The Internet’s successful global penetration exists, in part, due to “the end-to-end principle, which concentrates functionality at the edges, and relegates most of the network to a ‘dumb pipe’” (Odlyzko, 2004, p.323). Viewed as a transportation system, the Internet is “multimodal…with many technologies and specialized service providers available, and customers selecting the best one for their needs” (p.339). Historically, price discrimination in the form of tariffs on goods was an important economic practice in the development of early transportation industries such as lighthouses, canals, and turnpikes, with service providers having the right of detailed cargo inspection, and differential charges based on their findings (Odlyzko, 2004). These historical presidents help explain the drive by business today to manage the “cargo” of the Internet through control devices such as Digital Rights Management (DRM) and price discrimination.
Originally, “music was something you heard and experienced — it was as much a social event as a purely musical one”(Byrne, 2007)—as such, music was ingrained in the social fabric of communal experience. Technology changed all that, with music becoming a product that could be bought, sold, traded, and replayed endlessly. When music distribution shifted from the analogue LP to the digital CD in 1982, the copying of music was no longer subject to the same quality loss that plagued analogue copying. In 1991, the MP3 (Moving Picture Experts Group-1 Audio Layer 3) music format was ratified (Wikipedia.com) and by 1994, the viral spread of MP3 music files online began. The final piece of disruptive technology to impact the music business model was per-to-peer sharing (p2p). The infamous Napster was launched in July 1999 and within eighteen months, there were close to 80 million registered users. (Lessig, 2004). The RIAA (Recording Industry Association of America) had the courts shut Napster down, but many services have risen to take its place. A study by Ipsos-Insight in 2002 estimated that 28 percent of Americans over the age of 12 have downloaded music. A free-for-all of music sharing and circumvention of “the system that evolved over the past century to market the product, which is to say the container — vinyl, tape, or disc — that carried the music” (Byrne, 2007) has become deeply ingrained in our culture.
Mayhem ensued—the record business sued. Meanwhile, Apple released a little free software product called “iTunes”. iTunes was first promoted under the headline “Rip. Mix. Burn” (Honan, 2001), where users were encouraged to copy music onto their hard drives, mix it into playlists, and then burn the music onto CDs with their newly acquired CD-RW (Read/Write) drives. iTunes eventually evolved into the “iTunes Store” and in addition to facilitating the copying of one’s own music, it sold music online. Getting the music industry onboard required Apple to create a proprietary DRM system called “Fairplay”. By encoding all music on the iTunes Store with DRM, “Apple was able to negotiate landmark usage rights at the time, which include allowing users to play their DRM protected music on up to 5 computers and on an unlimited number of iPods. Obtaining such rights from the music companies was unprecedented at the time, and even today is unmatched by most other digital music services” (Steve Jobs, 2007).
DRM software simultaneously protects the music producer from unauthorized duplication of its music, while potentially exposing the privacy of its user. Sony BMG in April 2007 settled a suit “regarding its CD DRM software that not only limited access, but also monitored usage and fed information back to the company for marketing purposes” (Broussard, 2007). Apple’s iTunes Store uses consumer provided information to enforce price discrimination across different countries (Gillepsie, 2007). In April of 2007, a European antitrust probe into the pricing practices of Apple sought to “unravel the complex web of intellectual property agreements which allow music to be sold across the world” (Hodgson, 2007) and to enable consumers to shop for the best prices across Europe. Pressure from this enquiry lead to Apple announcing in January of 2008 that it would lower the charges for music in the UK and standardize prices across Europe (Apple.com, 2008). Apple and Amazon.com both abandoned DRM entirely in 2009.
While the music industry bemoans the death of its business model, “[e]very single aspect of the business is way up — except for the part that’s about selling plastic discs” (Masnick, 2009) with the concert business continuing to set records every year. One could say that there is a return to the old values of live music as a social magnet. Lily Allen (current pop diva) after finishing a recent performance, remarked to the audience, “You were singing along, and it’s only just come out today… you must have been illegally downloading. That’s OK, I don’t make any money from recordings anyway” (Frere-Jones, 2009).
References:
Apple to Standardize iTunes Music Prices Throughout Europe. (2008). Retrieved March 23, 2009 from http://www.apple.com/pr/library/2008/01/09itunes.html
Broussard, S. (2007). The copyleft movement: creative commons licensing. Retrieved March 23, 2009 from http://findarticles.com/p/articles/mi_7081/is_3_26/ai_n28457434
Byrne, D. (2007). David Byrne’s survival strategies for emerging artists — and megastars. Retrieved March 23, 2009 from http://www.wired.com/entertainment/music/magazine/16-01/ff_byrne?currentPage=all
Frere-Jones, S. (2009). “The Pop Life” Flashing lights. New Yorker Magazine. p.32.
Gillepsie, T. (2007). Price Discrimination and the Shape of the Digital Commodity. In Karaganis, J. (Ed.), Structures of Participation in Digital Culture. Social Science Research Council.
Hodgson, J. (2007). Apple probe will shake up whole music industry. Retrieved March 24, 2009 from http://www.marketwatch.com/news/story/apple-probe-shake-up-whole/story.aspx?guid=%7B13C61718-B575-4E03-A92B-37BEF80AF1B5%7D
Honan, M. (2001). Rip. Mix. Burn. Steal? Retrieved March 24, 2009 from http://www.macworld.com/article/2509/2001/10/rip.html
Jobs, S. (2007). Thoughts on Music. Retrieved March 24, 2009 from http://www.apple.com/hotnews/thoughtsonmusic/
Masnick, M. (2009). There Is No New Business Model For Music? Retrieved March 24, 2009 from http://techdirt.com/articles/20090311/0410024072.shtml
Odlyzko, A. (2004). The evolution of price discrimination in transportation and its implications for the internet. Review of Network Economics. 3 (3).
admin Miscellaneous DRM, music
Eliot Van Buskirk provides insight into how the Peer-to-Peer model of file sharing is working its way into the business models of media moguls:
