Analysis of Current Business Models .................................................................. - 52 - 12.1. iTunes and the iTunes music store ....................................................... - 53 - 12.2. MySpace Music .................................................................................... - 58 - 12.3. Artspages .............................................................................................. - 63 - 12.4. Eclecticism in strategy today ................................................................ - 65 - 13. The Influence of Technology ................................................................................ - 66 - 13.1. High speed Internet ............................................................................... - 66 - 13.2. Digital watermarking ............................................................................ - 67 - 13.3. Cloud computing .................................................................................. - 68 - 13.4. E-commerce .......................................................................................... - 69 - 13.5. M-commerce ......................................................................................... - 70 - 13.6. Google search ....................................................................................... - 72 - iv 13.7. Web services ......................................................................................... - 72 - 13.8. Web 2.0 ................................................................................................. - 73 - 13.9. Social Network Sites (SNS) ................................................................. - 82 - 14. Legal Considerations ............................................................................................ - 85 - 14.1. Copyright law and the South African context ...................................... - 85 - 14.2. Needletime ............................................................................................ - 86 - 14.3. Digital Rights Management .................................................................. - 87 - 14.4. Compulsory licensing ........................................................................... - 89 - 14.5. Voluntary licensing............................................................................... - 90 - 14.6. Laws Pertaining to Social Networking Sites ........................................ - 92 - 15. Identifying Missing Roles ..................................................................................... - 94 - 15.1. Accessibility ........................................................................................