The Future MMGT 11

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MP3.com A music "locker" for users to store music that they purchased on a CD and upload it to the website so they could then access it from anywhere in the world
Was MP3.com copyright infringement? Yes, violates both copyrights and it was shut down for copyright infringement
Napster Allowed users to share their entire catalog of .mp3's with all the other users. Allowed users to search for music on other people's catalogs (peer to peer file sharing)
Legal battles labels waged were won but were they successful? Alienated consumers, labels appeared to be heartless businessmen with their eyes focused on the dollar, perceived value of music as a commercial product was near zero, artists also participated on both sides, pandora's box: no way to stop it now
.wav The large, uncompressed digital music file
.mp3 A compressed digital music file
Impact of mp3: file sharing (distribution) Major record labels had a monopoly on distr. in the music industry; digital tech has allowed for the elimination of the "middle man" -> in closer relationships between fans & artists; now fans can distr (illegally) music to each other & artists to fans
Major label's response to mp3/Napster Major label advocate = RIAA; tried to stomp out digital file sharing and tech instead of embracing it (litigation did not work); note: some studies showed an increase in music sales as a result of illegal file sharing
Recording technology Reduced price – equipment is cheaper; more producers going DIY
Ownership vs. Access The US music industry now earns more than half of its total revenue from digital formats.
Ownership model People own music, whether physical or digital (CDs, downloads stored on your hard drive)
Access model The internet, technology, and mobile devices have created the possibility for instant, streaming access to music "on demand" (no need for "storage" – you can purchase a subscription/freemium and access music anytime, anywhere
Consolidation of the music industry Bigger in size, smaller in number. Happens in Labels (5 -> 3 majors), live music (Live Nation), music retailers (online-iTunes, Amazon; physical; overall – Apple, Amazon, Walmart). The sheer power and influence (clout) the big companies have is remarkable
By 2013 what was true about the sale of recorded music? The sale of recorded music was at the same level it was in the 1970's: less than 1/3 of the sales that the industry had experienced 4 years earlier in 2013.
In response to the drastic decrease in sales of recorded music, what did savvy music managers do? They found alternative ways to profit from music (in live music and licensing)
Then iTunes came about, the perceived value of music was zero, why pay for recorded music when you can just download it for free? iTunes proved that you can compete with free if you charge for the ease of obtaining the music (it is the most popular digital music retailer)
The big mistake that record labels made was… Not embracing the new technology (the mp3). Whereas the pre-Napster era of the industry was controlled primarily by record labels (because the main product offered by the industry was recorded music), today much of the power lies in consumers and artists
Digital music streaming services are… Wiping out physical CD and download sales
Some big-name artists have withheld their latest releases, at least for the first few months, with the hope that… Listeners that wouldn't normally buy the album will because it is unavailable to stream
Youtube royalties User-generated videos that use copyrighted material can still generate revenue for the copyright owner, but only if it is identified.
How does Youtube generate royalties? By placing ads (pre-roll video or tag/banner during playback on videos when they're played)
What does Youtube's CMS fingerprinting system do? Automatically scans and matches uploaded songs to copyright owners (only 60-70% effective)
The remaining 30-40% gap has done what? Created opportunity for new businesses that charge to monetize songs for large and small indie labels (some charge 15-20% of songs monetized, so some businesses are doing his in-house)
How does UMPG do CMS fingerprinting? They do it manually with a 4-person team in it's newly created Digital Rights Services (DRS) department
Why is important to monetize immediately? Because it is not possible to go back later and collect/claim money later. A video may only be "hot" for a short period of time, so it's important to claim and monetize it before that money's lost forever.
DMCA DMCA says ISP's cannot be held responsible for © infringement as long as they take down infringing content as soon as the © owner demands such. Some people criticize the DMCA because companies are now competing w/ sub services (ISP v. non-ISP)
ISP vs. Non-ISP – DMCA The difference is that Youtube (ISP) can "hide" behind the DMCA by not paying royalties until a © owner tells them to monetize their work whereas Spotify (non-ISP) has to license the rights from the get go.
Services like Spotify that need to get what… as opposed to YouTube Permission from labels directly require negotiation which results in higher fees paid to labels
Services under the DMCA allow users to… Upload music without negotiating for the license and the song will remain on YouTube until the © owner issues a take down notice
YouTube accounts for __ % of music listening but only __% of licensing revenue 40; 4
Describe the state of the music industry in the late 1990s? In 1999 the global recorded music industry had experienced a period of growth that had lasted for almost a quarter of a century
What is Napster? A file sharing service that allowed users to download and share music without compensating the recognized rights holders
What happened with other file sharing services after Napster was shut down? As soon as one file sharing service was brought to justice and required to cease its operations, new services emerged and took its place
What did the tradition music industry do in response? Was it successful? Sued and shut down the companies rather than embracing them. No, there are still piracy/file sharing sites like Napster
What did sales of recorded music look like at the end of 2013? The sales of physically distributed recorded music measured in unit sales, were back at the same relatively low less of the early 1970s (a third of what it was at the end of the century)
Do you think there is a causal relationship between illegal file-sharing services like Napster and the decrease in record sales? Yes, if it is offered for free online, why buy it?
What are the three separate markets or sectors of the music industry? Recorded music, music licensing, and live music
What is the overall music industry based upon? The creation and exploitation of music-based intellectual properties. Composers and songwriters create songs, lyrics, and arrangements that are performed live on stage
What is the recorded music industry based upon? Recorded and distribution of music to consumers
What is the music licensing industry based upon? Licensing compositions and arrangements to businesses
What is the live music industry based upon? Focused on producing and promoting live entertainment, such as concerts and tours, etc.
What companies are sometimes recognized as a part of the music industrial family? Instruments, software, stage equipment, music merchandise
In the pre-internet music industry, which of the three music industries generated the most revenue? Recorded music was the biggest of the three and the one that generated the most revenues
What did the other two music industries look like pre-internet? Licensing was smaller and more mundane (busi to busi). Labels considered concert tours as a way to promote the album, were not concerned with profit, some paid tour support to enable bands to go on tour and promote the album
What was the short-term impact of the Internet on the three music industries? Recorded music industry was severely affected by the loss of distribution control and piracy, but the other two were initially left more or less unaffected.
What is the long-term impact of the Internet on the three music industries? What are some of the reasons why this shift in balance has occurred? Recorded music industry has suffered, the other two have gained in strength and prominence. As one revenue stream is diminishing, the music industry is required to reevaluate its other businesses and try to compensate for the lost revenues
What is the most profitable music industry sector today, and why? The most profitable is publishing (licensing) because it is the most innovative and agile
What is the largest music sector today, and why? Live music is the largest because it is easier to control
At the turn of the century the music industry went to great lengths to stop online piracy. What were they not equally ambitious in? Innovating and developing new models for legal online distribution
What was the first company that was able to create a successful online service for legal sales and distribution of music? iTunes (Apple Computer) was the first to create a successful online services for legal sales and distribution of music
Why was iTunes a radical change for the music industry? Used a novel pricing model, and it allowed consumers to de-bundle the music album and only buy the tracks that they actually liked
On the other hand, why was iTunes also a very careful and incremental innovation? Major labels' positions and power structures remained largely unscathed. The rights holders still controlled their properties and the structures that guided the royalties paid per every track that was sold was predictable and transparent
What is the world’s largest music retailer (online and offline)? iTunes Music Store
When did labels finally lose control of their product? When they chose to ignore the possibilities of the Internet
Who has the power in the industry now? Why? Consumers and recording artists have the power. Musicians can create, produce and distribute their work without the indentured servitude of record labels
What was the “moment that the labels killed themselves”? Rather than trying to monetize the new technology, the labels chose to fight it
“Once upon a time” what did you have to do to create a playlist? Rip the songs onto your computer, find sources for tracks you didn't own, and then hope everything was in the right format to play on your device
What does Apple’s CFO (Peter Oppenheimer) mean when he said that the iTunes Store “revolutionized the distribution of digital content?” Started with 200k tracks now has 35 mil. available in 119 countries, sells 60k movies in 109 countries and 1.75 mil. books in 155 countries
What is DRM? Digital Rights Management – Prevents you from listening on your MP3 player or burning a track to a CD
Did iTunes have DRM? Yes. FairPlay (Apple's DRM) let you listen to a song on up to five computers and burn a playlist ten times
Why was iTunes Music Store successful at a time when piracy plagued the music business? Because it was easy
What role did the ipodplay in the success of the iTunes Music Store? Note: iPod was most popular music listening device Let people listen to music anywhere, even easier
What are some big-name artists doing to combat the potential threat of digital jukebox services like Spotify? Managers for Coldplay, Taylor and Rihanna have decided to withhold their artists' latest releases from streaming services
Is it safe to conclude that consumers are spending less $$ on music? It depends on the consumer
Is it safe to conclude that streaming services cannibalizes physical/download sales? It depends on the artist, album, and genre
Note: when YouTube users / consumers upload videos of themselves performing cover versions of their faveartists’ songs, they are using the song copyright and royalties must be paid! If you are using a sound recording copyright, you must also pay to use that copyright!?
But there are so many users on YouTube, constantly uploading infringing material! How does YouTube keep track of copyrighted songs? YouTube has content management system fueled by songs, film and other intellectual property formats supplied by the © owners to ensure its songwriters can share in advertising revenue opportunities often missed with cover versions are uploaded
What is the notice-and-takedown ("safe harbor") provision? Grants immunity to "intermediaries" (like ISPs) for any © infringement by their users. To earn this, they must promptly removed material if the © holder sends a takedown notice. But can restore the content if the user certifies that it is noninfringing
Why do ISP’s and “intermediaries” want the safe harbor provision? Crucial to the growth of the internet and provides forums for users without constant fear of being sued out of existence
What is the “down side” to the safe harbor provision? Leads to abuses of free expression. Limits free speech to an extent, but provides a forum for that exact speech
What is Irving Azoff’sargument re: the DMCA? Why does he say that YouTube is “hiding behind the DMCA?” As labels, artists and managers go public with their outrage at YouTube's meager payouts, their best hope for change rests in government corridors a continent away. YouTube can use music to attract an audience without licensing it
Why is Azoff’s“cause” becoming urgent? YouTube's contracts with the major labels are ending. A service that once seemed mainly promotional is now competing directly with subscription-driven companies which are becoming the industry's most important source of revenue
What problem does YouTube appear to pose for industry revenue? Steal away the market for subscription based streaming services like Spotify
What is the difference between internet companies that operate by negotiating directly with labels and internet companies that operate under the DMCA? In your opinion, what effect do DMCA companies have on the value of music? DMCA companies don't have to obtain licenses they just have to wait for artists to call them up and issue a takedown notice. It has lessened the value of music
What does YouTube traditionally pay major record labels? 55% of net revenue from ads sold against their content
What percent of content on YouTube is monetized? 95%
YouTube’s chief business officer points out that Google has paid out more than $3 billion to the music business. Why does the author say this figure isn’t as impressive as it sounds? Spotify has paid out more than that, for far fewer listeners, and in a much shorter time
What does the author say about YouTube’s Content ID system regarding its effectiveness? It is not measurable
Why does the author say YouTube’s interests don’t align with those of labels and most creators? At a time when music executives are optimistic about the growth of subscription services, YouTube seems more excited about the increasing amount of free listening
What is YouTube’s argument regarding the DMCA giving it a competitive advantage? It does not give it a negotiating advantage, because labels usually identity their music with Content ID
What is unique about Amazon.com? Amazon.com offers a unique service that notes patterns in its customers buying behavior and suggests new products for them to consume. These recommendations are algorithm based and encourage more and more sales that fuel demand.
What have economists and music industry moguls learned from Amazon re: the consumer’s personal taste? Amazon has introduced a new economic model that uses an unlimited selection of products to reveal certain truths about what consumers want and the way in which they would like to consume it.
What does the author mean when he says, “If the 20thcentury industry was about hits, the 21stwill be equally about misses”? Before, the model was based on the mainstream/hits. Consumers were not interested in the alternatives and/or there was a lack of alternatives (scarcity). (abundance) and so consumers decide what they actually like, rather than the best that is available.
What is the problem re: the physical world? Limited shelf space, focuses on local audiences and there is a physical limitation on the products that can be broadcast or consumed
What does the author mean by sayingthe hit-driven economy is “the world of scarcity”? The hit-driven economy is “the world of scarcity” because not everyone can be successful and there is not enough shelf space, screens, channels, radio waves or hours in the day for every piece of content to find success. Only hits get sold
What percentage of the top 10,000 titles in any onlinemedia store will rent/sell at least once a month? What does this tell us about our industry/economy for music? The percent of the top 10,000 titles in any online media store will rent/sell at least once a month is 99%. This means that the industry or economy for music is soaring and booming. There is demand for almost every one of the top 10,000 titles.
What market is bigger: Market for the hits, or market for the misses? The two markets could potentially be equally profitable. The two are on equal economic footing and profitability no longer has a dependence on popularity. The market for misses comprises a larger area of the graph
What are the three rules? The three rules are to make every thing available, to cut the price in half, then lower it, and help customers find it.
What is the main point of “Rule 1”? The main point of “Rule 1” is to embrace niches (like the saturation solution). Since hits and misses are on equal economic footing, it is good to embrace the misses. The author says, “Anything is worth offering on the off chance it will find a buyer.”
What is the main point of “Rule 2”? Cut the distribution costs. The article suggests that stores could reel in customers down the tail (get more people to buy the misses) by lowering prices or even get rid of the ownership model all together (and focus on the access model).
What is the main point of “Rule 3”? Use recommendations to encourage more and more down the tail. This means that offering mass customization, encouraging exploration and diversity, leads more customers to rediscover a passion for music and other art forms.
Moral of the long tail Long tail businesses can treat consumers as individual, offering mass customization as an alternative to mass-market faire
"free music" Is not really free because it is not convenient

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