We have the opportunity to create a personal jukebox in the house and car. This is the takeoff point for the music business (A Little Net Music, 34). These statements by AOL Chief Executive Stephen M. Case reflect the latest trend in the music industry for the distribution of recorded music.

Advances in technology now allow individuals to record their own digital copies of music, with its high fidelity, from numerous Internet web sites. In 1999 approximately 100, 000 music downloads were officially recorded, by 2004 these downloads are projected to reach over 1. 2 billion. The music industry is big business and its actions influence the nation s Gross National Product (GNP). Universal Music Group had revenues of $3. 75 billion in 1999 (Turning Traitor, 32).

But that s a fraction of the $40 billion that the recorded music industry racks up in sales (A Little Bit of Net Music, 34). The cost of doing business in the music industry is very high and the music companies are trying to figure out new ways to get their products to consumers and for them to buy them. This trend in music (switching to Internet based systems) can influence the economy by changing the traditional methods of retail sales and increasing the company s sales and profit and by exploring new methods of distributing its products to consumers. The music industry maintains its control over the music it distributes by the use of copyright laws. These laws allow the originator (or owner) of the music (also books, pictures and movies) to control its release and reproduction. People and companies that want to reproduce or use the music must pay a fee to the owner of the music.

When the most common way to own a copy of a particular piece of music was a vinyl record, the music industry was not overtly concerned about unlawful duplication of its products. Improvements in technology have changed the format of the music that available at retail outlets (digital recordings, Compact Disks) and how some consumers acquire copies of that music. Personal computers now have the processors, sound cards, software, and memory to record, play, and faithfully reproduce a particular piece of music infinitely. One of these new advances in software is file-sharing programs. These programs allow a person to go to an Internet web site and by using the program download digital copies of the music. These copies are as clean as the original recording and are in effect free to the consumer.

One such company that provides the software and downloading service is Napster. Napster provides a web site that allows users to gain access to music files from other users by downloading them for their own personal use on their computer. Music companies see these actions as pirating or copyright infringement. While it s legal for music owners (someone who has legally bought a recording of the music) to rerecord their CDs for personal use on other music formats, like cassettes, mini disks or even MP 3 s, giving those copies to others is piracy. (Napster is rocking the music industry, 41). Artists are spilt on each side of the controversy.

Some agree with the record companies while other say music should be free. "I just want my music to be out, and that's always been the main priority. It was never really about getting paid. It was just getting people to hear my music and say, 'Hey, I like your song.' So if Napster wants to put my song out so people can download it or whatever, let 'em do it." - Billy Joe Armstrong of the band Green Day (Reuters, 2/12/2001). The music industry through the its association Recording Industry Association of America (RIAA) sued Napster for $100 million in damages (Napster is rocking the music industry, 41).

The RIAA claims that Napster is illegally allowing individuals to copy copyrighted materials. With the average retail cost of a new release CD $17, the RIAA is claiming its members have lost millions in profits. The losses are not isolated to record companies, a typical $17 CD shows that distribution, shipping, and store markup account for more than $9. 50 of the retail price (Why Napster is Good News, 76). These figures begin to show the effect of the music industry on the GNP as a whole. When one CD is not sold, many sectors of the economy show negative effects.

At the wholesale level, the artists that write and record the music, companies that manufacture the CDs, containers and labels, trucking companies that move the CDs to music stores all lose money. At the retail level the owners of the music stores and finally their employees all lose some money when a music is distributed outside the normal distribution method (as well as the owners and employees of used CD stores). These losses do not include the lost tax revenues that the Federal, State and local governments do not receive as a result of these downloads, thereby reducing the amount of money available for public projects. The Internet has presented the music industry with both a problem and a solution. With so many people using the Internet to download music, whether Napster survives or not, music downloading will continue. The number of Napster users grew from 1 million in February 2000 to over 9 million in December.

Other free services provide Internet users with the same service as Napster. Hordes of Napster users are already poised to head to services like Gnutella, Freenet and Aim ster which don t have a central server and could be harder to shut down (Is Napster Signing Off For Good, 18). Many businesses have already used the Internet to bypass traditional retail merchants. Companies such as Lands End effectively by pass the retail distribution system to manage and sell their products through catalogs and their web site.

It used to be all about the triple R radio, retail, record companies. The Internet means you do not need them as nearly as much (Turning Traitor, 133). The cost to send a song directly over the Net is $1 and dropping rapidly If labels claimed just half of that $9. 50 themselves, they would clear nearly eight times their current profit - now just $0. 59 per album (Why Napster Is Good News, 76).

Greater profits can mean more growth, conversely fewer profits means less money to develop new talent and products. Any new technology or idea worth its salt appears to challenge some segment Similarly, networks like Napster may actually be a boon to the music industry. Indeed, surveys show that Napster use may boost CD sales (Peer to Peer, 196). This does not mean that music companies can just jump over to Internet only distribution methods. There still is a number of Internet users that do not feel comfortable about on line purchases and the narrow bandwidth of many home computer modems means hours to download an album. Unless you ve got rabbit-quick DSL service, downloading a song can take half an hour or more (Nirvana Is Just A Click Away, 73).

If music companies moved to a distribution network, which was primarily or exclusively, based on the Internet, then the existing retail sales outlets, such as Sam Goody s, might react negatively. The retail outlets could stop promoting the music companies releases or force them to accept all their inventory of existing CD at full value. This would offset any gains from the Internet sales. The Internet sales would have to have security so that if a sales was made the download file could not be shared with someone else or copied to another format.

It s a lot more complicated than people know. It took American Carmakers more than decade to adapt to competition from more nimble, higher quality Japanese rivals (At Atlantic, My Beef is Not Getting Paid, 118). As technology continues to improve, the music industry can move to more Internet based distributing systems that improves customer satisfaction. Napster highlighted several current problems with the music industry (retail costs, distribution, and development) and they reduced the music company s profits.

Issues dealing with transaction and download security are common with other industries and their solutions may have a positive spillover effect in the music industry. The music companies will have ancillary changes in how artists and retailers are developed and paid. With greater profits, at the record company, artists will want a larger share and retail outlets will not want to disappear from the market. Shareholders will demand increased stock prices in order to increase their own worth. These trends in the music industry have and will continue to influence the economy as the music industry changes to incorporate new technology, down to the amount of money a city may need to resurface its streets. BIBLIOGRAPHY Ante, Spencer E.

Inside Napster. Business Week. 14 August 2000: 112-118. Berman, Denis K. Why Napster Is Good News. Business Week.

1 Aug 2000: 76. Bull, Steven V, et al. A little Net Music Business Week. 7 Feb 2000: 34-35. Cohen, Warner. Napster Rocks the Music Industry.

US News and World Report. 6 March 2000: 41. Farley, Christopher John. Nirvana Is Just A Click Away.

Time. 14 Aug 2000: 73. Lyons, Daniel. Turning Traitor. Forbes. 24 Jan 2000: 131-132 How Trends In Music Can Influence The Economy By: Ian Thompson April 19, 2001 Honors Civics 213 Period H.