Online Music Distribution Strategies O These Strategies example essay topic

Online Music Distribution in a Post-Napster World Case Study Background Information o Service has been shut down since July 2001. o June 3, 2002, Napster Filed for bankruptcy. o October 29th, 2003, Napster will re-open with its new pay service. o Conflicting rights: 1. The rights of artists and record labels to receive payment for their labors 2. The rights of consumers to share their favorite songs with fellow internet users 3. The rights of copyright holders to protect their intellectual property 4. The rights of entrepreneurs to push the limits of technology o By 2002, a study found that 13 million of U. S internet users were downloading music they didn't previously own. o The Napster service reached its peak usage in February 2001, when an estimated 80 million people were members of the Napster community, and over 1.5 million people were using the service at any given time. o Recording Industry Association of America (RIAA), filed suit representing the interests of the record labels regarding fair compensation. o The band Metallica followed with an additional lawsuit against Napster, claiming the file swapping was piracy. o Napster defended their interests by pointing to the Audio Home Recording Act (AHR A), which allowed consumers to record and share music with their peers for noncommercial purposes. o The average CD price for consumers was $16.98. Key Issues: o A typical major-label release needed to sell about 500,000 copies in order to break even. o In 2001, RIAA stated there was a 4.1% decline in music sales from the previous year, which is the largest in a decade. o Since the distribution of music via the Internet was so explosive, major record companies aggressively pursued online music distribution strategies. o These strategies did not do very well with mainstream file swapping public Music could not be swapped or burned on to CDs If one stopped paying for the service all music would expire and could not be listened to.

Music selection was horrible The price was too high o Once Napster was ordered to shut-down immediately there was an explosion of spin-off versions of Napster. These second generation file-swapping services competed against the paid service companies and were successful. o They also have ongoing legal challenges from the music industry, and they even allowed you to trade more then just MP 3's. o The success of these new file swapping programs shows that interest is still there and is increasing by word of mouth. Problem Statement: It is evident that the online distribution of music is a complex subject. The record labels want it to end unless their respective artists are being compensated. The record industry has shown that there is a market for online music distribution but their failed attempts have proven that a subscription / fee based distribution service needs to be tweaked considerably to work.

Napster does not have any chance of entering the market of free file swapping because of court orders as well as the saturation of the peer-to-peer programs that came about when Napster was shut down. Napster needs to develop a marketing strategy that satisfies the record labels with due compensations and at the same time makes their company successful. Napster is in a unique position to enter this market because they have been looked at as the "good guys" throughout this whole mess. When someone hears the name Napster they automatically think of online music. With this unique name brand recognition, Napster is in a good position to come out with a service that will incorporate all they have learned and allow them to be the leader of online music distribution. SWOT Analysis Strengths o Napster has high brand name awareness o Technological advancements in broadband internet o Low cost to operate service, compared to CD distributor. o Full CD's are much cheaper to download than to buy from a store Weaknesses o Negative publicity makes Napster look like criminals o Inability to offer every label of music o Licensing controversies continue o Consumer value compared to buying CD from store (no pamphlet, lyrics, case etc.) Opportunities o High demand for digital music o New, legal, channel of distribution o CD-burner in nearly 50% of homes with computers o Already have 40,000 members from parent company Roxio Press play (which will be shut down when Napster re-opens.) Threats o Most college campuses have banned file swapping and music downloading o Political and legal influences and factors o Increasing competition in the digital music market o 2nd generation file sharing programs, peer to peer connections Solutions and Recommendations o Work closely with record labels to provide the highest quality LEGAL music o Develop fair prices that give consumers fair value for music ownership o Remain innovators in the digital music market o Offer largest selection of music o Work with colleges to remove bans o No expiration on purchased music o Music that is burnable to CD.