Title: A Systemic Analysis of Digital Music Distribution on the Internet

Table of Contents
Abstract ......................................................................................................................... iv Glossary ........................................................................................................................ vi Chapter 1: Introduction ................................................................................................... 1 1.1 Purpose ................................................................................................................. 4 1.3 Target Group......................................................................................................... 4 Chapter 2: Literature Review .......................................................................................... 5 2.1 The Music Industry: An Overview ........................................................................ 5 2.2 How the Traditional Music Industry Works........................................................... 6 2.3 What is an eBusiness Model? ................................................................................ 7 2.4 Changes in the Music Industry’s Value Chain ....................................................... 9 2.5 Growth of Digital Music: A Background ..............................................................12 2.6 The Industry’s Participants ...................................................................................13 2.6.1 Artists ...........................................................................................................14 2.6.2 Record Labels ...............................................................................................14 2.6.3 Digital Music Retailer ...................................................................................15 2.6.4 The Consumers .............................................................................................16 2.7 Challenges in the Digital Music Industry..............................................................17 2.7.1 Revenue Stream and Pricing ..........................................................................17 2.7.1.1 Artist Perspective ...................................................................................17 2.7.1.2 Digital Music Retailer Perspective ..........................................................18 2.7.1.3 Record Label Perspective .......................................................................19 2.7.1.4 Consumer Perspective ............................................................................20 2.7.2 Gaining Value from and Adding Value to the Industry ..................................20 2.7.2.1 Consumer Perspective ............................................................................20 2.7.2.2 Digital Music Retailer Perspective ..........................................................21 2.7.2.3 Record Label Perspective .......................................................................22 2.7.2.4 Artist Perspective ...................................................................................23 2.7.3 Piracy Perspective .........................................................................................23 2.7.3.1 Artist Perspective ...................................................................................23 2.7.3.2 Record Label Perspective .......................................................................24 2.7.3.3 Digital Music Retailer Perspective ..........................................................24 2.7.3.4 Consumer Perspective ............................................................................25 2.7.4 Deciding on an Effective Business Model .....................................................26 2.7.5 Copyright and Standards ...............................................................................27 2.7.5.1 Artist Perspective ...................................................................................28 2.7.5.2 Record Label Perspective .......................................................................29 2.7.5.3 Digital Music Retailer Perspective ..........................................................29 2.7.5.4 Consumer Perspective ............................................................................29 2.8 Current Models and Trends in the Digital Music Industry ....................................30 2.9 Proposed Business Models ...................................................................................34 2.10 Summary of the Industry ....................................................................................35

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Title: A Systemic Analysis of Digital Music Distribution on the Internet Chapter 3: Methodology ................................................................................................37 3.1 Research Aims .....................................................................................................37 3.2 Data Collection ....................................................................................................37 3.3 Qualitative Vs. Quantitative .................................................................................39 3.4 Hard Systems Vs. Soft Systems............................................................................40 3.5 Methodology Selection ........................................................................................40 3.5.1 Soft Systems Methodology (SSM).................................................................40 3.5.2 General Systems Theory................................................................................42 3.5.3 SSM’s Tools .................................................................................................43 3.5.4 The Checkland Approach ..............................................................................45 3.5.5 The Wilson Approach (Wilson 2001, p.8) .....................................................46 3.5.6 The Customised SSM Approach Adopted for this Study................................46 Chapter 4: Analysis, Evaluation and Learning................................................................49 4.1 Player Profiles ......................................................................................................49 4.1.1 Consumer Profile ..........................................................................................50 4.1.2 Artist Profile .................................................................................................51 4.1.3 Digital Music Retailer Profile ........................................................................51 4.1.4 Record Label Profile .....................................................................................51 4.2 Root Definitions ...................................................................................................52 4.3 Conceptual Models (Issue-based) .........................................................................57 4.4 Monitoring and Control Functions........................................................................63 4.5 Analysis – Exploiting the Models .........................................................................64 4.6 Evaluation ........................................................................................................71 4.7 Learning and Reflection .......................................................................................77 4.8 Future Work.........................................................................................................80 Chapter 5: Conclusions ..................................................................................................83 References .....................................................................................................................86 Websites Mentioned ......................................................................................................93 APPENDICES ...............................................................................................................94 APPENDIX A ...............................................................................................................94 APPENDIX B ............................................................................................................. 105 Appendix B-1 .......................................................................................................... 105 Appendix B-2 .......................................................................................................... 106 Appendix B-3 .......................................................................................................... 106 Appendix B-4 .......................................................................................................... 107 APPENDIX C ............................................................................................................. 108 APPENDIX D ............................................................................................................. 110 Appendix E.................................................................................................................. 112 Appendix F .................................................................................................................. 114 Appendix G ................................................................................................................. 116

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Title: A Systemic Analysis of Digital Music Distribution on the Internet Appendix H ................................................................................................................. 117 Appendix I................................................................................................................... 118 Appendix J .................................................................................................................. 120 Appendix K ................................................................................................................. 121 Appendix K-1 .......................................................................................................... 121 Appendix K-2 .......................................................................................................... 122 Appendix K-3 .......................................................................................................... 124 Appendix K-4 .......................................................................................................... 126 Appendix K-5 .......................................................................................................... 127 Appendix K-6 .......................................................................................................... 129 Appendix K-7 .......................................................................................................... 130 Appendix K-8 .......................................................................................................... 132 Appendix K-9 .......................................................................................................... 133 Appendix K-9 .......................................................................................................... 135

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Title: A Systemic Analysis of Digital Music Distribution on the Internet

Abstract
This dissertation deals with the distribution of digital music on the Internet. The Soft Systems Methodology (SSM) is used as the framework for the dissertation’s structuring and the industry’s analysis. SSM’s tools are used to analyse how the industry can be improved by using the perceptions of its main entities – the artist, record label, consumer and digital music retailer. An analytical comparison of the traditional and digital music industry’s supply chains reveal the dramatic changes that have occurred between the industry’s key players. The core participants have realised this and have quickly dived in to reap the benefits due to this disintermediation. The digital music industry has evolved unsystematically into a chaotic industry with numerous unresolved issues affecting the creation of effective business models and all the industry’s participants. On the surface, consumers are concerned with piracy and the interoperability of music whilst artists contemplate the best possible methods to make their music heard to the industry’s audience. Record labels are grappling with the notion of illegal downloads diminishing their profits and digital music retailers strive to create competitive advantage by creating new business models. Attempting to solve these problems is impractical. Thinking about and attempting to resolve conflicting perspectives however is the aim of this study. This dissertation attempts to untangle the web of uncertainties in the industry of concern to explicitly present organised thoughts in the form of conceptual models capable of being analysed. The results of this qualitative analysis are a set of recommendations for the industry’s participants to follow. The industry in inquiry’s issues are not solved in one fell swoop but this study certainly provides a launching pad for its participants to speedily familiarise themselves with this new industry and facilitate innovation.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet

Acknowledgements
I would like to thank the following persons for their invaluable contribution, which helped to catalytically deliver this dissertation to my desired satisfaction:

Mikhaila Burgess, as my supervisor guided me through the project and helped overcome hurdles faced.

Brent Work, shared his unique thoughts and suggestions on the domain being investigated.

Anas Tawileh, who also had an interest in the project domain, introduced me to another aspect of the digital music industry and provided some key insights.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet

Glossary
BPR – Business Process Reengineering CD – Compact Discs CM – Conceptual Model CPTM – Consensus Primary Task Model DMR – Digital Music Retailer DRM – Digital Rights Management HAS – Human Activity System IFPI - International Federation of the Phonographic Industry ISP – Internet Service Provider P2P – Peer-to-Peer RD – Root Definition RIAA – Recording industry Association of America OR – Operational Research SSM – Soft Systems Methodology

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Title: A Systemic Analysis of Digital Music Distribution on the Internet

List of Figures
Figure 2-1: Main Drivers for Value in the Traditional Recorded Music Value Chain ...... 9 Figure 2-2: Digital Music Product Characteristics ..........................................................10 Figure 2-3: Music Industry Value Chain and Market Structure with Digital Music.........11 Figure 2-4: Initiators of Digital Music Websites.............................................................16 Figure 2-5: Web Comic .................................................................................................30 Figure 3-1: The Customised SSM Approach Illustrated .................................................47 Figure 4-1: The Consumer’s Conceptual Model .............................................................58 Figure 4-2: The Record Label’s Conceptual Model (Promotion Orientation)..................59 Figure 4-3: The Artist’s Conceptual Model ....................................................................60 Figure 4-4: The Digital Music Retailer’s Conceptual Model .........................................61 Figure 4-5: Record Label’s Conceptual Model (Networking Orientation) ......................62 Figure 4 6: An Autopoietic Methodology-Creating System ............................................73

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Title: A Systemic Analysis of Digital Music Distribution on the Internet

Chapter 1: Introduction
“We have to make buying music easier than stealing music” – EMI Vice President (Fischbeck, 2000), is this dissertation’s underpinning statement, which strives to analyse the digital music industry with the intention of thinking about achieving the most suitable of innovative business models to distribute digital music over the Internet. Crossing over many subject areas such as strategic marketing, electronic commerce, systems thinking and strategic management, this project will aim to assist managers of a record label and digital music retail store to market and distribute their newly signed-on bands in arguably the most effective and efficient manner.

This project’s motivation is obviously interesting enough to any individual with an average affinity for music and revolves around my avid interest for musical genres and musical paraphernalia. Music has been around for thousands of years in various forms and methods of delivery and we are now in an era capable of making music from one part of the world easily and instantly heard by an individual in another part of the globe. The digital music industry achieves that phenomena as well as the inadvertent effect of the transformation of the traditional music industry.

The music industry has always been my clichéd keen area of interest, which has unfortunately not been taught in any school programme I have undertaken in the past. Thus, this was looked at as the perfect opportunity to study the music industry closely, especially following the evincible rise of the digital music industry. With the sub-areas being pertinent to the subject areas taught in the MSc programme, the dissertation would offer a sustainable interest over the allocated time period. The project did not appear very overly-ambitious and posed a reasonable level of challenge. A cursory background on the domain revealed copious amounts of available literature along with recurring controversial issues and speckled perceptions across the digital music industry.

A tailored version of Wilson’s Soft Systems Methodology (SSM) is used as the framework and approach to fulfil the purpose of this dissertation. Defining the industry’s problem is itself problematic as it usually depends upon who defines it, and a number of 1

Title: A Systemic Analysis of Digital Music Distribution on the Internet definitions can be stated by the participants. Therefore, SSM starts by defining not a problem but a situation that is problematic. The project centres on the selected methodology where SSM is used as a framework from this introduction through to the Analysis chapter. Using the perceptions of four key participants in the industry, the root of what they want to achieve in the industry is formulated as a definition and how to achieve that being modelled conceptually. SSM was also used to plan the activities of the entire dissertation. Its usage will become clearer as the thesis unfolds.

There have been similar studies carried out to this; albeit, I have not discovered a thesis concerning the systemic analysis of the digital music industry. This study therefore, aims to qualitatively analyse the industry by considering the viewpoints of the core players involved. The current digital music industry is rather chaotic and controversial. Remedying all these issues is unlikely within the near future; however, thinking about the implications of adamantly adhering to certain conventions and focusing on what is imperative for this industry is a start.

With music being a hedonistic product, it is more than an onerous task to find out exactly what the consumers want in terms of musical tastes, which spans differently amongst diverse generations of listeners. Information technologies have arguably had a disruptive effect on the traditional music industry; thus, paving the upcoming digital music industry on its vestiges. With peer-to-peer file sharing applications being rampant, the fresh industry has hurriedly being sullied with controversial issues such as digital rights management, illegal downloads by consumers, illegal downloads being endorsed by certain artists, unorthodox strategies by digital music retailers and the steady-diminishing stronghold of the record labels.

This chapter immediately proceeds with the Literature Review, which proves to be the most critical chapter of this exposition since aside from endowing the reader with an informative background of the traditional music industry, and the leadings to the digital music industry, the current research findings and propositions are used to intricately intertwine with the methodology in Chapters 3 and 4.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet The exhaustive Literature Review encompasses several sub areas that revolve around the views of the chosen participants since social conflict is the main reason for the industry’s state. The digital music retailers, artists and record labels of the digital music industry all have worldviews that are conflicting. Beginning with a basic understanding of how the traditional music industry works, there is a slight digression to the essential elements of an ebusiness model. The review then realigns itself in the direction of the growth of the digital music industry. Since the perspectives of the participants are essential ingredients for the industry’s analysis using SSM, the industry’s challenges such as its revenue sources, copyright and piracy, gaining value and so forth are spun around the perspectives and finally the review’s closing stages are presented in the past strategies and current trends. Many issues in this industry have been hitherto unresolved, making this a suitable starting point. Chapter 3 presents the reasoning for the selection of the chosen methodology and why a qualitative method of analysis was preferred over a more quantitative method. The research aims and methods of data collection are illustrated. Finally, the technicalities and mechanics of the chosen methodology are specified for a more thorough understanding of its usage and the analysis it will carry out. In Chapter 4, a detailed description of the activities undertaken based on the methodology’s approach is given. The purpose-driven root definitions applicable to the four persons in the industry along with the interpretation for the formulated root definitions are stated. The conceptual models, modelled from the root definitions will be compared and analysed with the findings tabulated. This will yield the most important deliverable, which is the set of recommendations for the participants in the industry to follow in order to benefit from the industry. This chapter also concludes with the evaluation, reflection and learning and potential future work that could be looked into.

Finally, Chapter 5 culminates with a summary of the essential elements of this dissertation.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet Linked to the various chapters are the Appendices, which provide reports, cases and surveys of relevant occurrings in the digital music industry. These findings provided the ingredients necessary to use the selected methodology, and analyse the findings and buttress certain findings and statements. 1.1 Purpose The industry is seen as problematic due to its “soft” social issues that have resulted since its movement to the fore as a leading and influential industry. This dissertation’s aim is to holistically analyse the industry by conceptually organising the purposes of the chosen four key industry participants in order to understand the industry better, provide recommendations for each participant to further its position by creating better business models, and accommodate the views of the fellow participants to benefit both the industry and the participant. 1.2 Objectives • • • • Identify the industry’s issues from the perspectives of the four key participants Create definitions concerning the root of what a participant wants to achieve Construct models comprising conceptual activities on how to achieve this Exploit the models to generate recommendations for a participant to create an effective ebusiness model 1.3 Target Group This exposition will be useful for people involved in the digital music industry, notably the artists, record labels and digital music retailers who want to understand their role and further their position. Consumers can use it to gain a comprehensive understanding of their role in the industry and how important it is for them to participate ethically for its future to be propitious. Anyone with a liking for music will find this an interesting read, and that is, a lot of people. Note: This chapter is Stage 1 of the customised SSM approach.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet

Chapter 2: Literature Review
With the music industry precariously placed as it is, a single player having identified an effective business model could capture the digital music market and tower over the currently slumped and failing large record labels, digital retailers and artists. However, a myriad of online businesses are mushrooming without thinking about a workable and viable business plan to achieve sustainable competitive advantage and seize the market. This is largely due to a doing-before-think means of strategy where SSM aims to counter that type of thinking. This is Stage 2 of the customised SSM approach. Refer Section 3.5 for an overview of SSM and the tailored approach. This chapter will provide a comprehensive coverage of previous work carried out, current undertakings, participants’ perspectives and an overview of the digital music industry. 2.1 The Music Industry: An Overview The broader music industry as a whole is colossal, comprising radio, live acts, portable digital players, artist merchandise and physical media such as CDs, and vinyls, etc. This project focuses on the recorded music industry, more specifically the digital pre-recorded music industry sector.

Initially, there were six large record companies or labels, notably Bertelsmann Music Group (BMG) (German), PolyGram (the Netherlands), Thorn-EMI together with AOLTime Warner (USA), Universal-Vivendi (Canadian), formerly known as MCA and Sony (Japan) (Janson and Mansell, 1998). Now, subsequent to some mergers, the music industry is dominated by the “big four” labels – EMI, Universal, Song BMG and Time Warner, each of which consists of many smaller companies and labels (Cosper, 2007).

Technological changes have affected and transformed the music industry beyond recognition. Global digital music sales almost doubled in 2006 to around $2 billion (ITFacts, 2007). Refer Appendix C for more key facts. However, these statistics will be severely altered in the subsequent years as will be exemplified in the remainder of this exposition’s literature review. 5

Title: A Systemic Analysis of Digital Music Distribution on the Internet 2.2 How the Traditional Music Industry Works The industry deals with fast-moving, unit-led production, marketing, licensing and distribution functions. Information such as how much a product will sell, in which areas, the shipping time, and the stock replenishment cycle, etc. is essential. The Internet and the Web’s high-speed distribution channel have transformed these traditional activities into digital content delivery where record companies are no longer in a position to control the distribution chain (Janson and Mansell, 1998).

A record company’s core activity is creating and exploiting copyright in sound recordings where a contract is signed with the artist on the condition that that artist agrees to record exclusively with that label for a stipulated period. In exchange, the artist will receive an advance of royalties at the start of work on each record album and the record company will own the copyright in the recordings (Janson and Mansell, 1998).

The artist or musician writes a song and records it in a studio with the help of a record producer. The record company then reproduces it onto CDs, cassettes or vinyl. The crucial activity of the record company will then be the marketing and promotion of the new release and its distribution to retailers. Promotional methods include videos and interviews, and advertisements in the musical press and other media. For a pop record, the aim is to ensure that the record is played on the radio to secure a place in the record charts leading to further exposure and increased sales (Janson and Mansell, 1998).

To exploit new recordings in overseas markets, the record company usually licenses an overseas company to supply records in a particular country. The major labels perform this task through the record company’s local affiliate and the independent record companies often rely on unconnected companies to perform this function. All the major record companies operate their own distribution businesses whereas music retailers order stock from several sources (Janson and Mansell, 1998).

The relative low cost of setting up a retail outlet on the Internet enables record companies to sell products directly to the consumer. Thus, prices of the retailers are undercut and

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Title: A Systemic Analysis of Digital Music Distribution on the Internet profit margins increased (Janson and Mansell, 1998). Simply using the Web as another distribution channel may not involve the purveyance of digital music. Thus, a simple ecommerce strategy is not what this dissertation focuses on but solely the distribution of digital music.

Some companies such as UK’s HMV, have a physical and Web presence launched called HMV Digital.

“They can download from an extensive list of songs - either as individual tracks or whole albums, or they can gain full access to the entire catalogue available on the system by subscribing each month to ‘HMV Unlimited’.” (HMV Group PLC, 2005)

Thus, HMV has incorporated both digital music and physical music distribution modes. 2.3 What is an eBusiness Model? As participants search for an effective business model, it is vital to know what the essential ingredients are and how they can be mixed into an effective model for the player and its participants to contribute to the betterment of the industry as a whole.

A quandary facing the digital music industry is how to shift a century’s worth of business models as quickly as digital technology evolves (GartnerG2 and The Berkman Center, 2003). There are many ideas being proposed and currently visualised in the search for the “holy grail” of ebusiness models ranging from leveraging the decentralised P2P networks such as Kazaa to a “music anywhere” model.

A business model represents the proposed theory of a business. A business model provides a systemic explanation of how an organisation should survive and prosper (Work, 2002). Mahadevan’s Business Models for Internet-Based E-Commerce paper assists practicing managers understand the notion of a business model in the Internet context by classifying these business models. These are generic business models

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Title: A Systemic Analysis of Digital Music Distribution on the Internet comprising templates describing idealised revenue streams, value streams and logistic streams for a class of models. Mahadevan portrays the Internet business model as a unique blend of three streams, specifically, the value, revenue and logistics streams, which are critical to the business (Mahadevan, 2000).

The value stream illustrates how a business can create value out of its model resulting in the long term viability of the business such as the creation of virtual communities; the revenue stream describes how profits can be generated resulting in the long-term sustainability of the business such as with the use of advertising, and the logistical stream enumerates how the business can position itself at an appropriate level in the supply chain of the industry (Mahadevan, 2000).

Thomas Eisenmann offers a similar taxonomy of business models that concentrates more on the value stream as the basis for classification. He offers eight business models with ways of pursuing value from each proposition (Eisenmann, 2002). Afuah and Tucci use the revenue stream concept to identify seven different types of e-commerce business models. However, to complete these business model templates, an extensive amount of information will have to be provided such as the intended strategy, market segmentation, industry structure, pricing, basis for competitive advantage, competences and even a benefits map (Work, 2002) and an analysis of the industry using Porter’s five forces.

This section’s cursory overview of ebusiness models will be important in realising which propositions and current models will be realistic in terms of their value, revenue and logistical streams as the remainder of this review will explicate. However, this dissertation deliberates on the holistic thinking of conceivable realistic models for each key player and not on the analysis and theoretical mechanics of a model.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet 2.4 Changes in the Music Industry’s Value Chain Figure 2-1 shows the main drivers for value in the traditional recorded music value chain including copyright and licensing, production, distribution and inventory, and promotion and marketing costs (Bockstedt et al., 2004).

Figure 2-1: Main Drivers for Value in the Traditional Recorded Music Value Chain (Bockstedt et al., 2004)

The record labels appropriate most of the profit and exercise the most control in the traditional value chain. The digital music formats however, creates opportunities for changes in the recorded music distribution value chain due to it being cheap to reproduce and transfer, more portable and easy to store.

The reduction in “distance” between artists and consumers, the massive online distribution networks, reduced costs of replication and production, and copyright protection and piracy issues will affect the music market structure. Figure 2-2

summarises how the players in the new industry are affected (Bockstedt et al., 2004).

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Title: A Systemic Analysis of Digital Music Distribution on the Internet

Figure 2-2: Digital Music Product Characteristics (Bockstedt et al., 2004)

Intermediaries are agents that facilitate transactions between suppliers and buyers. Their role in the new market is changing with physical retailers being replaced by digital music retailers. Manufactures and distributors are becoming obsolete since record labels, producers and artists can go directly to digital music retailers without the production of a physical product. Figure 2-3 sketches a model of the music industry value chain and market structure with digital music (Bockstedt et al., 2004).

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Title: A Systemic Analysis of Digital Music Distribution on the Internet

Figure 2-3: Music Industry Value Chain and Market Structure with Digital Music (Bockstedt et al., 2004) 1

Digital music retailers add new value to music through marketing, promotions, copyrighting and licensing. As a result, the channel power dynamics are altered giving rise to new incentives as the roles of the players in the value chain are shifted (Bockstedt et al., 2004).

The above discussion shows that the ability of the Internet to remove cost-adding activities while retaining those that add value is enormous. Record labels would benefit from the elimination of cost-adding activities such as CD production and physical music 11

Title: A Systemic Analysis of Digital Music Distribution on the Internet stores while still allowing them to retain control over value-adding activities if an effective plan is implemented. Peer-to-peer file-sharing technology is however the major threat to the record labels’ euphoric break in the new industry. As Hammersley observed:

For something that sounds like so much technology jargon and hype, peer-to-peer technology (P2P) is the fastest growing idea in the history of computing (Graham et al., 2004). For the major record labels who dominate the music industry, piracy is a very serious issue since their profits come from their ability to control the supply chain for music from artist to consumer. If consumers can download for free and if pirates can copy CDs and sell them on the street, the major labels will not be able to recover the costs of developing and promoting artists and recording their music. Based on this, it is quite apparent as to who the main beneficiary of digital music is - the consumer. Even paying for legal downloads through a subscription service is cheaper than in the past. It is not just the structure of the music supply chain which is being transformed, but also the balance of power in the industry. The major labels are losing some of their influence, the artists have alternatives to signing with the major labels, and the consumer appears to have more choice at less cost (Graham et al., 2004). 2.5 Growth of Digital Music: A Background Since the advent of the MPEG-1 Audio Layer-3 (mp3) format, digital music achieved unprecedented promulgation. Shawn Fanning, nicknamed Napster by his friends along with his associate Sean Parker first released the original Napster on June 1, 1999. Napster was a centralised file sharing service that paved the way for decentralised P2P filesharing programs such as Kazaa, Limewire, iMesh, Morpheus and BearShare, which are now used to download music, pictures, and other files (Wikipedia(a), 2007). The popularity and repercussions of the first Napster may have inadvertently revolutionised the entire music industry. This created the online music piracy phenomenon, debated to this very day and perhaps the digital music industry’s most controversial issue.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet iMesh, OpenNap, Gnutella, Kazaa, and most recently BitTorrent became widely popular after Napster’s demise. Although there have been many lawsuits filed against these networks and their users, P2P usage has been inexorable and in fact increased with BitTorrent currently accounting for one-third to over half of all Internet traffic.

According to slyck.com, the average number of users logged into P2P networks worldwide increased from 3.8 million in August 2003 to 9.7 million in January 2006 and cache-logic estimates that these online users are sharing on the order of 10 petabytes of data, which is the equivalent of about 2 million full-length DVDs or 230 million CDs (Krishnan et al., 2006). This vast quantity of file-sharing is mind-boggling demonstrating the extreme rampancy of digital piracy.

The commercialisation of Napster began a spate of not very well thought out digital music models. There are now myriad pay-per-download and online subscription services, including eMusic, Rhapsody, MusicNet and Pressplay. For a fee, these online services allow consumers to stream or download music, and shift content onto another device in accordance with some restrictions specific to the provider (GartnerG2 and The Berkman Center, 2003).

The biggest commercial highlight in the online music distribution space and most successful to date is Apple’s digital music distribution service which took off on 28 April 2003 (GartnerG2 and The Berkman Center, 2003). Apple have been always known for its innovative techniques that take the competition off-guard, which they did on this occasion with the iTunes Music Store, a pay-per-download architecture with many distinctive features. 2.6 The Industry’s Participants This section will present an overview of how the four chosen entities are affected by the new industry.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet

2.6.1 Artists Artists can distribute music directly to consumers through the Internet, bypassing intermediaries involved in the production and distribution of physical music media (Bockstedt et al., 2004). However, with a tremendous number of aspiring talented bands attempting to break into the digital music industry, artists are finding it increasingly difficult to make their music heard, form a relationship with their fans and build a fan base. Nevertheless, if the most suitable path is taken, artists can now rapidly attain a worldwide audience and awareness due to virtual community sites such as Facebook, YouTube and MySpace with significant-financial-gain being the casualty. It does however demonstrate to record labels that a band has a considerable following, which will be an important factor for the band’s long term success. The Arctic Monkeys are an example of effectively launching their career though MySpace (CIM, 2007). Bockstedt et al. suggest the following industry roles for artists. Refer Appendix B-1 for mini-cases:

1. Artist-Led Direct Distribution - Due to new incentives more artists will form their own online direct distribution capabilities.

2. Digitally-Intermediated Distribution - Due to new incentives more artists will contract with digital music retailers for online distribution of their music.

3. Music Singles Production - Due to new incentives more artists will focus on producing singles, not bundled music, for online distribution. 2.6.2 Record Labels Apart from the majors and indies, the digital era has spawned netlabels. Also known as an online label, web label or MP3 label is a record label that distributes its music primarily through digital audio format over the Internet. They emphasise on free

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Title: A Systemic Analysis of Digital Music Distribution on the Internet distribution online, often under licenses that encourage works to be shared such as the Creative Commons licenses. The artists usually retain copyright and the labels employ guerrilla marketing to promote their work with few netlabels earning money for participants (Wikipedia(b), 2008). Record labels usually invest up to 20 per cent of their revenues to discover and nurture new talent known as artists and repertoire (A&R) where marketing and A&R are the core functions of record companies. Although labels are thought to have their power been greatly diminished, the new communication channels and social networks have increased the importance of good A&R and marketing (IFPI Digital Music Report, 2008).

Bockstedt et al. suggest the following industry roles for record labels (Bockstedt et al., 2004): 1. Service Alliances - Record labels will invest in digital distribution services by either: • • Forming alliances with existing digital music retailers or By launching their own services

2. Copyright and Promotion - They will add value by focusing more on copyright, licensing, marketing and promotion services.

Since most labels do not possess the necessary technological infrastructure to enable the distribution of digital music, they must form joint ventures with Internet Service Provides, or services with different types of technology. They should embrace the notion of cooperations, joint ventures, mergers and acquisitions, which will become rather important for a successful business strategy (Swatman and Krueger, 2006). Refer Appendix B-2 for mini-cases. 2.6.3 Digital Music Retailer They are the new intermediary in the digital industry. They have more flexibility where unbundling and rebundling will be easier, enabling more fine-grained control over the customer experience and dynamic pricing (Bockstedt et al., 2004). Online retailers will

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Title: A Systemic Analysis of Digital Music Distribution on the Internet be able to differentiate themselves through specialised services, trust and by perhaps leveraging the major brand names in the industry such as Virgin, HMV, Fopp, etc.

Bockstedt et al. suggest the following industry roles for digital music retailers:

1. Digital Music Retailer Differentiation - By offering new services, product versions and extensions, and unique bundles of music.

2. Digital Music Price Dispersion - Digital music retailer differentiation will result in price dispersion in the online digital music market.

Figure 2-4: Initiators of Digital Music Websites (Swatman and Krueger, 2006)

The digital music retailer will also be concerned with networking unlike the role played by a physical retailer deciding to build a Web presence. This includes forming relationships with artists, record labels and consumers. Figure 2-4 illustrates this. Refer Appendix B-3 for mini-cases.
2.6.4 The Consumers

The consumer is a significant beneficiary with the highest bargaining power. They are now faced with many options such as purchasing one or more songs from an album, or the entire album creating customised bundles rather than relying on a record company or artist to assemble a set of songs. 16

Title: A Systemic Analysis of Digital Music Distribution on the Internet The MP3 format is highly portable allowing the consumer to listen to digital music on PDAs, laptop computers, desktop computers, and mobile phones. They can also be converted and burned to CDs for playing on standard CD players. Unlike other digitized goods, the interface for digital music is the same as for its physical counterpart. Digital music is experienced through speakers and is listened to, the same as a physical CD (Bockstedt et al., 2004). 2.7 Challenges in the Digital Music Industry The industry is faced with a number of challenges due to different individual perceptions resulting in the constant debating of issues. The challenges will be viewed from the perspective of each player where pertinent. 2.7.1 Revenue Stream and Pricing The new industry has ruptured the usual revenue stream for the participants. With consumers wanting music for free, pricing strategies have become of crucial importance. There are two basic pricing strategies for digital music distribution: song purchases also known as a-la-carte downloads and subscription services.

The iTunes Music Store is an example of an a-la-carte download service where users are charged a set fee for each track or album downloaded. The consumer’s choice is flexible since the choice is now free from the bundled offers of record labels. Most individual songs are priced at 99 cents. Differentiation in this market centres on usage rights, catalogue size, and exclusive content such as pre-releases or promotion tracks (Lin, 2005). 2.7.1.1 Artist Perspective Artists are currently experimenting with revenue streams and pricing. The band Radiohead offered downloads of their new album In Rainbows on their website under an “honesty box” system where fans were given the option to pre-order the album download at a price of their choosing (minimum charge of £0.45) (IFPI Digital Music Report,

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Title: A Systemic Analysis of Digital Music Distribution on the Internet 2008). Some critics argue that established artists who have benefited from the marketing machine of major labels should not necessarily stand as an example for emerging artists to follow (Madden, 2008).

“The only reason we could even get away with this,” Radiohead's lead singer, Thom Yorke, said recently about selling its album directly to fans, “is that we've gone through the whole mill of the business in the first place” (Smith, 2008).

Established artists can experiment with different models since they will always have a following. British musician Billy Bragg argues that some portion of Bebo’s $850 million sale price should go to the musicians who uploaded their music to the site. However, the music was uploaded to the site by artists or their labels that knew they would not receive payments except free marketing and access to Bebo’s many music loving users (Arrington, 2008). 2.7.1.2 Digital Music Retailer Perspective New digital music retailers struggle with their revenue stream since they appropriate only a small portion of the revenue. This is also compounded by the fact that consumers can turn to an alternative free source or the more popular stores such as the iTunes Store.

Although an ideal strategy would be first-degree price discrimination where music is sold to every customer at a price which corresponds to his or her maximum willingness to pay, this is unrealistic in the music industry where it is not possible to detect the willingness to pay for every single (potential) customer (Buxmann, P. et al., 2005).

The DMR’s fiercest rival is the P2P service where BitTorrent can be seen as using an implicit pricing mechanism where “prices” are automatically enforced since multiple people download the same file at the same time whilst uploading pieces of the file to each other. The basic idea is to make a peer’s download rate proportional with its upload rate (Krishnan et al., 2006). Perhaps digital music retailers can offer a similar pricing strategy.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet A study was carried out to examine how far the willingness to pay varies for different kinds of music. Four categories were created based on novelty and availability, which were “Current Hits” (songs currently ranked in the charts), “Older Titles” (songs which are no longer in the charts but have a high availability), “Rarities” (unpublished so far or being of low availability) and “Newcomer” (releases by new or still unknown artists) (Buxmann, P. et al., 2005). Therefore, the DMR can differentiate on price based on the type of music offered. 2.7.1.3 Record Label Perspective If the record label acts as an etailer as well, the same DMR’s perspectives will apply. Music companies are now under pressure to look for alternative revenue streams. One area the record labels have been exploring is to share revenues from tours, performances on television and in films, and merchandising, which was not the case traditionally. In the digital era, record companies are licensing music across a multitude of platforms, different formats and with hundreds of different partners. New revenue streams are evolving as labels work with social networks, direct-to-consumer sites and brand partnerships (IFPI Digital Music Report, 2008). Music for Mobile Phone Internet has a massive market at the moment. With ringtones sold as mastertones, which have recently became full track downloads to a mobile, marks an ongoing shift in consumer demand from mobile personalisation features, such as mastertones and images of artists, to core music consumption over the mobile phone (IFPI Digital Music Report, 2008). Record labels can tap into this market to promote the artist and generate loyalties.

Ad-supported services offer consumers free access to streamed or downloaded music while artists and record companies are compensated by revenues generated by advertising. Recent deals between some record companies and social networks such as MySpace, Bebo, YouTube, LastFM and Imeem are examples of this trend (IFPI Digital Music Report, 2008).

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Title: A Systemic Analysis of Digital Music Distribution on the Internet The record industry used to be focused on the record and all the rest was promotions. Now it’s a more balanced business where you have records, TV shows, merchandise, touring revenues and so on (IFPI Digital Music Report, 2008) 2.7.1.4 Consumer Perspective Sicker et al. (2007) carried out a research involving college students supporting the claim that the industry should attempt to capture new market segments by releasing different quality versions of digital content. Consumers who are unwilling to pay ninety-nine cents for “superior quality” copies can thus purchase cheaper, “standard quality” downloads instead. Amongst the students who pirated music, twenty percent were not willing to pay anything for the music but the remaining 80% were willing to pay from twenty to forty cents for a legal download pricing model. Thus, it might be possible to capture these individuals by implementing alternative pricing models (Sicker et al., 2007). Refer Appendix G for a survey of what consumers are willing to pay. 2.7.2 Gaining Value from and Adding Value to the Industry Every participant is looking to gain a significant amount of value from the industry. Value in this context refers to a quality service for the consumers, and a sustainable plan for the artist, record label and DMR. 2.7.2.1 Consumer Perspective According to Sicker et al. (2007) consumer’s consider important characteristics to switch from pirating to buying - the desire to own content legally, the convenience of being able to more easily find desired content, and the guarantee of a high-quality product and the flexibility to move the music onto different media players or to control and access it in various other ways (Sicker et al., 2007). Consumers generally consider these aspects as being added value to the digital music.

Digital consumers want not only single tracks, but bundled content as well. The added value in the form of bonus material bundled with digital albums are helping drive

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Title: A Systemic Analysis of Digital Music Distribution on the Internet consumer demand for premium products. Premium albums outsell the basic versions in most cases (IFPI Digital Music Report, 2008).

Whenever we release a premium download as well as a basic album bundle, it’s usually the higher value product that sells the most, especially within the first couple of months. The fact that fans choose the expanded version, at an enhanced price point, demonstrates how much they value that additional content and the deeper connection with the artist it offers. - Eric Daugan, Vice President, Digital Business, Warner Music International (IFPI Digital Music Report, 2008).

Nine Inch Nails and Radiohead have proved this.

Amberg and Schroder find that the enlargement of the audio content, focusing on special interests, more reasonable prices or different pricing concepts, more confidence in the consumers and better additional services, which support the community of the consumers could and should increase the acceptance of the legal offer of digital audio content (Amberg and Schröder, 2007). 2.7.2.2 Digital Music Retailer Perspective Though digital music has advantages over physical formats, the product is generally viewed as incomplete. Digital music does not include some of the important attributes of the physical CD, which include artwork, lyrics, liner notes, and additional content found in enhanced CDs (video games, desktop wallpaper, video clips). In addition, the simple act of purchasing and possessing a new CD or vinyl stimulates an individual (Janson and Mansell, 1998). In the digital album of today, there are a simply a list of tracks and a thumbnail image of the album cover that cannot be seen properly. According to label sources and pirate network tracking firms, fans downloading full albums from BitTorrent sites almost universally choose files that include scans of the CD booklet over those that do not (Bruno, 2008).

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Title: A Systemic Analysis of Digital Music Distribution on the Internet Therefore, ways of viewing album art should evolve. Lyrics should be integrated in some manner and liner notes in the form of behind-the-scenes footage of the producer and band at work, interviews, Q&A, family photos/video, etc. (Bruno, 2008). Music sites can enhance the value of a download by providing additional information, additional songs, discussion forums, cross recommendations and communication possibilities that can create virtual music communities (Peitz and Waelbroeck, 2004). 2.7.2.3 Record Label Perspective “The only bad thing about MySpace is that there are 100,000 bands and no filtering. I try to find the bands I might like but often I just get tired of looking.” says a 15 year old student and 1,200,000 is the number of rock acts clamouring to be noticed on MySpace (IFPI Digital Music Report, 2008). Thus, the record label can add value by ensuring this student’s needs are met. Peter Jamieson, BPI chairman, highlighted the industry's investment in new talent, adding: The arrival of legal digital music retailers, the increasing use of viral online promotion and the emergence of social networking sites such as MySpace, Bebo and Faceparty means that record companies can be highly innovative in promoting this new talent. (BPI, 2006). The Internet, with its weblogs, chatrooms, and other fora, enables everyday consumer gossip to be exchanged on a global scale, generating what social psychologists and marketeers interchangeably term buzz, hype, viral marketing, and word-of-mouth. The Arctic Monkeys’ rose from obscurity through these methods and not due to traditional marketing. Consumption fuels hype, and hype in turn boosts future demand (Croxson, 2007). Record labels should thus understand the dynamics of guerrilla marketing on the Web, which is now largely becoming a low cost alternative to traditional marketing.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet 2.7.2.4 Artist Perspective Any artist can make and distribute a recording since it is much less expensive to make a record today, but unfortunately recorded music is going to become less valuable to everyone over time. The artist’s true nemesis is obscurity since there is a flood of music out there resulting in abundance and saturation (Future of Music, 2007). Artists can establish meaningful virtual relationships directly with their audience by building an online fan base and answering online posts and comments and taking the time to interact with their fans (Future of Music, 2007). 2.7.3 Piracy Perspective Before the dawn of digital technology, illegal copies were inferior to the original, thus making piracy arguably less attractive. Piracy of digital music is most definitely the largest contributing factor hindering the success of the digital music industry since a stolen copy is an exact replica of the legal file 2.7.3.1 Artist Perspective David Blackburn proved that as an artist’s work is made more ubiquitous through pirating, it helps to make the artist more well-known, gathering a following along the way. He concludes that file sharing relatively reduces sales for well-known artists than for relatively unknown indie artists who are propitiously affected (Blackburn, 2004).

Napster helped me on this first album because nobody knew about it. It made it easier for people to know about the music. Once you get successful and you get another album, you want to start safeguarding it. - Josh Kelley (Lets Sing It, 2006).

Thus, even though an artist might acquire a cult following due to free-downloading, he/she may hope to profit from subsequent albums, which may also be pirated. Therefore, some control should exist.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet Klaus Meine, front man of the German rock band “The Scorpions”, complains about the serious financial damage due to copyright violations, and the Irish musician Andrea Corr feels deprived of the result of her creative work and Metallica has been quite vociferous in their stance against free music (Buxmann et al., 2006).

Piracy is a relative term to the artist. As long as the artist endorses the free sharing of their music, it is viewed as promotional piracy or sharing. However, if the artist deems the sharing of music unethical or illegal, it turns into piracy.

Refer Appendix H for an interview with Neil Young and his views on piracy. 2.7.3.2 Record Label Perspective Record labels focus most of their efforts trying to coerce the uninterested consumer groups using threats of lawsuits and other forms of intimidation. Researchers at Harvard University and the University of North Carolina reported the results of a study of file sharing, based on a review of the log reports of 1.75 million traded songs over a 17 week period compared to actual album sales. They concluded that even substantial file sharing did not appear to have a negative effect on sales, but may have in some cases have had a positive effect on purchases (Roughly Drafted, 2007).

Record labels have begun to accept that attacking the consumer is not the best course of action and now usually turn their efforts onto stopping pirating organisations such as Pirate Bay, the torrent-tracking site. The developers have been indicted for copyright violations where the record labels seek $2.5 millions in damages (Buskirk, 2008). 2.7.3.3 Digital Music Retailer Perspective Promotional piracy argues that piracy may have helpful promotional effects. Most people would not buy music due to a lack of awareness. Sampling appears to be important in the market for recorded music since music is an experience good where horizontal product differentiation and taste heterogeneity are important (Peitz and Waelbroeck, 2004). Thus,

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Title: A Systemic Analysis of Digital Music Distribution on the Internet consumers (buyers and pirates) can help plug this information gap, spreading the word in guerrilla fashion, arguably boosting the digital music retailer’s sales. 2.7.3.4 Consumer Perspective Depending on the consumer’s nature, the following views on P2P can be possessed (Sandulli, 2007): (i) (ii) (iii) P2P music is a perfect substitute to CD music Just a complementary product Substitute or complementary product depending on the specific song or artist considered Therefore, it can be concluded that different consumers will have different reasons and views for pirating music.

Bhattacharjee et al. (2005) carried out a rigorous empirical analysis of the impact of online sharing on the success of music products and inferred that sharing does not hurt the survival of top ranked albums but it does have a negative impact on low ranked albums. However, the P2P systems provide an enhanced environment for users to sample and experience songs (Bhattacharjee et al., 2005).

“At my current university, students are continually searching for sites that are not blocked by the university’s network firewall.” (Kunze et al., 2007). This is a clear indication that the downloaders know about it being illegal and unethical due to the restrictions placed, but these are college students with little extra money to splurge on digital music or audio CDs, therefore, resorting to this option.

In Moore’s study, criminal justice majors scored higher to some extent with respect to the ethics of downloading than the other majors in the social sciences area and that information systems majors, who are more skilled in the technical aspects of downloading, download the most (Kunze et al., 2007). A downloader’s background plays an important part in perceiving the ethics of downloading.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet Out of the 622 teens in a survey who have tried music downloading, 75% agree with the statement that, “Music downloading and file-sharing is so easy to do; it’s unrealistic to expect people not to do it.” Just 23% disagreed with this statement (Madden, 2008). The Non and Light downloaders appeared to be most ready to adopt the commercial digital music services whilst he heavy downloaders are set in the their lawless ways and are the most difficult to tap (Walsh et al., 2003). 2.7.4 Deciding on an Effective Business Model Amberg, and Schröder identify four categories of ebusiness models (Amberg, and Schröder, 2007):

1. Category A: ebusiness models based on “pay-per-download” and independent of the technology of the supplier. 2. Category B: ebusiness models based on “pay-per-download” but are dependent of the technology of the supplier. 3. Category C: ebusiness models based on a flat rate. 4. Category D: ebusiness models that include commissions for reselling of the digital audio content, sharing tools or legal offers of digital audio content. Every new artist, etailer, and record label is anxious to create a model that will excel, surpass rivals and become world renowned. This requires a comprehensive knowledge of the current workings of the industry and an innovative plan capable of encompassing all the industry’s entities and innovations. However, Andrew Dubber, the Degree Leader for Music Industries at UCE Birmingham, author of a novel site called New Music Strategies has written numerous articles, book chapters, and conference presentations about new strategies and technologies. He states that one of the most common questions asked by musicians and independent music companies is what the new business model will be. He declares that the idea of one new model that we will eventually arrive as errant nonsense (New Music Strategies, 2008).

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Title: A Systemic Analysis of Digital Music Distribution on the Internet Dubber suggests abandoning the search for The New Model to open up the way for creative and potentially lucrative customised solutions and new music strategies (New Music Strategies, 2008). Refer Appendix D for his theory. “There’s no new model. There are only creative ways to adapt. And in order to do that, we’re going to need a big piece of paper.” (New Music Strategies, 2008) A prophetic statement as will be seen in the Methodology chapter, Chapter 3 where the problem is not attempted to be solved in a means-end manner. 2.7.5 Copyright and Standards In the new environment, copyright is not functioning as well as it once did. The main problem is the enforcement of these rights since the costs of regulating infringement has escalated due to copying being rampant and carried out by anonymous offenders. Since the copied items are almost perfect substitutes for the original good, the act of copying is practically costless. Copyright therefore loses its effectiveness as a property right in the digital age (Liebowitz and Watt, 2006). There has yet to be developed, an interoperable standard content-protection solution for digital music, in part due to fair use definitions shifting with new technology introduction. Protecting digital content requires a multifaceted approach comprising technology, consumer education and the law (GartnerG2 and The Berkman Center, 2003).

Digital Rights Management (DRM) software allows a content provider to “wrap” a set of rules around content, to define how control can be manipulated and shared by the purchaser of the copyrighted content. Restrictions such as how many copies of the original file a user may make, whether the file can be archived or backed up and if the user can move the content to another device are imposed Sometimes the content is encrypted and in order to get the decryption key a user must pay money, provide an email address or agree to use tracking. It is up to content owners to set the conditions (GartnerG2 and The Berkman Center, 2003).

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Title: A Systemic Analysis of Digital Music Distribution on the Internet DRM is occasionally known as Down-Right Messy as it can be implemented in the hardware, in the Operating System and also in the player, which are all provided by different firms. Thus, there is the issue of setting standards and making sure that all platforms are compatible (Peitz and Waelbroeck, 2005.

Appendix F provides an overview of the current digital music copyright laws. 2.7.5.1 Artist Perspective Participants of the FSFE suggest that DRM is like a tool, much like a hammer that could be used to build a house or hit someone over the head. While that may be true from a certain perspective, from another angle, DRM is more like a hammer that, in order to allow a few people to build a house, requires to hit everyone on the head (Fellowship of FSFE, 2006). The vast majority of artists could never afford tracking down violations of their rights, and indeed are themselves often victims of the recording companies who will not allow them to publish songs even if those companies themselves do nothing with them. (Fellowship of FSFE, 2006). Stronger Copyright laws and harsher punishments does not help to rectify the situation, but only tends to make the recording companies stronger, further worsening the state of the individual artist trying to negotiate deals with them (Fellowship of FSFE, 2006). The claim that copyright supports the creative basis of a society is said to be empirically doubtful since it vastly underpins unequal rewards. (Kretschmer, 2005). Copyright suits music publishers and labels who are incentivised to market and distribute the works of an artist they exclusively control. Copyright also suits artists with a record of hits who can extract favourable terms from the record labels and does not assist new and niche artists who could sign away their “bargaining chips” cheaply (Kretschmer, 2005).

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Title: A Systemic Analysis of Digital Music Distribution on the Internet 2.7.5.2 Record Label Perspective Ever since the sale of digital tracks from the major labels began, a valiant attempt was made to safeguard the tracks from being pirated in the form of DRM and other ways that made illegal distribution inconvenient.

Record labels are reluctant to offer DRM-free music since they believe they might lose control. However, after realisation that it caused consumer weariness dawned, UK’s EMI was the first to offer DRM-free music, which showed early returns from digital music retailers as positive with reported sales increases for artists on EMI. Coldplay's A Rush of Blood to the Head has seen a 115 percent increase in sales, paling in comparison to Pink Floyd's classic Dark Side of the Moon, which are up 272 percent since EMI dropped the DRM (Bangeman, 2007). 2.7.5.3 Digital Music Retailer Perspective Many business models, particularly based on subscriptions, super-distribution (allowing fans to share music with their friends) and time-limited downloads (such as those offered by ad-supported services), cannot exist without DRM (IFPI Digital Music Report, 2008). 2.7.5.4 Consumer Perspective Consumers are weary of DRM since certain restrictions are being applied onto the digital music, absent from the physical media. This is summed up in a Web comic (Figure 2-5).

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Title: A Systemic Analysis of Digital Music Distribution on the Internet

Figure 2-5: Web Comic (Drew, 2007)

A hardcore geeky Internet community exists with their own l33t (elite) language. This community are also major enthusiasts of digital music and will not ever willingly pay for digital music due to these restrictions.

Consumers argue that digital music if purchased from a proprietary music store forever locks them into using music players from that one company. On the flipside, statistical facts indicate that at the end of 2006, customers purchased a total of 90 million iPods and 2 billion songs from the iTunes store. A few calculations reveal that 97% of the music on the average iPod was not purchased from the iTunes store so iPod users are clearly not locked into the iTunes store to acquire their music (Jobs, 2007). 2.8 Current Models and Trends in the Digital Music Industry The US Supreme Court ruling in the MGM v Grokster case in June 2005 has made innovativeness more promising by bestowing legitimacy upon models that marry the power of file sharing (Currah, 2006). Last.fm is a highly popular and revolutionary digital music business model that connects random users who share the same music tastes. Last.fm provides free music of some artists and similar artists according to the user’s preferences with a radio option as well;

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Title: A Systemic Analysis of Digital Music Distribution on the Internet allowing the user to sample tracks and buy albums as a digital download if satisfied. (last.fm, 2007). Last.fm launched an on-demand music streaming service in January 2008 where millions of tracks from all four major music labels and indies were made available for free. This ad-supported music stream has resulted in a 119 percent increase in music purchases through Amazon. Refer Appendix E for the full report. This social music site was recently bought by US media giant CBS Corporation for £140million, the largest-ever UK Web 2.0 acquisition (BBC, 2007). This is symptomatic of the blurring of lines between the mass media and the digital music industry, which means that although digital music has on the surface appeared to have shrunk the recorded music industry and perhaps been relegated to merely a sector, the exact opposite has occurred.

Rupert Murdoch's News Corp bought social networking site MySpace for £290m Google paid £883m for YouTube (BBC, 2007). This also indicates a blurring of demarcations between news, music and television industries.

BurnLounge has adopted a controversial business strategy, which is the digital music world's equivalent of a pyramid selling scheme. Users can get personally involved on a number of levels as music retailers and can register and build their own personal etailer, containing their own personal music preferences and recommendations. The user is then allowed to recommend their personalised music store to friends and family and get reward points whenever their referrals buy from the store. Users can also sign up affiliate retailers where they will get a share of any revenue generated from sales on their affiliate's stores and a share of the fees that their affiliates pay (Digital Music, 2006).

Mark Cuba believes that music is not just entertainment, but a tool for people to describe themselves to those around them. Music is used in ringtones, on MySpace pages, deafening emanations through the windows of cars to let people know something about who we are. “Technology is now in a position to allow people to broadcast their

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Title: A Systemic Analysis of Digital Music Distribution on the Internet personalities and positions about themselves as well as enhance music consumption” (Blog Maverick, 2007).

Anas Tawileh states in his article, Music in the Arab World about an alternative business model, which involves producing and distributing creative content under the Creative Commons license. The Creative Commons philosophy counters the copyright regimes and legislation that is restricting access to intellectual and artistic content (Tawileh, 2007). Reasonable proponents of free and open content do not confuse unauthorised use of commercial music with “free content,” and have instead sought to create their own music, movies and other entertainment, and share them under agreements like the Creative Commons licenses (Roughly Drafted, 2007).

The most successful business model to date is the iTunes Store, which recently announced selling its 3 billionth song.

The milestone not only marks a major feat for Apple, but also for the digital music industry as a whole. Its strategy was since it was tied so closely with Apple's wildly-popular iPod. The continued success of the iTunes Store continues to reflect growing consumer interest in legal music downloads. (Cheng, 2007). Microsoft has designed a model to promote emerging music acts across its entire digital footprint. The program is called Ignition, which makes artists heard to consumers for an entire month through Microsoft's multiple services such as MSN, Xbox Live and Zune (Reuters/Billboard, 2007). Artemis Records has used Kazaa and other file-sharing networks to distribute music files by artists such as Lisa Loeb, Ricky Lee Jones and Steve Earl. They use a DRM technology developed by a partner of Kazaa that allows the first uses for free and after that the downloaders must usually pay 99 cents to purchase the song (Peitz and Waelbroeck, 2005).

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Title: A Systemic Analysis of Digital Music Distribution on the Internet Jay-Z and Coke formed an alliance where promotional material was inserted into decoy files on file-sharing sites, turning P2P networks into an advertising medium for record labels and other marketers. “The concept here is making the peer-to-peer networks work for us,” says Jay-Z's attorney, Michael Guido. “While peer-to-peer users are stealing the intellectual property, they are also the active music audience,” and “"this technology allows us to market back to them.” (Angwin et al., 2006). Audioslave, Ice Cube, Yellowcard and other music groups have used decoy files for their own version of viral marketing where snippets of a song are inserted into the files with the promise that a stream of the entire song will be “unlocked” once the promotion is forwarded to enough people. The intention is that this will motivate people to send the file to many friends (Angwin et al., 2006). Amazon has decided to abandon DRM and sell tracks in the MP3 format to allow consumers easily to transfer music among a variety of devices. The other major record companies Universal Music, Sony-BMG and Warner Music are testing the MP3 format. However, they are still concerned that dropping copyright protection could increase piracy or cut into their growing sales of music to users of mobile phones (Chaffin and Duyn, 2007).

Due to recent efforts to close several major file-sharing servers, the availability of a large amount of music that was synonymous with P2P networks has diminished. This impact is verified by research. In November 2007 NPD found that over a third of P2P users (39%) said they could not find the songs they wanted on P2P networks. The second most common negative P2P experience was the inability to download from search results (32%) (IFPI Digital Music Report, 2008) Refer Appendix J for the hidden costs of downloading. The industry new buzzword is 360, denoting a 360-degree record deal where labels sign artists to contracts that include a cut of not only album sales, but also their merchandise, touring and other revenue that was historically not the case for labels. This continued overlap among entities will ultimately change the industry landscape (Bruno, 2007).

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Title: A Systemic Analysis of Digital Music Distribution on the Internet 2.9 Proposed Business Models Currah suggests harnessing P2P file sharing in a legalised and secure form using DRM in the P2P’s network distribution. The file can then be freely shared over the Internet but will remain locked until a usage license is purchased. He however states that there should be a balance between the interests of the artists, consumers and corporations, which would require a less intrusive and inflexible form of DRM he titles “thin” DRM (Currah, 2006).

The benefits of this model would be tremendous due to the distributed and scalable structure of P2P networks resulting in more cost-efficient storage and deliverance of large digital files unlike the traditional centralised server-client architectures where costs increase in proportion to the number of consumers accessing. In addition, the consumers will be rewarded for their role in the transactions making them “citizens” rather than “leeches” (Currah, 2006).

Brian Fischbeck suggests a few models that will not work such as the Ad-Supported Model and An Interim Model (Napster for a Monthly Fee). This model involves the wrapping of advertisements around copyrighted content that the user would have to see or hear when accessing the content. The problem with this model is it resembles radio; albeit a radio station where you control the music programming, which is currently available for free and known as Pandora.com (Pandora, 2007). This will seem intrusive to consumers who will still prefer to steal (Fischbeck, 2000).

He then suggests a model that may have a chance -The Streaming Subscription, “Music Locker” Model. He proposes that the major labels turn into service companies. To integrate a consumer’s music into an “available anywhere” collection where they will have to pay to add it to their MusicBank music locker (Fischbeck, 2000).

In his Stealing [from] the Music Industry paper, Naveen Sastry proposes an open content business model by leveraging the ubiquity of the current P2P phenomenon. He suggests

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Title: A Systemic Analysis of Digital Music Distribution on the Internet that the major record labels will have to form partnerships with technology companies to engage in promotion. This model helps the smaller bands gain a foothold since an undiscovered band can be critiqued by consumers based on their musical prowess or catchiness (Sastry, 2005).

Paula M.C. Swatman and Cornelia Krueger provide an empirically based analysis and evaluation of the existing and possible future evolution of Internet business models within the digital content market, focusing on the possibilities for cooperation and competition within this market-space (Swatman and Krueger, 2006). They propose that linking companies and technologies in ways such as value webs or

cooperative/cooperative networks are successful strategies.

Online retailers can develop their offerings. For example, personalised news services or creative advertising targeting an individual, develop a competitive pricing strategy, and provide easy access for their consumers, offering an always-accessible website. (Swatman and Krueger, 2006).

Krishnan et al. (2006) explores the possibility of harnessing the raw power of the highly scalable and robust P2P networks. They postulate a pricing solution where it might be possible to stimulate individuals to contribute to P2P networks through reputation based mechanisms (Krishnan et al., 2006). 2.10 Summary of the Industry The literature above, albeit exhaustive, requires a rationalisation of this cascade of information, which is indubitably the most arduous task. This will be carried out in Chapter 4. The lessons learned from past endeavours, proposed promising models, and the current accomplishments in the industry and where it appears to be heading should be analysed as to how a stakeholder can appropriate significant value from it.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet Online music distribution can be viewed as a device for consumers to test and find out about new music, an advertising tool, a door to open the market to small artists, a source of information for market research and a tool to manage customers.

Innovative concepts are necessary to establish profitable ebusiness models and the already existing theoretical findings should be taken into consideration while implementing an ebusiness model (Amberg, and Schröder, 2007).

“The record-label system is built on 100% control,” says Leonhard, and major labels “have lost that” (Smith, 2008). Saying yes to rehab is a start, but returning to health is going to take a sustained dose of discipline and imagination (Smith, 2008).

Note: The research for the literature review ended in May 2008.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet

Chapter 3: Methodology
“But I try to get my head clear, it's too full of ideas that I haven't thought of yet” – Weather Reports by Bright Eyes.

The methodology in this context is taken to be a structured approach to thinking about the problematic situation; “what” is wanted to be achieved and “how” that “what” can be achieved. Thus, to gain a background understanding of the digital music industry domain, information was initially collected from various sources focusing on the key four players and their perspectives, which was furnished and explicated and critically evaluated in Chapter 2, the Literature Review. 3.1 Research Aims The research carried out in this dissertation was performed in Chapter 2 and is aimed at analysing the digital music industry to eventually improve the position of each entity in the real world. With there being four key players in the industry, the worldviews of these four were researched on. By noting the successes, failures and predictable failures based on past trends and opinions of industry authorities from journal articles and from all aspects of the industry as a whole; a holistic approach taken should ideally result in a set of recommendations that accommodate the views of all the selected participants. 3.2 Data Collection Data collection is predominantly divided into secondary data and primary data where secondary data is categorised as information that has already been assembled, having been collected for some other purpose with sources including census reports, trade publications, and subscription services (Ghauri and Gronhaug, 2002). Primary data refers to data obtained for the first time and used specifically for the particular problem or issue under study. Primary data was not used in this dissertation due to the enormity and type of the information that has to be gathered within limited time constraints. Only secondary data was used.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet Secondary data allows for better informed decision making, cheaply and speedily. The drawbacks of using only secondary data might be that the definitions used, scope, coverage, frequency, timeliness and accuracy may all be inappropriate for the needs of the current research since such data may have been designed for a different or general purpose (Ghauri and Gronhaug, 2002). Therefore, secondary data should be checked for suitability to ensure its contextual nature.

Although the collection of primary data through observations, experiments, surveys (questionnaires) and interviews would have provided more tailored information elements to this dissertation, gathering information from record labels, artists and digital music retailers is possible but seemed a highly unlikely probability of them actually taking the time to respond. The data collection process can be costly and time-consuming with only a sparse few if any who are willing to cooperate since the respondents’ unwillingness to partake maybe due to lack of time, lack of incentive, waste of their valuable time, and risk in sharing confidential information (Ghauri and Gronhaug, 2002).

There are two types of secondary data known as internal and external. However, since the analysis is of an industry and not particular organisations, only external secondary data was considered. External sources constitute general statistics, industry statistics, annual accounts and research reports, etc. (Ghauri and Gronhaug, 2002).

The digital music industry being an intensely discussed about and controversial topic at the moment was researched mainly through the World Wide Web’s sources. Journals, websites, white papers, working papers, industry authority opinions, e-books, case studies and relevant blogs were the secondary sources of information. Copious amounts of surveys, interviews and reports have been carried out in reference to the digital music industry. Appendix A provides statistical evidence in the form of graphs and charts and surveys carried out in 2007 and 2008. Therefore, it was unnecessary to personally carry out questionnaires and interviews to gather data from artists, digital music retailers, record labels and consumers as the analysis being holistic, requires views from all these participants, which would involve an enormous amount of time and resources. It would

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Title: A Systemic Analysis of Digital Music Distribution on the Internet also be extremely difficult to contact record labels, artists and digital music retailers since they are not easily accessible depending on their popularity and status in society and it would mostly resemble the currently conducted research but probably to a lesser accuracy and detail. Thus, it would have been highly unproductive. 3.3 Qualitative Vs. Quantitative Qualitative research is one of the two major methods of inquiry in social sciences. Qualitative research involves an in-depth understanding of human behaviour and the reasons that govern human behaviour. Essentially, it investigates the why and how of decision making, as compared to what, where, and when of quantitative research. Qualitative research involves the use of qualitative data, such as interviews, documents, and participant observation data, to understand and explain social phenomena (Wikipedia(c), 2007). Quantitative methodologies can be quite complex requiring considerable time and effort for proper understanding and use. Community members such as undergraduates, postgraduates, etc. may "tune out" elaborate statistics, creating difficulties in the utilisation of the products of research (Kruger, 2003). However, this depends on the background of the analyst. An engineer may prefer quantitative methods whereas an arts or purely business and information systems individual may prefer a qualitative method. What should be considered most significant is the appropriateness of the selection. Clearly, the digital music industry revolves around social, political and legal issues. While a quantitative method of analysis can be applied to a file-sharing oriented hypothesis, attempting to improve an industry holistically based on the perceptions of its incumbents most definitely requires a qualitative method of analysis. The book Surviving your Dissertation mentions A Holistic View approach. The holistic view stresses that the whole is different than the sum of its parts. Consequently, qualitative methods seek to understand phenomena in their entirety in order to develop a complete understanding of a person, program or situation as is the case in this thesis (Rudestam et al., 2001).

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Title: A Systemic Analysis of Digital Music Distribution on the Internet 3.4 Hard Systems Vs. Soft Systems Hard systems thinking is goal-oriented where a study begins with the definition of the desirable goal to be achieved. The question asked is, what system will meet his or her need to solve the problem? It takes the problem or need as a given, which allows completely unexpected answers to emerge at later stages (Checkland, 1981).

What is required is not problematical in hard systems, it is only how to achieve it that is the problem. At the soft end, what to do is problematical as well as how to do it (Wilson 2001, p.8). Questions such as “can such systems be improved, modified or designed and if so, how?” are asked.

The digital music industry most definitely requires a soft approach since the problem cannot be defined; rather it is a problematic situation, which can be improved. 3.5 Methodology Selection The main problem apparent in the digital music distribution industry is the conflict of opinions amongst the main entities. Realising innovation does not seem to be an issue but standardisation affecting interoperability does. Lack of understanding of consumer and artist needs by the record labels, and vice-versa. What has caused the industry’s disarray is not a dearth of any raw material, technology or an economic crisis but simply social conflict due to a lack of understanding and awareness. The problematic situation is fuzzy and related to social constructs The methodology selected to analyse the digital music industry is the Soft Systems Methodology (SSM). This was the methodology advocated and taught throughout the MSc Strategic Information Systems course, but more importantly is veritably suitable for the problematic situation in question. 3.5.1 Soft Systems Methodology (SSM) SSM is an interpretive-based systemic theory with the establishment of principles for action in ill-structured problem contexts. SSM provides an explicit, organised and

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Title: A Systemic Analysis of Digital Music Distribution on the Internet defensible way of reconciling different and/or conflicting perspectives. It comprises a set of concepts that can be applied to any situation being analysed and is more useful in “soft” situations. The unique feature of SSM is that it takes seriously the multiple perceptions of the people in the situation together with the ability to model potential future scenarios. It provides a mechanism for constructing models pertinent to those perceptions, which are unique to that situation. Since it is a participative approach, SSM essentially provides the structure for the analysis. SSM recognises that different individuals will have different perceptions of the situation and different preferable outcomes, and it explicitly takes these into account from the beginning to ensure that the results of the analysis are accepted by all the participants. It does not define a single right method of action, but through an iterative process, defines an acceptable improved path of action. (Presley et al., 2000). The perceptions of the main participants in the industry are crucial and should be highly regarded if the industry is to progress healthily. Each participant would want to further their position in the industry but should consider the views of the other participants in the industry as well to ensure sustainability. Therefore, the perspectives of all the involved persons such as the artists, record label/producers, digital music retailers and consumers can be used to think about the significant problem the industry is facing and resolve these issues through a process of accommodation since SSM deals with resolving conflicting views of problems and requirements between users (Wilson, 2001). Brian Wilson describes a methodology as a set of guidelines which stimulate the intellectual process of analysis. The problem in inquiry is “soft” since the needs as specified by the users in the industry are argumentative with those required to support the business and the business requirements themselves are problematical (Wilson, 2001). The perceived reality is problematic and inquiry is systemic. The digital music industry spans many subject areas and deals with many controversial issues involving the perceptions and attitudes of different key industry persons. Although, it is not impossible to analyse the industry using quantitative methods, it is quite difficult

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Title: A Systemic Analysis of Digital Music Distribution on the Internet to analyse it holistically. There have been many quantitative studies on the effects of filesharing or consumer purchase patterns but these analyses only focus on one aspect of the industry. How it fits into the whole is often difficult to visualise. A qualitative method will focus on the perceptions of for example an artist, where one may want to profit from sharing music on social networks and another may want to simply propagate their image and tunes through the virtual community of music listeners. They are both equally correct in their own right. Therefore, “softness” and holistic nature of this industry’s quandary makes it highly suitable for analysis by the SSM methodology.

The SSM methodology was developed from earlier systems engineering approaches by Professor Peter Checkland and colleagues Dr. Brian Wilson at the University of Lancaster. The Wilson approach will be used as the basis for the methodology in this study. In planning this dissertation, SSM was also used to present the plan and proposal to supervisor, Mikhaila Burgess. 3.5.2 General Systems Theory SSM is based on systems theory. A system can be defined as:

An organised, unitary whole composed of two or more interdependent parts, components or subsystems and delineated by identifiable boundaries from its environmental supersystem (Kast and Rozenweig 1985, cited in Ingram, 2000).

A system must be bounded and contain parts which are known as subsystems. Systems interact with their environment by taking in and producing an output of substances, people or things such as in the human body (Ingram, 2000). General Systems Theory is a name which has come into use to describe a level of theoretical model-building which lies somewhere between the highly generalised constructions of pure mathematics and the specific theories of the specialised disciplines (Boulding, 2004). . 42

Title: A Systemic Analysis of Digital Music Distribution on the Internet 3.5.3 SSM’s Tools An overview of SSM’s tools will be presented to comprehend how they can and will be applied to analyse the problematic situation.

Root Definitions and Conceptual Models The Root Definition and Conceptual Model assembly are the building blocks of the intellectual constructs in the SSM approach. The root definition captures the purpose taken to be relevant and the conceptual model represents those structured activities that must take places if the purpose is to be achieved. Thus the RD defines what the system is and the CM describes what the systems must do to be the one defined (Wilson, 2001).

The RD is a sentence expressed in natural language, consisting of elements in accordance with the mnemonic CATWOE (Wilson 2001, p.23). • Customer: the recipient of the output of the transformation process, with the victim or the beneficiary. • Actor: those individuals who would do the activities in the resultant conceptual model if they were to map onto reality • • Transformation process: transformation process Weltanschauung: The German expression for worldview. Practically interpreted as the statement of belief within the RD • Owner: a wider-system decision taker with authority over the system defined, with a concern for the performance of the system. • Environmental constraints: Those features external to the system defined, which are taken to be significant. There are two types of root definitions: 1. Primary tasks root definitions, which focus on officially declared tasks of the system. 2. Issue-based root definitions, which focus on problem issues, which would lead to systems that are not likely to be institutionalized in the real world.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet This study will incorporate the formulation of issue-based root definitions and their conceptual models. Wilson’s Conceptual Model rules (Wilson 2001, p.28): • The CM must be constructed from the words in the RD without recourse to the specific situation. Thus the inclusion of activities and/or sets of activities within the CM must be defended against specific words or phrases within the RD. • Since each activity in the CM could be the source of a RD for expansion to a more detailed level, sufficient words should be used within the activity to be precise about the transformation process it describes • The CM should be defensible against the FSM, which means that there should be adequate connectivity, reference to resourcing and at least one monitor and control subsystem within the CM. • Arrows within a CM are essentially logical dependencies and should have a consistent format. Double-headed arrows are not permissible. The conceptual models are accounts of concepts of purposeful activity based on declared worldviews, which is used to stimulate cogent questions to facilitate debating about the real situation and the improving it by implementing desirable changes to it. The models can thus be viewed as devices to stimulate, feed and structure the debate about the situation perceived as problematical (Ö Pala1 et al., 2003).

The assumption upon which SSM is based is that whatever the nature of the organisation (in this case, the industry), assume that the individuals within it are pursuing purposeful activity (Wilson, 2001).

The set of possible purposes stated for the digital music industry could all be legitimate definitions. With the purpose defined, an RD could be formulated relevant to that purpose. However, these single statements of purpose are not a description of the realworld industry but a particular perception of it. Thus, the definitions and the resulting model can be seen as a concept relevant to the organisation, which can be used in

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Title: A Systemic Analysis of Digital Music Distribution on the Internet thinking about the organisation. These concepts are called Human Activity Systems (HAS). They are systems because they represent a set of purposeful activities together with the relationships (logical) between them. The activities could be undertaken by human resources if the system were to map onto reality (Wilson 2001, p.9).

Both Wilson’s and Checkland’s approach are not prescriptive in nature. It is a pure flexible methodological framework. Thus, as long as sufficient structure and rigour is applied to the framework, the reflective practitioner can approach the problematic situation in the most befitting and logical manner.

The situation in the industry was problematic because the definition of the problem and action to improve the situation differed between the entities. SSM was developed for situations that are ill-defined, and comprise a number of interrelated problems and are viewed differently by people in the situation.

In this dissertation, I am the problem-owner analysing the industry. However, any of the selected stakeholders can analyse the industry from their point of view. Using this method, the problem owners will learn about, debate and define action in order to improve the industry situation. 3.5.4 The Checkland Approach The seven stages are: (Checkland, 1981):
1. 2. 3. 4. 5. 6. 7.

Find out about the situation Express the situation Define some Root Definitions relevant to the situation Develop Conceptual Models Compare Conceptual Models with reality Define feasible and desirable changes Take action to improve the problem situation

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Title: A Systemic Analysis of Digital Music Distribution on the Internet Stages (1), (2), (5), (6) and (7) can be regarded as working in the real world, while stages (3) and (4) can be considered to be systems thinking about the real world. 3.5.5 The Wilson Approach (Wilson 2001, p.8) 1. Find out about the situation 2. Express the situation 3. Define potential PT Root Definitions relevant to the organisation or unit under review 4. Develop Conceptual Models 5. Compare to achieve an accommodation of views 6. Map organisation structure 7. Define information categories 8. Map activity-to-activity information flows 9. Map current information provision and compare against requirements The above is mainly used for information requirements analysis. 3.5.6 The Customised SSM Approach Adopted for this Study Wilson’s approach from Stages 1 to 5 will be tailored to suit this study. The stages beyond that are more organisation oriented and beyond the scope of this study.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet

1. System definition

8. Take Action

7. Present results 2. Find out about the situation 6. Compare to achieve an accommodation of views and recommendations 3. Express the situation

REAL WORLD ITERATE SYSTEMS THINKING ABOUT THE REAL WORLD
5. Develop Conceptual Models 4. Create Root Definitions

Figure 3-1: The Customised SSM Approach Illustrated

1. System definition. The problem situation to be intervened is identified since a number of people are uncomfortable with the situation. An exploration is required with possible methods of improvement. This was Chapter 1, the Introduction.

2. Carry out a comprehensive background research focusing on the perspectives and opinions of the four key participants. This was carried out in Chapter 2, the Literature Review where the industry’s issues revolved around the perspectives of the four key chosen entities.

3. Create profiles. The situation will be expressed where profiles will be created for each of the selected industry players. These profiles will be mainly based on the literature review with the orientation stated. This will be carried out in Chapter 4.

4. Create Root Definitions. This stage will involve systemic thinking about the real world where Human Activity Systems (HAS) will be created Based on the profiles, Root Definitions (RDs) will be formulated around the worldview for each participant. The essence of each entity’s profile will be the material used to construct the RD for each entity. This will result in four root definitions.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet However, two orientations for the record label will be taken. Therefore, five RDs will be developed. This will be carried out in Chapter 4.

5. Construct Conceptual Models. The RDs will be conceptualised. Each RD will then be modelled according to Brian Wilson’s approach in the form of conceptual models, resulting in five complete conceptual models. This will be carried out in Chapter 4.

6. Compare to achieve an accommodation of views. Some activities in each CM will be compared and contrasted across all the four models with potential inferences as to the discrepancies and similarities stated. This will be carried out in Chapter 4.

7. Present results. The results of the analysis will be presented, which will be the recommendations for participants to follow, aiming towards an accommodation of worldviews, which will be essential for the industry to prosper and sustain itself harmoniously. This will be carried out in Chapter 4.

8. Take action. The output of the analysis will be used to improve the real-world situation. Even though this stage will not be carried out in this dissertation, it represents the iterative nature of the methodology where following the action taken, new changes in the environment can be taken into consideration to once again redefine the system and restart the SSM cycle.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet

Chapter 4: Analysis, Evaluation and Learning
This chapter uses the customised approach illustrated in the previous chapter to qualitatively analyse the intellectual constructs and present the findings. In this chapter, profiles will be created, root definitions will be formulated and conceptual models will be constructed all based on the four core selected entities. Finally, the evident shortcomings, evaluation, reflection and future work will be highlighted.

Five profiles will be presented in the next section. These are limited to my interpretation of the participants’ perspectives and is based on the literature review.

The literature review revealed a slew of different perceptions on different aspects in the industry. An orientation, it was realized, mainly depends on the state of the participant in the industry spectrum from “starting-off” to “well-established”. An artist just starting-off may not be too concerned with profit making as long as he/she is able to gather a following but an artist having gathered a following will then want to make a profit in order to earn a living.

Hence, a participant should be aware of its position in the industry as well as the position and purposes of the other participants if the participant is to gain and provide value to the industry and alleviate strife. It can be assumed that no one individual is 100% committed to a single perception. A networking-oriented record label would be promoting artists whilst the promotion-oriented record label would be networking with other businesses. 4.1 Player Profiles This is Stage 3 of the customised SSM approach. The reason for creating a profile for each player is due to the fact that different individuals under a certain player category will undoubtedly have a different worldview based on their position and orientation, which in this case means general inclination. For example, a new indie artist just wanting to be heard through any method compared to a relatively established artist wanting to profit from distribution. Or a new indie label solely carrying out promotion though

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Title: A Systemic Analysis of Digital Music Distribution on the Internet guerrilla marketing methods for a signed or unsigned artist compared to an established label focusing on profitability and promoting a signed artist.
4.1.1 Consumer Profile

A light and ethical downloader who downloads a small amount of music illegally and some legally as well is the orientation selected for the consumer since this segment is the most likely to embrace a digital music service and as research has indicated, is the most profitable target market.

A study by Walsh et al. found that the level of music downloading a person has been exposed to had a direct effect on their consumption behaviour. Regular downloaders showed a greater support for a subscription model than for the pay-per-download approach, which was favoured by light downloaders. Hence, the downloading stage the consumer is in will influence his/her digital downloads (Walsh et al., 2003). The five risks that the respondents felt most strongly influenced their downloading decisions were: (i) (ii) (iii) (iv) (v) Sound quality of the downloadable files Quick, easy-to-use search tools Security of personal information Broad range of artists from different labels Ability to freely make copies of downloaded music

Orientation - Non and Light Downloader This consumer persona would prefer to listen to licensed music at any time from a broad range of genres and all the major record labels and a lot of indie labels. He/she would welcome sound quality options and different formats at reasonable prices. The security should be high as non-downloaders are weary of security threats and carrying out transactions over the Internet. Flexible usage of the downloaded tracks would be a requirement. Some would also prefer a streaming service to bypass storage issues.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet
4.1.2 Artist Profile

Orientation – Exposure-seeking new indie artist. This orientation was chosen since this type of artist is the most likely to benefit from the new industry if its potential is properly understood in order to reap the benefits. This type of artist is arguably able to benefit more from the digital than the traditional industry.

The artist’s persona stems from a talented indie artist looking to start a career in music in the new industry. He/she needs to know the methods of low-cost distribution on the latest vehicle of distribution – the Internet. They want their music to be heard by anyone and everyone interested in music in order to gather a following of listeners in quick time. They want this to be done legally and in an efficient manner. Eventually, if their music has gathered a substantial audience, money can be made from concert tours, merchandise, digital music tracks and CDs or vinyls.
4.1.3 Digital Music Retailer Profile

Orientation – general start-up etailer. This orientation was selected instead of an etailer with the backing of a big brand or experience since a new etailer can speedily rise in the new industry if the most suitable approach is taken.

A digital music retailer has the responsibility of satisfying different types of consumers by offering a service different to the services currently offered that seem to be lacking something. They should ensure that their service is very reliable, legal and user-friendly to rival the threat of P2P services. By offering digipacks comprising added artist material and other innovative offers to differentiate their service, the consumer would turn towards this legal service.
4.1.4 Record Label Profile

Two record label profiles were selected since different labels appear to posses more contrasting purposes and to also demonstrate that a participant category can have more than one purposeful definition.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet Orientation – Artist-focused Promotion This orientation is related to the new industry’s more economic form of promotion where labels solely promote on the Internet to reduce cost and target Internet users. Therefore, this orientation was chosen to demonstrate the changing nature of the record labels.

This persona bends more towards an indie label wanting to know about as many indie artists trying to get themselves heard. Through the process of filtering, bands that the label sees potential in can be promoted through low-cost methods over the Internet. In order to be more influential, the label would prefer to work with other participants in the industry such as review sites, DMRs and artists. Orientation – Networking-focused The traditional big labels have always believed in being influential and having artists approach them for support. The new industry has however changed how the labels can wield their power and benefit from it, which is the reason for this orientation’s selection.

This persona wants to become a highly influential label by collaborating with other entities from different industries such as the telecommunication, digital device manufacturing, mobile phone, the retailers and etailers and internet companies. They can therefore exert more power and hope to shift the balance back in their favour. 4.2 Root Definitions This is Stage 4 of the customised SSM approach. The following question is been answered in order to understand the purpose of the created Root Definitions: What is your purpose in the digital music industry and how do you believe you can achieve this? SSM was also used for the planning and proposal stage of the project. Refer Appendix I for the Root Definition and Conceptual Model.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet Root Definitions for the Problematic Situation in Inquiry Based on the five profiles created in the previous section, five Root Definitions will be modelled in this section. The core requirements of the record label, artist, consumer and digital music retailer will be streamlined and drafted as separate root definitions.

Wilson specifies a few rules that should be followed when formulating RDs. These rules will ensure RD consistency and the proper construction of the conceptual models. Example of an RD: A system to download music. • • • What must be done to acquire the input? What must then be done to reach the output? What must then be done to make the output available?

The answers to these are derived from logic. The CATWOE mnemonic provides a mechanism for testing the RD and ensuring that the words chosen are as precise as possible since English is usually used too casually. It is also a test of the structure and words chosen in the RD and a logical defensible intermediary between the RD and the CM (Wilson 2001, p.23).

It is not legitimate to include word and/or phrases in CATWOE that do not appear in the RD (Wilson, 2001). Consumer - Non/Light and legal/ethical downloader Orientation A music provider owned system, operated by a consumer to listen on-demand to any preferred type and quality of legal music with flexible usage and without any risk involved by easily accessing licensed music from a range of labels and self-distributing artists at any time with the selection of preferred format and preferred quality options along with secure payment methods in order to satisfy the needs of the consumer within copyright laws, suitable pricing and technological constraints. C – consumer A – consumer T – to listen on-demand to any preferred type and quality of legal music with flexible usage and without any risk involved W – easily accessing licensed music from a range of labels and self-distributing artists at any time will ensure music is listened to on-demand

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Title: A Systemic Analysis of Digital Music Distribution on the Internet O – music provider E – copyright laws, financial and technological constraints Reasoning: Since the target consumers are mainly the legal digital music downloaders and the CDpurchasing market, they would want to download music in their preferred format, when they feel like downloading, and from a wide range. The inclusion of legal constraints is implicit of the fact that these consumers are believed to be ethical downloaders of music and concerned with copyright laws. Suitable pricing and technology are constraints since they set limits on all the extra music options. The actor in this case is the consumer since he or she will be the person purchasing and downloading the music. The owner is a digital music provider, who is anyone capable of providing this service to the consumer. Refer Figure 4-1 for the Conceptual Model. Artist – Indie/Do-it-yourself Orientation An artist owned system, operated by the artist to capture the time and attention of a consumer quickly and economically by sharing and distributing music on the latest potential digital music distribution sub-channels such as virtual communities, file-sharing applications and digital music retailers in terms of cost, popularity and suitability, and interacting with the appropriate labels to satisfy the musical desires of the consumer within financial, legal and technological constraints. C – consumer A – artist T – to capture the time and attention of a consumer quickly, economically W – sharing, interacting and distributing music on the latest potential digital music distribution sub-channels and digital music influencing media will capture the time and attention of a consumer quickly and economically O – artist E – financial, legal and technological constraints Reasoning: Latest potential sub-channels are what the artist deems suitable, economical and popular enough for consumers to access and sample their music. Thus, the consumer can make a decision based on what is heard rather than what is reviewed and promoted by others. Refer Figure 4-3 for the Conceptual Model.

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Title: A Systemic Analysis of Digital Music Distribution on the Internet Digital Music Retailer – A start-up etailer Orientation A digital music retailer owned system, operated by digital music retailer staff to provide a differentiated service of licensed music by distributing music through a smooth running and easy-to-use piece of software and/or website along with an interactive consumer experience that could include virtual communities of both fans and artists, bundling and packaging music in new ways, offering innovative pricing schemes and other artistrelated value added material in order to satisfy the digital music consumer within financial, legal and current technological constraints and available budget. C – consumer A – digital music retailer staff T – to provide a differentiated service of licensed music W – distributing music through a smooth running and easy-to-use piece of software and/or web service along with an interactive consumer experience will provide a differentiated service of licensed music O – digital music retailer E – financial, legal and current technological constraints and available budget Reasoning: An easy-to-use user interface is necessary to rival the P2P file sharing applications, which are relatively complex to the uninitiated user. Effectively distributing the music through a differentiated service would mean that the consumer would prefer to download the music through the DMR’s service rather than off file-sharing programs, physical retailers, and other competitive digital music retailers since differentiated would mean that the DMR would have an edge over its competitors. Legal and technological constraints could include DRM since the artist and/or record label will specify these terms. Refer Figure 44 for the Conceptual Model. Record Label – Promotion Orientation A record label owned system, operated by record label staff, to proliferate a potential artist speedily and economically throughout the Internet by implementing innovative and artist-appropriate guerrilla marketing strategies known as viral marketing and other innovative schemes on digital music influencing sub-channels such as digital music retailers, blogs, relevant forums and music review sites in order to satisfy the artist within the constraints of the artist contract, current technology, the record label type and available budget. C – artist A – record label staff

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Title: A Systemic Analysis of Digital Music Distribution on the Internet T – to proliferate a potential artist speedily and economically throughout the Internet W – implementing innovative and appropriate guerrilla marketing strategies on popular virtual communities and other online digital music influencing media will proliferate a potential artist speedily and economically throughout the Internet O – record label E – artist contract, current technology, the record label type and available budget Reasoning: With the digital music industry altering their role in the traditional supply chain, the record labels now have to seek online reputation. They want to promote artists in a profitable manner. This can be achieved by implementing innovative marketing approaches that will benefit both the record label and the artist. By analysing the latest fads and trends in the industry, the record label can focus on making the artist heard through these sources such as community sites (facebook, myspace, etc.) and record reviewing sites (allmusc, rateyourmusc and pitchformedia). Consumers frequent these sites to find out what’s new and popular or what their friends are listening to. Thus, using network externalities, the record label can promote the artist within the artist contract and label type and financial constraints. Refer Figure 4-2 for the Conceptual Model. Record Label – Networking Orientation A record label owned system, operated by record label staff, to become a highly influential connected entity across businesses that can be used to promote digital music by analysing and exploiting current developments and trends in technology and media industries, notably networking with information technology (IT) providers, liaising with audio device and mobile phone manufacturers and collaborating with digital music retailers, artists, digital music authorities and popular social networking communities in order to satisfy the record label’s management within the constraints of current technology, the record label type and available budget. C – record label’s management A – record label staff T – to become a highly influential connected entity across businesses that can be used to promote digital music W – analysing and exploiting current developments and trends in technology and media industries will make the record label a highly influential connected entity across businesses O – record label E – current technology, the record label type and available budget

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Title: A Systemic Analysis of Digital Music Distribution on the Internet Reasoning: This is the orientation of a traditional label attempting to re-establish their diminished power in the new industry by allying with the entities involved in the distribution of digital music. Thus, becoming a highly influential connected entity means that the label will be recognised by artists and other entities increasing its profits in the long-term. The record label’s staff will carry out these activities to satisfy the label’s management. Refer Figure 4-5 for the Conceptual Model. 4.3 Conceptual Models (Issue-based) This is Stage 5 of the customised SSM approach. The Conceptual Model is an intellectual construction of logically related activities. It is a modelling of what needs to be done as stated in the RD. It is not a representation of reality but simply what the RD states. By following Wilson’s general principles and modelling rules, the conceptual models were constructed.

The arrow emanating from one activity and pointing to another, indicates that the second activity is logically dependent on the first activity having been completed. The various activities in the system are being continually performed.

Using the Formal Systems Model (FSM), the model can be validated as to ensure its accuracy by answering the questions: Does the model derived achieve the purpose defined? – If there are activities within the model which are not logically derivable from the words in the RD they should not be included. Similarly, if there are words or phrases in the RD that are not represented in the model, then the model is incomplete. The purpose of the Formal Systems Models is to ensure that the CM produced is a defensible model of a HAS.

It is the interpretation of the analyst (myself) to view the situation as an HAS and model the perceptions as logical constructs. The five models follow.

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution

Figure 4-1: The Consumer’s Conceptual Model

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution

Assemble information on potential artist Define sub-channel Define artist Determine the capability required of each activity Assemble intelligence on digital music influencing sub-channels Monitor the match of capabilities to requirements H.R. activity performance info Monitor system performance Take control action to match capabilities to requirements Assess their respective capabiltities

Define the record label’s actors Allocate activities to the record label’s actors

Assemble information on blogs

Assemble information on forums and music review sites Assemble information on digital music retailers

C
Take control action to achieve expectations

C.A.

Assemble information on guerilla marketing strategies Develop strategies Determine performance measures Evaluate strategies in terms of popularity and cost Monitor the selection of strategies System performance info

C.A. C

Assemble information on viral marketing Implement selected strategies on sub-channel Take control action to ensure strategies are innovative and artistappropriate

Determine appropriateness of subchannel to artist

Select strategies Determine the artist contract, current technology, record label type and available budget constraints

Determine record label’s performance expectations

Evaluate distribution sub-channel

Select distribution sub-channel Monitor implementation of selected strategies

C C.A.

Assess the impact on each activity

Decide how to react

Activity info.

Notify each controller Monitor conformance Assemble activity constraint information

C

Take control action to ensure the artist is speedily and economically proliferated throughout the Internet due to the implemented strategies

Take control action to ensure conformance

C.A.
Activity info.

C

C.A. C

Figure 4-2: The Record Label’s Conceptual Model (Promotion Orientation)

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution

C

Figure 4-3: The Artist’s Conceptual Model

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution

Define the DMR’s actors Allocate activities to the DMR’s actors Assess their respective capabiltities

Determine the characteristics of a smooth running software or website Decide how to make the software or website smooth running and easy-to-use Provide a smooth running and easy-to-use piece of software or website Monitor the match of capabilities to requirements H.R. activity performance info Monitor system performance System performance info Determine performance measures Take control action to match capabilities to requirements Determine the capability required of each activity

Define smooth running

C.A. C
Take control action to achieve expectations

Define differentiated

Define interactive consumer experience Monitor the provision of a smooth running and easy-touse software and/or website Take control action to ensure the software and/or website is easy-touse and smooth running

Determine the characteristics of a differentiated service

C.A. C

Assemble information on current digital music services Assemble information on current pricing schemes Develop a service that is interactive and different to the current offerings

Determine the legal, financial and technological constraints

Determine DMR’s performance expectations

Assemble information on bundling and packaging music

C

C.A.
Assess the impact on each activity

Assemble information on music networking communities

Know about artist-related valueadded material currently offered Distribute music with an interactive consumer experience

Decide how to react

Determine music that can be legally distributed Take control action to ensure the music service is licensed and differentiated

Notify each controller Monitor conformance Assemble activity constraint information

C

Assemble information on licensed music

Monitor the distribution of music with an interactive consumer experience

Take control action to ensure conformance

C

C.A. C.A.
Activity info.

C

Figure 4-4: The Digital Music Retailer’s Conceptual Model

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution

Figure 4-5: Record Label’s Conceptual Model (Networking Orientation)

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution 4.4 Monitoring and Control Functions The conceptual models contain monitoring and control activities for certain activities as depicted in the models above. The following questions are asked:
• • •

The effectiveness of the system (Is this the right thing to do?) The efficacy of the system (Does it work?) The efficiency of the system (Does it use the minimum resources necessary?)

Essentially, each activity present in the conceptual model is monitored with certain control action taken if the monitored activity does not perform according to the set expectations and standards imposed. The aim of this activity is to monitor relevant activities and compare them with predetermined performance criteria, and to take appropriate control action if the activities deviate from the required criteria so as to ensure the achievement of the stated purpose (Patel, 1995). For example, taking the activity “monitor the provision of a smooth running and easy-touse software and/or website”, which is followed by the “take control action to ensure that the software and/or website is smooth running and easy-to-use” activity, the downloads could be monitored or the website could be checked for hits and if the results return from between zero to an insignificant number, the efficacy of the system can be realised. Also, a feedback form for the consumers could check the smoothness and ease of use. The effectiveness of the system could be monitored by declaring a certain goal that should be reached within a certain period of time such as 5000 downloads or 50,000 web hits within 24hours. The efficiency of the activity will actually depend on the method in which the process is implemented in the real world by measuring the inputs (the number of servers and other resources necessary) to provide the service with useful output. Essentially, the ratio of the effective or useful output to the total input in any system i.e. the minimum resources should be used to reap the maximum efficiency.

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution 4.5 Analysis – Exploiting the Models Wilson advocates the creation of a Consensus Primary Task Model (CPTM), which is an amalgamation of all the activities selected from the constructed models, which most of the people in the problem situation agree are fundamental to achieving its purpose holistically.

W-decomposition is a method for constructing a CPTM and is concerned with developing a single concept for a company while recognising the multiple perception spectra of the managers concerned.

Wilson describes this process as quite complex and more inclined towards the purpose of a single establishment. The problem in inquiry is complicated by the fact that there are perceptions within perceptions since an industry is being intervened. A record label would have a number of perceptions concerning its purpose in the industry and so will the artist, digital music retailer and consumer. Therefore, four CPTMs will have be created with each CPTM being derived from 3 to 12 root definitions and models, which is unrealistic for a limited scope and time dissertation as this. Therefore, a variation of Wilson’s CPTM method will be adopted for the analysis. This is Stage 6 of the customised SSM approach. In this section, the activities of the five models will be compared and contrasted. Essentially, the models will be analysed by drawing out the common and disparate elements; providing a reasoning for the commonalities and differences and producing the findings. In addition, the activities will be compared with reference to real-world activities and situations. The reasons for comparing some activities across the models:

Comparing all activities would make little sense mainly due to relevance and time constraints. Only the pertinent activities are selected.

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution • Similar activities are compared with each other to tease out the differences and create recommendations with accommodating activities • Wilson states that the desirability of activities is determined in discussion with the group of managers or others who the analyst judges to be the group most concerned with the output of the analysis being undertaken (Wilson 2001, p.84). Since this is not possible, the activities are chosen at my discretion.

Refer Appendix K for the comparison for the comparison of activities. Artist Vs. Consumer The consumer is willing to pay for downloads if the added value options are reasonably priced and they also have the ethical satisfaction of paying for downloads. The artist in this case does not want to be rewarded in terms of monetary value but is satisfied if the consumer will devote time and attention to the artist. This means that the consumer should have free and easy access to the music. However, with the flood of bands that are attempting this, the average consumer will not have the opportunity or time or the patience to sample bands simply offering free music. There has to be some backing from a known band or recommendations on review sites, etc.

There is a conflict of interest here, since the artist adopting a do-it-yourself approach and not charging for music is not in the interest of the consumer. This type of consumer is interested in the quality and added features offered by the music provider and mostly the type of music the consumer is interested in and perhaps recommended music by the provider. Refer Appendix K-1 for the table comparison. Recommendations: The consumer should realise that there are many artists vying for their attention so they should take the time to listen to free music from different sources instead of taking the time to steal.

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution The artist should realise that the consumers are willing to pay if the music can be easily accessed with the right options available.

As long as the artist makes their music available according to the consumers’ requirements, the consumers that take a liking to the artists’ music will certainly become fans and follow the artist, which will no doubt increase the artists’ profitability in the long-term when releasing new material and performing at live shows.

Refer Appendix A for consumer statistics on why consumers will download digital music. Artist Vs. DMR Refer Appendix K-2 for the table comparison. Recommendations: Artists should approach digital music retailers as an intermediary to make themselves heard to a wider audience and thus have a better chance of capturing the time and attention of a consumer.

Digital music retailers should take artists’ needs into consideration by offering a platform for their music distribution.

The artist and DMR have complementary requirements. If the DMR provides music from both signed an unsigned artists to the public, the artist will attain a following if liked by the consumers and in turn so will the DMR.

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution Artist Vs. Networking Record Label Refer Appendix K-3 for the table comparison. Recommendations: Artists should sign onto a record label to ensure a better reach in capturing the time and attention of a consumer.

The record label should use its influence to provide more opportunities for the artist to acquire the time and attention of a consumer.

Artist Vs. Promotion Record Label Refer Appendix K-4 for the table comparison. Recommendations: The artist should link up with the label instead of a DIY approach if he/she would like to acquire the time and attention of a consumer quickly.

The record label and artist have similar requirements. The artist has to identify potential online channels to distribute their music and the record label will do this for them by coming up with innovative online marketing approaches to distribute the artists’ music.

Both the record label and the artists aim to increase the awareness of the artist’s online presence. Refer Appendix A for surveys of potential online channels.

The artist wants the attainment of a following, which will benefit both label and artist them in the long term.

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution Consumer Vs. DMR Refer Appendix K-5 for the table comparison. Recommendations: The consumer should purchase music if the right ingredients are provided by the digital music retailer instead of stealing.

The DMR should ensure the consumer’s needs are met by providing a customised and personalised service.

The consumers want the essentials to listen to music and the DMR should provide these basics plus added features to differentiate themselves from others and achieve competitive advantage.

The difference here is that the “what” that the consumer wants to achieve is in the worldview of the DMR. Thus, the two should complement the requirements of each other and provide for a successful business plan for the DMR. Consumer Vs. Networking Record Label Refer Appendix K-6 for the table comparison. Recommendations: The consumer should appreciate the label that is influencing the consumer as to what filtered artists are out there. The record label should influence consumer purchasing decisions based on its image and type and not see the consumer as a threat to its position.

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution Consumer Vs. Promotion Record Label Refer Appendix K-7 for the table comparison. Recommendations: The consumer should take note of the artists being promoted by the label.

The label should promote the artists on the sources the consumers mostly hears about artists from. Generally, the digital music purchasing consumer is on a social networking site and regularly frequents record review sites such as allmusic and pitchforkmedia. Based on these sites, the consumers will follow a recommended artist in their favourite music genre and will require these essentials elements to acquire them.

Refer Appendix A for community site surveys.

DMR Vs. Networking Record Label Refer Appendix K-8 for the table comparison. Recommendations: The record label should approach digital music retailers to promote artists.

The digital music retailers should ally with record labels if they are to expand their catalogue of digital music.

Refer Appendix K-9 for the table comparison.

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution DMR Vs. Promotion Record Label Refer Appendix K-9 for the table comparison. Recommendations: The DMR and label can work together to promote the artist. The DMR’s differentiated service and the label innovative marketing approaches to promote the artists will eventually lead to significant sales and artist awareness. It is also possible for the record label to take on the role of a DMR as well.

Networking Record Label Vs. Promotion Record Label Refer Appendix K-10 for the table comparison. Recommendations: The comparison of two different orientations for the same entity revealed that an accommodation of views can be reached to resolve conflict and achieve the label’s objectives effectively.

The networking label should realise that becoming influential is about wielding power with responsibility. Therefore, the aim should be to help support artists and develop their career. The promotion label wants to promote artists economically and speedily on the Internet. However, if their efforts are combined with the influential label, the artist’s reach can be widened by several folds since there are many consumers willing to buy digital music with no time to spend on Internet reviews but perhaps they can hear about artists though other media such as radio and television. An ideal logical construct with the accommodations of views A non-contentious or more accurately, an accommodation of activities must be adopted for the players in the industry to operate effectively in harmony. The requirements and beliefs of the industry participants are at times complementary and thus require an

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution understanding and compromise on the role of the other players in the digital music industry in order to achieve any significant growth in the industry. The Appendices and other sources provide support for the derived results proving that they are in fact logical and commonsensical. In an ideal world: “An artist will capture the time and attention of a consumer who will have heard about the artist due to the promotion and influential nature of a record label where the consumer listened to the music off a digital music retailer collaborating with a record label and providing a differentiated service with consumer-enticing options that attracted the consumer.” 4.6 Evaluation This section involves the assessment of the strengths and weaknesses of the methodological approach taken towards the carrying out of this thesis and provides insight into the limitations of the project as a whole.

Using only secondary information can be seen as a limitation as the perceptions taken according to my interpretation can be said to be “watered down”. Carrying out interviews with the participants would have led to a more accurate interpretation of their worldviews.

The created root definitions managed to present the purposeful essence of each participant from the exhaustive literature review in a sentence, which proves its technical potency. However, they only presented a single worldview of each of the four persons of the digital music industry except in the case of the record label where two worldviews were presented. If several orientations were selected for each participant, a more holistic view and analysis would have resulted. Unfortunately, time constraints and scope prevented this.

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution The stage of conceptual modelling was a valuable intellectual exercise. It enabled clarification to take place of what needs to be done to achieve certain objectives (purposes) where in a pressurised real world situations, often getting the thing done is more important than stopping to think exactly what is being done and why (Patel, 1995). This was seen when modelling during the project. A lot of thought was given as to how to achieve the purpose stated in each RD. The activities in the models are continually being performed, which is essential in the case of this dynamic industry where technology and ideas are constantly changing.

The validation of the models was carried out as the models were competently built using Wilson’s validation techniques. However, their relevance is not known. A comprehensive validation was not possible due to time constraints and feasibility since the ideal way would have been to demonstrate the models to industry authorities to acquire feedback. The only realistic method was through facts, statistics, opinions and interviews. The information collected however was deemed accurate and relevant from sources such as the International Federation of the Phonographic Industry (IFPI) and

EntertainmentMediaResearch. The validation of the Root Definition was preformed using CATWOE. This was fairly straightforward and commonsensical.

Lane and Oliva postulate that the proposed changes are aligned in the sense that they have the social belief and support of the team and there can be no assurance that they are consistent outside the judgment of the analyst’s limited cognitive capabilities: “changes may implicitly be contradictory, conflicting, self-defeating, or ineffective when implemented in a setting with detailed and dynamic complexity” (Lane and Oliva, 1998). This is very true, since SSM is limited to the inquirer’s (my) cognitive capability i.e. how I interpret the perceptions of the people involved. Therefore, the recommendations may not be effective when applied to the real-world.

Although SSM is a learning system, it was not possible to know for certain whether or not the formulated root definitions and models are relevant. So there was no real experiential learning in a double-loop learning fashion unless time permitted the contact

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution of the industry players for verification and validation since one of the main intentions of using SSM is to improve the problematic situation in some way. Question such as did the record labels benefit from implementing innovative marketing approaches? Did the digital music retailers benefit from offering a differentiate service for digital music? Also, assessing whether the improved situation was due to the organised SSM thinking or whether it was a case of evolution will be quite cumbersome to prove. Thus, it is difficult to know whether the actions will improve the situation or not if and when implemented in the real-world.

Figure 4 6: An Autopoietic Methodology-Creating System (Ledington and Ledington, 1999)

Figure 4-6 shows SSM in terms of an antipoetic methodology creating system. In such a system, the use of systems methodology leads to the recognition of learning about that use which in turn leads to the methodology being redefined in the light of the learning that has arisen from practice (Ledington and Ledington, 1999).

Little is said about the accommodation or consensus process. Simply because a consensus model is created, can we presume that the participants in the real world would reach a consensus and agreement in a similar manner? The analysis is limited to my perception of what I felt is important to a participant since there was no interview carried out with them. I had to ask myself “what W must be implied by the aspects emphasised in the literature?”

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution The approach taken to carrying out the project was selected and tailored according to the time constraints and requirements of a Masters dissertation. As a novice user of SSM, only the core thinking tools and techniques were used. The tailored approach ensured the proper usage of the methodology and left an audit trail, which contributed to a rigorous and structured approach to tackling the problematic situation. This proved to be very powerful as an entire industry was capable of being analysed. Delving deeper into Wilson’s methodology, more tools such as the Maltese Cross could be used for information analysis which will require more time and effort to internalise. If the core of the methodology is grasped as applied in this dissertation, it would be an interesting experience to apply an approach in full to a problematic situation.

SSM was also be used as a meta-methodology to plan the use of SSM for the project. Essentially, the project planning phase. It was used not only to analyse the problem situation but also the carrying out of the inquiry itself. Thus, SSM can be used just as easily for intervening a large company’s complex problem or a simple mini-project.

The distinction between the real world and intellectual process was successfully achieved. It was realised that the models are not descriptions of the real world but are description of ways of thinking about the real world. Thus, to prevent the process from becoming woolly, and to ensure rigour and discipline, strict formality was maintained during the formulation of the RDs and the construction of the CMs based on Wilson’s principles and rules. The intellectual process was explicitly described leaving an audit trail for the purpose of defensibility. The essence of using a methodology was realised and not taken for granted such as in the hard methodologies. The right amount of flexibility and rigour is required. The lack of strict imposition of rigidity does not mean it can be used without rigour as was realised.

The usage of SSM for the particular problematic situation was justified more and more as the project progressed. Due to the continual changing nature of the industry’s environment being in a continual state of adaptation, SSM is well-suited for the analysis of such a situation. In addition, SSM thrives on the main problems being social conflict

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution due to different Weltanschauungen, the messiness, and the wide variety of different orientations of participants present in the industry. As a result of using SSM, more insight was gained into the digital music industry’s participants. The reasons for the strife became clearer and ways of alleviating this strife was seen.

A few issues concerning the ambiguity of CATWOE’s elements were experienced in the project and similar concerns in secondary literature. Since it was Wilson’s approach that was followed, his proposed CATWOE definitions were used. It was noticed that there are slight discrepancies between Checkland’s and Wilson’s CATWOE expansion such as in the Actor, which is defined as those who would do T by Checkland. Wilson (2001, p. 23) defines the term as: “those individuals who would do the activities in the resultant conceptual model if they were to map onto reality,” giving it more specificity. He also addresses the need to give attention to the competence of the Actors.

Checkland suggests using W1, W2 and W3 where there is a difficulty in separating them practically even when the analyst fully understands the difference between them. (Basden and Wood-Harper, 2006) Wilson only advocates the use of one W, similar to W1 so it was not an issue during the root definition creation. W is merely a perception of an industry participant where SSM does not offer any method to evaluate how realistic this perception is. It is simply left to the judgment of the inquirer, his worldview, to pick the best worldviews. Wilson simply states it should make T meaningful.

Mingers 1992 cited in Basden and Wood-Harper, 2006 believes that too little attention is given to E where frequently, important constraints are overlooked during analysis. Usually there is a tendency to focus on very general constraints such as cost and time, which hinders the generation of fresh insights. It is sometimes difficult to differentiate between constraints that should be accepted and those that might be changed, mostly in situations with where the environment is changing.

Basden and Wood-Harper (2006) suggest it would be useful to differentiate determinative constraints such as the law of gravity from normative constraints, which are often socially

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution constructed. Examples of well-written and thus more important would be “high bargaining power of suppliers” and “loss of confidence of customers” (Ferrari et al., 2002, p. 61 cited in Bergvall-Kåreborn et al., 2004). This is quite insightful as E was not given much than cursory thought in this project since general constraints are usually cited as adequate in the literature.

The only deliverable that can be considered most useful in the real world is the derived set of recommendations. These will be highly useful for the selected participants to follow and understand the new industry they are adapting in. What is most advantageous in the case of this qualitative analysis is that any of the participants can trace back and quickly understand as to how the recommendations were derived instead of a more statistical method in a quantitative analysis which would require specific expertise to grasp.

The tools and methods used are simplistic if properly understood and highly potent for the problematic situation in inquiry. The building of conceptual models of human activity systems and the root definition formulation was a highly creative process. This process allows individuals to move out of their real-world comfort, and into a world of possibilities (Molineux and Haslett, 2007).

Research indicated that the experience of a facilitator in using SSM improves its flexibility and performance as a methodology (Molineux and Haslett, 2007). Bjorkman (2004) cited in Molineux and Haslett (2007) finds that the skills of the facilitator in engaging participants is one of the key factors in the success of a group creativity process, including the ability to control any negative factors such as social loafing and groupthink. SSM, it was realised will be much more powerful if the main people of concern in the problematic situation would participate in the inquiry.

The comparison of the CM with reference to the real world area of concern can reveal hitherto unrecognised issues since when an activity is compared with the real world it can

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution be found that no formal procedures exist to provide such information. This can be carried out in this thesis’ future work.

One of the objectives of this dissertation was to use the recommendations generated from the conceptual models to create business models for each participant. Delving into the creation of ebusiness models based on the recommendations will require further research and analysis, which can be carried out in the future. 4.7 Learning and Reflection This sub-section will represent a reflection on all the significant learning, academic and practical gained from the carrying out of this dissertation. Although Wilson’s approach is used in this dissertation, Checkland’s background literature is the most comprehensive and deemed required reading since little literature on Wilson’s approach was found. Checkland’s approach has been criticised and evaluated with suggestions made for enrichment and better usability. This was helpful for the usage of the methodology but required the right balance of details between Wilson’s and Checkland’s approach.

It was noticed that SSM’s secondary literature is becoming more influential for practitioners since they contain new insights. Unfortunately, there are sometimes errors in the secondary sources, which are repeated subsequently.

It was found that the stage at which the participant is in the music industry had an effect on the orientation and hence the Weltanschauung. For example, an artist just beginning a career will prefer to make their music heard to the masses and in turn capture an audience by sacrificing revenue but a more established artist would be more concerned with copyright and revenue since they already have a large following and are capable of churning out any new model since it will most likely work. The same can be said for consumers, DMRs and record labels.

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution SSM is akin to thinking out loud with the thinking process being transcribed. Thus, rigour is added to the mental processes, which can be followed in retrospect by a concerned individual and will facilitate an organised learning environment. The learning was not only of the problematic situation but of the intervention itself. Special care had to be taken to not allow it to be used loosely, which will have little effect on the analysis. However, SSM will become more flexible when the principles are internalised after repeated use and experience with different situations. The project proved to be an instructor where learning became a compulsory part of the process where skills on SSM’s usage was honed and both the workings of the traditional and digital music industry’s knowledge improved. The significance of a systemic study was wholly understood in part due to the challenges posed by the project and its reverberating theme throughout the taught modules.

By not viewing the industry’s problems holistically, simply creating more sophisticated protection, suing users, and even liaising with ISPs are temporary measures. The way the industry has drastically being transformed requires a rethinking of even the more fundamental aspects that we take for granted as stated in New Music Strategies. Refer Appendix D for a theory on first principles. An unconventional form of research had to be adopted for this study since the domain involved the latest happenings in the digital industry. The availability of published books are few and mostly unavailable at the school libraries. Fortunately, there was a significant number of peer reviewed electronic journals scrutinising the problematic situation and various websites, case studies, newspaper articles, and blogs by prominent figures in the industry presenting their views and theories concerning the new industry. This was a new learning experience as previous projects mostly involved the usage of books and sheaves of journals and less on the opinions of pundits in the field perhaps also signifying that the nature of research is also changing. Time management, and the importance of scope was learned pragmatically; thus, ensuring that project management in the real-word will be an even more tedious task

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution especially when dealing with a diverse team. SSM being a cyclic learning methodology makes time-keeping a more difficult task if its flexibility is exploited loosely. Not having to be able to work in a group or for an actual company in the course is unfortunate since that would have offered a better preparation for real-world facing scenarios.

The deeper, more philosophical aspect although not wholly understood of SSM was realised. The thinking process undertaken was vastly different from that carried out on previous projects at work and undergraduate level. This method and level of thinking can be now used for the future solving of problematic situations.

The use of SSM for the analysis of my field of ardour is in retrospect considered highly appropriate since among other reasons, it is an area of passion for which structure is now required. Checkland is touted as a person with a love for English Literature, jazz and rock climbing where jazz and rock climbing involve passion and structure, which are two key ingredients of SSM (Flood, 2000).

There being very little literature on Wilson’s approach did not facilitate the usage of SSM but did not impede it as well. As it was realised as an intellectual process with rigour and structure, little assistance was needed if all the steps and decisions carried out was made explicit with justification. It would have however been interesting to discover the experiences and views of other users of Wilson’s methodology.

A similar methodological approach as used in this dissertation can be used to analyse similar areas of problematic concern such as the digital film industry or any other industry facing a similar problem. The approach taken for the analysis should give decision makers in different player entities a structured support for a more informed decision, regarding the implementation of a business model.

The finding out phase is poorly documented in the SSM literature. Most proponents advocate the rich picture but this is rather ambiguous as all the elements cannot certainly be included in one picture. However, after considerable thought, a structured literature

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution review was considered the best method to illustrate the finding out phase. After a few iterations, the final literature review revolved around the perspectives of the participants, which represents the iterative nature of SSM. The methodology has some immanent problems from a philosophical point of view, which is usually the subject of debate in the secondary literature. However, philosophy is a rather wide area with several different interpretations and beliefs. If SSM can be used by a rational thinker with a proper understanding of the problematic situation and the methodology itself, it would by far be the most potent methodology as the most powerful thinking tool is used – the mind.

The literature review spans roughly ten years indicating that the digital music industry phenomenon has been recognised as a problematic situation of concern for a considerably long time. 4.8 Future Work There is no dearth of future research that can be carried out in this most mercurial of domains. The ever-changing and evolving nature of the digital music industry made for a very intriguing research but there are many aspects that have not been focused upon in this study due to time constraints, lack of knowledge and MSc scope restrictions.

The main deliverable of this thesis was the list of recommendations. How these recommendations can be used to take action and thus complete the cyclic nature of SSM as indicated in figure 3-1 was not done due to time constraints and scope. This can thus be carried on to be done as future work. Since the conceptual models helped recommend how to achieve a participant’s desired state in the real-world, an appreciation of how this can be leveraged by a business to yield a significantly high value and revenue, and the intended strategy can be speedily formulated. Thus, an ebusiness model can be created for each participant based on the results yielded from the analysis.

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution Since there was no measures of performance for the activities in the conceptual model carried out in this dissertation due to there being no real world interaction, this could be performed in the future since Wilson suggests a comparison of the activities in the conceptual models with the current activities in practice. Each activity can be questioned in terms of how well it is done, by whom and what measures of performance would be used to assess how well it was done (Wilson p.69, 2001).

Another area of interest for future researchers could be a thorough analysis of Digital Rights Management with a solution proposed for this hindrance to the industry’s interoperability.

It can be argued that if anyone can produce music, how can the music be judged a hit? The mechanics of tracking the quality and popularity of the track can be explored. Users from any part of the world can mix or splice together small bits from other records, which can be argued as breaching copyright laws and churning out music with little or no authentic talent. In essence, is the nature of music itself changing and is this another inadvertent side-effect of digital music distribution on the Internet?

Alternative models based on the Creative Commons licensing strategy is another research area that can be looked into. The digital music industry in this dissertation focuses mainly on western music and western ideologies of creating and distributing music; mostly contemporary music. Digital music however should theoretically enable the music of every part of the world to be listened to by any person in any part of the world. With music’s origins from the tribes of Africa, a music connoisseur or even a curious casual listener will be greatly intrigued by the music of different eras - the medieval, renaissance, baroque, classical, and romantic and 20th century classical epochs. Business models targeting the music of these periods will undeniably capture a large consumer base as digital music matures and becomes more pervasive. As exemplified in the Literature Review Chapter, the digital music value chain has experience a radical restructuring, which is a key feature of Business Process

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution Reengineering (BPR). For a record label and/or a digital music retailer currently operating in accordance with the traditional music industry, a radical restructuring will need to take place in order to transform their core process to that of the digital music industry. This is a digression from the project at hand and is suitable for the future research since SSM’s strength lies in managing change. The software tool suggested by Wilson, which does not have much literature widely available known as MooD can be investigated to prove whether it can facilitate the analytical process and the methodology as a whole just as Rational Rose has been proven to do for use cases, sequence and activity diagrams. Some researchers believe that the Internet ethics training can be more successful if begun in elementary schools or by encouraging parents to become involved. New ethics education programmes need to teach students that copyright laws should be the primary and not a secondary consideration when acquiring digital media. A study can be carried out to spread this awareness.

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution

Chapter 5: Conclusions
The findings reveal that there is no one true effective business model but using the Soft Systems Methodology to think about what the key players in the industry really want to achieve and the most acceptable “how” of achieving that purpose is a positive start to optimising the roles of the key players and the industry as a whole.

Another discovery is that it is highly unlikely for a successful business model to succeed in isolation. In order to survive, and contrary to the “survival of the fittest” theory, survivors in the digital music industry will be those that form strategic alliances with the appropriate intermediaries and main participants. Intermediaries that collect and distribute revenues to artists, publishers, composers and producers and those that possess extensive databases about artists, composers and works. They can offer new platforms through which creators of music can directly access users.

P2P file sharing is loved by a colossal number of music enthusiasts who will indefinitely continue to pirate music. However, these consumers do not form the target “sweet spot” of the digital music industry. It is the ethical CD-buying consumer that should be first targeted and then the P2P people by convincing them that digital downloads are a better option by exploiting P2P’s limitations. Therefore, market segmentation is of high importance. Proponents argue that the digital music industry should not focus on penalising those who attempt to use file-sharing but instead support, simplify and leverage file sharing as an attractive alternative to the illegal P2P offerings. This is decidedly challenging but will undoubtedly act as an impetus to keep the industry players on its edge. DRM is the most controversial issue with opiniated musings sprinkled by prominent industry contributors such as Steve Jobs who claims that DRM-free music will create a truly interoperable music marketplace but as soon a new protection technology is developed and appears in the market, hackers will try to crack it.

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution Strategy and management is of prime significance in the digital music market. Understanding the new flexible value chain and realising the shifts in power is the foundation required for a good business model. Artists, consumers, and digital music retailers are gaining more control. This leads to several strategic opportunities for the players in the music industry.

Successful future business models cannot simply look into the past for inspiration to assess and develop a model with sustainable competitive advantage but will have to think about and predict how future technology changes and trends could benefit them. The highly reputable companies such as Microsoft, Apple and Yahoo will be leveraging their brand to diversify into the industry and create and churn out a relatively sound business model. However, the prepossessing quality of the digital music industry is that in actuality, any unheard of new entrant is capable of contending with and dominating the industry in a short span of time and will hopefully be assisted by this study in creating a healthy industry.

A comprehensive review of the digital music industry was presented in this dissertation focusing more on the technology, current trends, present models, proposed models and numerous pertinent perspectives. The resonating premise expressed in the Literature Review, is the holistic outcome of the digital music industry where the roles of all the key players have been altered. The amount of disintermediation that can take place is dependent on each actor. The other revelation is the belief that network based models are the way forward. This includes many different intermediaries from the traditional music industry and although they have differing perspectives, they have to all work towards a particular goal in order for the business model to succeed as was indicated in the derived set of recommendations.

This exposition is relevant to information systems and marketing researchers and practitioners and managerial audiences. It provides the perspectives of the industry participants; therefore, they will be able to create a model to their satisfaction in order to appropriate a significant profit from the industry. They can also identify potential drivers

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution for value creation. The study is also applicable to similar industries such as the digital movie downloading industry.

The usage of SSM enhanced the appealing nature of this project since the methodology was fitting for the problematic situation in inquiry. The chosen methodology was made explicit in order to provide a defensible audit trail from recommendations back to initial assumptions and judgments, which is really the essence of a methodology’s usage. A particular solution was not reached but rather an understanding of the situation and how the real-world industry could be potentially improved. Due to continued fragmentation in the distribution and consumption of music, additional developments can be continuously added using SSM’s flexibility and continual learning nature to improve the digital music industry.

The limitations and evaluation in its entirety was reflected upon in the fourth chapter. The main achievements of the project include the learning acquired when carrying out the project along with the feedback provided by my supervisor at regular intervals. The scoping and main objectives of the project were vital due to the laborious sifting and refinement of the overload of domain material available and the ramping-up of SSM required. In conclusion, the key now is to create a culture where all the industry’s participants mutually benefit from each others’ actions and help steer the majority of society towards models in which the value of recorded music will not be destroyed.

Eric Nicoli, CEO, EMI Group sums it up by saying “It hasn’t been easy, and we must certainly continue to fight piracy in all its forms. But there can be no doubt that with even greater commitment to innovation, and a true focus on the consumer, digital distribution is becoming the best thing that ever happened to the music business and the music fan.” (Velez, 2007).

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution Kunze, O. and Mai, L. 2007. Consumers Adoptions of Online Music Services: The Influence of Perceived Risks and Risk-Relief Strategies. International Journal of Retail and Distribution Management. 35 (11) pp. 862-877. [Online] Available at: http://www.emeraldinsight.com/0959-0552.htm [Accessed: 15 April 2008]. Lane, D.C. and Oliva, R. 1998. The greater whole: towards a synthesis of system dynamics and Soft Systems Methodology. Eur J Opl Res, 107, pp. 214−235. Last.fm. The Social Music Revolution. 2007. http://www.last.fm [Accessed: 07 July 2007] Ledington, P.W.J., Ledington, J. 2000. The problem of comparison in soft systems methodology. Systems Research and Behavioral Science. 16(4), pp 329–339. [Online] Available at: http://www3.interscience.wiley.com/journal/71007378/abstract [Accessed: 12 April 2008]. Lets Sing It. 2006. Josh Kelley Biography. [Online] Available at: http://artists.letssingit.com/josh-kelley-42nf1/biography [Accessed: 15 April 2008]. Liebowitz, S. J. and Watt, R. 2006. How to Best Ensure Remuneration for Creators in the Market for Music? Copyright and Its Alternatives. Journal of Economic Surveys. 20 (4) pp. 513-545. [Online] Available at: http://www.ingentaconnect.com/content/bpl/joes/2006/00000020/00000004/art00003 [Accessed: 15 April 2008]. Lin, A. 2005. Understating the Market for Digital Music. SURJ. Economics. pp. 50-56. [Online] Available at: http://surj.stanford.edu/2005/pdfs/Albert.pdf [Accessed: 15 April 2008]. Madden, M. 2008. The longest points on the tail of music sales. [Online] Available at: http://www.pewinternet.org/PPF/p/1236/pipcomments.asp [Accessed: 15 April 2008]. Mahadevan, B. 2000. Business models for Internet-Based E-Commerce: An Anatomy, California Management Review. 42 (4), pp.55-69. Molineux, J. Haslett, T. 2007. The Use of Soft Systems Methodology to Enhance Group Creativity. Systemic Practice and Action Research. 20(6). pp. 477-496. [Online] Available at: http://www.springerlink.com/content/y5487w35404mj5m1/ [Accessed: 12 April 2008]. New Music Strategies. 2007. This Year’s Model. [Online] Available at: http://newmusicmanagement.com/2007/11/20/this-years-model/ [Accessed: 26 April 2008]. Pala1, Ö., Vennix, J.A.M. and Mullekom, T. Van. 2003. Validity in SSM: Neglected Areas. Journal of the Operational Research Society. 54(7), pp. 706-712. [Online] Available at:

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution http://www.ingentaconnect.com/content/pal/01605682/2003/00000054/00000007/art00003 [Accessed: 10 April 2008]. Peitz, M. and Waelbroeck, P. 2005. An Economist’s Guide to Digital Music. CESifo Economic Studies. 51 (2-3) pp. 359-428. [Online] Available at: http://www.sfbtr15.de/dipa/32.pdf [Accessed: 15 April 2008]. Pandora. Radio from the Music Genome Project. 2007. [Online] Available at: http://www.pandora.com/ [Accessed: 22 July 2007] Presley, A., Sarkis, J., Liles, D. H. 2000. A Soft-systems Methodology Approach for Product and Process Innovation. Engineering Management. 47(3), pp. 379–392. [Online] Available at: http://ieeexplore.ieee.org/Xplore/login.jsp?url=/iel5/17/18747/00865906.pdf?arnumber=8 65906. [Accessed: 15 May 2008]. Reuters/Billboard. 2007. Microsoft Starts Ignition for Music Promotion. [Online] Available at: http://uk.news.launch.yahoo.com/dyna/article.html?a=/02062007/8091/microsoft-starts-ignition-music-promotion.html&e=l_news_dm [Accessed: 15 July 2007] Roughly Drafted. 2007. Is Piracy Really Killing the Music Industry? [Online] Available at: http://www.roughlydrafted.com/RD/RDM.Tech.Q1.07/708F20CD-E67D-45C7-AF953E1A6AC07C37.html [Accessed: 07 July 2007] Rudestam, K.E. and Newton, R.R. 2001. Surviving Your Dissertation: A Comprehensive Guide to Content and Process. 2nd edition. Sage, London. Sastry, N. 2005. Stealing (From) the Music Industry. [Online] Available at: http://www2.sims.berkeley.edu/academics/courses/is296a-2/s05/papers/nsastry_is296A2_spring2005.pdf [Accessed: 15 July 2007] Sandulli, F.D. 2007. CD Music Purchase Behaviour of P2P Users. Technovation. 27. pp. 325-334. [Online] Available at: http://www.sciencedirect.com [Accessed: 15 April 2008]. Sicker, D., Ohm, P., Gunaji, S. 2007. The Analog Hole and the Price of Music: An Empirical Study. Journal on Telecommunications and High Technology Law. 5. [Online] Available at: http://ssrn.com/abstract=969998 [Accessed: 15 April 2008]. Smith, A. 2008. The Music Industry: Lost in the Shuffle. TIME Magazine. [Online] Available at: http://www.time.com/time/magazine/article/0,9171,1723689,00.html [Accessed: 15 April 2008]. Swatman, P.M.C. and Krueger, C. 2006. The Changing Digital Content Landscape: An Evaluation of e-business Model Development in European Online News and Music. School of Computing and Information Science, University of South Australia. [Online]

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution Available at: http://www.emeraldinsight.com/Insight/viewPDF.jsp?Filename=html/Output/Published/E meraldFullTextArticle/Pdf/1720160104.pdf [Accessed: 25 July 2007] Tawileh, A. 2007. A Study of the Music Industry in the Arab World. [Online] Available at: http://www.icommons.org/articles/a-study-of-the-music-industry-in-the-arab-world [Accessed: 28 July 2007] Velez, G. 2007. Marketing IT. Here, there and everywhere. [Online] Available at: http://www.manilatimes.net/national/2007/june/04/yehey/techtimes/20070604tech1.htm [Accessed: 10 August 2007] Walsh, G., Mitchell, V. W., Frenzel, T., Wiedmann, K. P. 2003. Internet-induced Changes in Consumer Music Procurement Behaviour: A German Perspective. Marketing Intelligence and Planning. 21(5) pp. 305-317. [Online] Available at: http://www.emeraldinsight.com/Insight/viewPDF.jsp?Filename=html/Output/Published/E meraldFullTextArticle/Pdf/0200210505.pdf [Accessed: 25 April 2008]. Wikipedia(a). 2007. Napster. [Online] Available at: http://en.wikipedia.org/wiki/Napster [Accessed: 10 July 2007] Wikipedia (b). 2007. Netlabel. [Online] Available at: http://en.wikipedia.org/wiki/Netlabel [Accessed: 15 July 2007] Wikipedia(c). 2007. Qualitative Research. [Online] Available at: http://en.wikipedia.org/wiki/Qualitative_method [Accessed: 10 July 2007] Wilson, B. 2001. Soft System Methodology: Conceptual Model Building and its Contribution. John Wiley & Sons Inc., UK. Work, B. 2004) Electronic Commerce: A Study Guide, Cardiff University.

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Websites Mentioned
Social Networking Sites YouTube http://www.youtube.com MySpace http://www.myspace.com Facebook http://www.facebook.com Bebo http://www.bebo.com Music Review Sites All Music Guide http://www.allmusic.com Pitchforkmedia http://www.pitchforkmedia.com Rate Your Music http://www.rateyourmusic.com

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APPENDICES APPENDIX A
Source: Entertainment Media Research. July 2007. The 2007 Digital Music Survey in association with OLSWANG. [Online] http://www.entertainmentmediaresearch.com/reports/EMR_Digital_Music_Survey2007.p df [Accessed 08 July 2007]

2007 MUSIC SURVEY The Main Headlines • The 2007 Digital Music Survey reveals how social networks are changing the way music is discovered, purchased and consumed • • • • Legal downloading is increasing but at a slower rate than hitherto Unauthorised downloading is now at its highest level after last year’s signs of decline consumers are less concerned about prosecution Mobile music downloading creeps forward. Predictions are for further modest growth unless providers change current market conditions – ease, fair pricing & clarity • Significant increase in listening to radio on mobile phones – good news for broadcasters and possibly an exciting revenue stream if / when DAB is rolled out • • • • UK live music scene is buzzing & demonstrably effective in boosting album sales Strong indications that live music webcasts are an attractive new revenue stream USB format is highly regarded and further trialling is recommended Continuing growth in personal digital player penetration with digital players on mobiles this year’s highest gainers The Impact of Social Networks on Music Discovery & Purchase • Social networks are impacting the way consumers discover, share and purchase music 27% regularly discover music on the social network they love (33% MySpace users,

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution 30% Bebo, 26% YouTube) • Discovery is translating into purchase. 17% of social networkers state using such sites has had a “massive” or “big” impact on the way they purchase music 10% have regularly purchased music discovered on these sites 13% regularly for MySpace 15% regularly for Bebo 7% regularly for YouTube • Users of Bebo claim that site has more of an impact on music purchasing than users of MySpace – 27% & 19% massive/big impact respectively (MySpace has the greatest overall impact due to its size) • Whilst such networks clearly influence purchase behaviour, more needs to be done to make purchasing discovered music easier – 46% agreed with the statement “I wish it was easier to purchase music that I find on these sites”

PC Downloading Trends – Legal

The survey identifies a slowdown in the increase in the population of legal downloaders. 40% growth rate in users in 2006 reduced to some 15% in 2007 2005 = 35% had at least once purchased a legal download 2006 = 50% had at least once purchased a legal download (41% active, 9% stopped) 2007 = 58% had at least once purchased a legal download (47% active, 11% stopped)

While the main purchase driver continues to be to get hold of music immediately, the survey reveals a marked decline in the perceived price advantage of legal downloads over CDs following the widespread decline in the high street price of new releases In 2006, 45% of legal downloaders cited price advantage of downloads as a reason for purchase but by 2007 this had fallen to 31%, providing evidence that pricing for the record industry is currently in a state of considerable flux

One measure to combat this issue might be for digital retailers to consider introducing variable pricing models 84% of consumers agreed that older digital downloads should be cheaper while 48% claimed they would be prepared to pay more for newly released tracks.

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PC Downloading Trends – Unauthorised

Further explanation for the trend in legal downloading is a noticeable increase in piracy. After a decline in 2006, unauthorised downloading increased in 2007 to its highest level to date 2005 = 40% incidence 2006 = 36% incidence 2007 = 43% incidence

Survey reveals that piracy likely to increase further still 2005 = 6% of unauthorised downloaders state they will download more often 2006 = 8% 2007 = 18%

Teenagers most likely to download more often in the future but 18-34 yr olds show the greatest increase in propensity to download more in the future 18-24s increased from 7% in 2006 to 19% in 2007 25-34s increased from 5% in 2006 to 16% in 2007

The explanation - consumers are now much less concerned about being prosecuted (42% gave this as a reason for downloading less in 2006 Vs only 33% in 2007)

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Appeal of Different Methods of Downloading Purchased Music

Tracking Download Behaviour 101

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APPENDIX B
The following Appendices are based on Bockstedt, J.C., Kauffman, R.J., and Riggins, F.J. September 2004. The Move to Artistled Online Music Distribution: Explaining Structural Changes in the Digital Music Market. [Online] http://misrc.umn.edu/workingpapers/fullpapers/2004/0422_091204.pdf [Accessed 10 July 2007] Appendix B-1 The following mini-cases illustrate these propositions: Example “Beastie Boys Link to iTunes from Web Site.” Prior to their full-length album release in June 2004, the Beastie Boys made use of their Web site to promote the music it contained. The group’s site linked to Apple iTunes, where it was possible for a consumer to immediately purchase their music in digital format. The Beastie Boys continue to leverage their Web site to sell digital copies of their music, cutting out the distribution and manufacturing middlemen.

Example 2: “Freezepop—A Do-It-Yourself Approach.” Freezepop, a Boston group, recorded an album using a $300 sequencer, made two animated videos using inexpensive Shockwave Flash, and developed a fan base by posting news, photos, and tour dates and offering merchandise on their Web site. The group brokered download-only distribution deals with online music stores, such as iTunes and Napster, avoiding the production costs. This extreme example demonstrates the opportunities artists have in the music industry through digital technologies.

Since digital music is virtually costless to reproduce and transfer, as manufacturing and distribution costs are removed, artists will require less upfront investment to produce their music and record labels will lose power over the value chain. The labels, thus, have an incentive to claim a new stake, as we point out

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution Appendix B-2 Mini-Case 2a (Record Labels/Production Companies): “Bertlesmann Forms Alliance with Napster.” Bertlesmann, owner of BMG Entertainment (a major record labels), formed an alliance with the P2P fileshare service. Napster 2.0 is a (now) legal pay per download and subscription service. BMG’s alliance signaled the power of the digital music format in the eyes of the record labels.

Mini-Case 2b (Record Labels/Production Companies): “Sony Launches Download Service.” Sony launched its online music service, Connect, on May 4, 2004 to compete with leader, Apple iTunes. Sony produces music through its record label, Sony Music, and manufactures electronic devices that play digital music formats. Connect will provide digital music downloads that are only compatible with Sony devices using flash media technology. Appendix B-3 Mini-Case 5a (Digital Music Retailers): “Apple iTunes Custom Playlists for Download.” Apple iTunes offers playlists designed by celebrities and staff for download. Playlists have individual tracks from various artists based on a theme. For example, a consumer can download a Barry Manilow Playlist. Or, a consumer can download the Totally 80s Playlist, which includes 1980s pop songs. The separability of digital music into individual songs gives retailers the opportunity to create unique product bundles. Source: Apple iTunes, Online.apple.com/itunes.

Mini-Case 5b (Digital Music Retailers): “Apple iTunes Tries New Pricing Strategies.” Apple iTunes has priced single songs at 99¢ and albums at $9.99. Newer albums have been priced higher. For example, Aerosmith’s newest album was priced at $11.99, while Joe Satriani’s newest release was $14.99. Some record executives are saying they are eager to test tiered-price models in the digital music market.

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution Appendix B-4 Mini-Case 6a (Consumers): “The 40G iPod.” Apple sells the most popular digital music player on the market, the iPod. It comes in capacities from 4 to 40 GB. A 40GB iPod can hold 10,000 songs, equivalent to 670 music albums. iPod owners can carry a library of music in their pocket. The portability of the digital music format makes this possible. But at current prices—99¢ per song—it would cost about $10,000 to legally fill her iPod. Source: Apple Computer, Online.apple.com/ipod.

Mini-Case 6b (Consumers): “iTunes Popularity Grows Exponentially.” Apple iTunes increased its downloader base from 861,000 in July 2003 to 4.9 million in March 2004. Because of this success, Sony, Microsoft, Virgin, Yahoo—and even AOL—are all making plans to enter the market.

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APPENDIX C
IFPI Digital Music Report 2007 - Key Facts Source: http://www.ifpi.org/content/section_resources/digital-music-reportb.html

Record companies' digital music sales are estimated to have nearly doubled in value in 2006, reaching a trade value of approximately US$2 billion (up from $1.1 billion). The split between online and mobile remains fairly equal, but varies substantially across markets. Digital sales are estimated to have grown from 5.5 % in 2005 to around 10 % of industry sales for the full year 2006.

Single track downloads are estimated to total 795 million in 2006, up 89 % on 2005. Single track downloads and mastertones remain the main digital music formats, but other formats, such as mobile downloads, digital albums, music videos and ringback tones all saw healthy growth

The number of tracks available online doubled to reach over four million in the last year. This compares to around 150,000 CD albums available in the biggest 'bricks and mortar' music stores

There are nearly 500 online music services available in over 40 countries worldwide, offering consumers a wide variety of choice and great value

Portable music players help drive digital music consumption. Portable player sales totalled around 120 million in 2006, an increase of 43 % on the previous year (Understanding and Solutions). Portable player owners are more likely to buy music legally than general internet users; but the amount of purchased music stored on devices is still low

New revenue streams and business models emerge. Social networking sites exploded in popularity while advertising-supported models such as video licensing on Yahoo! Music and MSN emerged as a potentially exciting revenue stream for record companies. Music video has become a revenue stream in its own right

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Advertising-funded models have become a new revenue stream for record companies. Advertisers diverted budgets from conventional broadcast and print to the Internet in 2006. Internet advertising is forecast to overtake traditional radio advertising in 2009 (Zenith OptiMedia)

Digital is boosting classical music. Classical music was the fastest-growing music genre in the US, growing by 23 % in the US. There have been exceptional digital sales on particular classical titles

Lawsuits are having an impact. Legal action was taken against more than 10,000 uploaders in 18 countries in 2006 including Brazil, Mexico, Poland and Portugal for the first time. The average legal settlement is now €2,420. Recent research from Jupiter shows that illegal file-sharing in Europe has been contained in the last year, in the context of a 30 % increase in broadband household penetration

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APPENDIX D
Source: New Music Strategies Let’s take it back to first principles: the internet is not a promotional tool for music. Nor is it a retail platform. It’s not even a method of distribution. It’s electricity. Instead of thinking of the internet as a brochure display case, as many do — or as a retail outlet without walls — think instead of the internet as a common power source into which a range of different appliances can be plugged. As an analogy, it solves most of the conceptual problems that most people bring to the internet, when they try and figure out what it is they should be doing online. It also provides a neat little springboard into creative solutions that might otherwise never take place. For a start, the web is not the Internet. While web pages dominate most people’s use of the online environment, a web browser is far from the only appliance that can be plugged in to the internet. Other appliances include email software, instant messengers, Voice Over IP clients (VOIP - like Skype), media players, podcast clients, RSS readers, IRC software… and so on. As I see it, there are three phases of innovation in any new media environment: 1) When the environment first comes on the scene, there’s a blank canvas. So someone invents a web browser. Someone does the file transfer protocol thing. Someone else invents a chat programme. Another person invents RSS. Before long, we start to have all of the most fundamental tools that the environment allows for. 2) Then there’s a second phase of innovation. It’s a kitset approach. Someone takes the idea of file transfer, and puts it together with RSS to create the media enclosure — and hey presto! Podcasting is born. It’s not a new idea, as such, it’s a combination of older ideas put together in a new way to solve a problem or address an issue. That’s the second phase — one of intellectual experimentation and assembly, rather than of pure invention.

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution 3) Like the first one, the third phase of innovation is a bit tough. It’s when it looks like everything that can be invented has already been invented. All of the combinations have been tried, and in order to come up with something new, one has to genuinely look at the world in a completely fresh way, and enter a crowded landscape with something truly revolutionary in order to make any sort of a mark.

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Appendix E
Source: http://arstechnica.com/news.ars/post/20080409-last-fm-free-music-streams-turninto-increased-music-sales.html

Last.fm: Free music streams turn into increased music sales By Jacqui Cheng | Published: April 09, 2008 - 08:04PM CT

Why Last.fm's free music won't replace your music collection

Last.fm's free, ad-supported music streams have resulted in a 119 percent increase in music purchases through Amazon, the company said today. The service, which launched just over two months ago, has also brought on a number of new users, although old users are contributing to the trend as well. Last.fm believes that, while the service is still young, the proof is in the pudding: allowing users to have full-track previews drives music sales, both digital and physical. When Last.fm launched its on-demand music streaming service in January, it made millions of tracks from all four major music labels (plus a smattering of indies) available for free. The labels get paid every time a track is played, although there's a limitation of playing a single track only three times before being shown an ad and links to affiliate partners where you can buy the music. Those links are apparently paying off. Although Last.fm has affiliate partnerships with iTunes and 7Digital as well, the company did not release sales data for anyone but Amazon. And while music purchases through Amazon more than doubled after an influx of new users joined the site, Last.fm says longtime members were buying more music too—there was a 66 percent increase in album and track purchases among existing users.

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution "In just over two months it's become clear that people will buy CDs and downloads if they get access to the kind of service we offer," said Last.fm co-founder Martin Stiksel in a statement. Stiksel went on to tout Last.fm as the leader in offering free, streaming music from major labels, although other players (like MySpace and imeem) are getting in on the streaming music fun too. Surely the music labels are happy, too, that the increase is affecting CD sales in addition to cherry-picked digital tracks, as CD sales have been a bit anemic as of late. If music sales as a result of streaming offerings show growth over a longer period of time (say, a year), then other services may also begin to push for full-track previews in hopes of increasing sales. Imagine if Amazon MP3 or iTunes allowed full previews on their respective services before buying—digital music could take off even faster than it already has. It shows how the very ideas that the music industry resisted for years have the potential to pay off financially.

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Appendix F
Source: An Economist’s Guide To Digital Music http://www.sfbtr15.de/dipa/32.pdf Basic facts about copyright The U.S. Copyright Law serves the purpose of protecting authors of “original works of authorship,” including literary, dramatic, musical and artistic works. The protection is available for published and unpublished work. In addition to protection, copyright gives an exclusivity right on the revenues generated by the copyrighted work. Two U.S. Acts are of particular importance for the music industry: the Audio Home Recording Act and the Digital Millenium Copyright Act.

Audio Home Recording Act (AHRA) US Congress enacted the AHRA in 1992 in response to the appearance of home digital audio recording devices. The law imposes monetary duties on equipment and supplies, but non commercial users are protected from copyright infringement. According to the Alliance of Artists and Recording Companies (AARC), a nonprofit organization representing featured performing artists and record companies, as a first approximation, 40 percent of the Sound recording fund (2/3 of total royalty payments the other 1/3 goes to the Musical recording fund) is distributed to artists and 60 percent to copyright owners (i.e. music distribution companies) in proportion of their sales. The royalty payment is under section 1004 2 percent of the transfer price of the device and 3 percent for the media. A digital audio recording device is, according to the law, “the digital recording function of which is designed or marketed for the primary purpose of, and that is capable of, making a digital audio copied recording for private use.” Congress also used the AHRA to introduce a DRM known as the Serial Copy Management System (SCMS) that authorizes unlimited first copies of copyrighted material but prevents additional copies of the first copies. Devices that do not include such technological protection can not be sold in the U.S. There is much debate on the definition of “digital audio recording device” and the obsolescence of the AHRA itself in the fast evolving technological environment around digital music.

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution Digital Millenium Copyright Act (DMCA) Following the World Intellectual Property Organization (WIPO) convention in Geneva, in 1998, Congress enacted the Digital Millenium Copyright Act (DMCA) that extends the Copyright Act. The DMCA - makes it a crime to circumvent anti-piracy measures built into most commercial software (except for research purpose, non-profit libraries, etc.),

- limits liability of copyright infringement of Internet Service Providers (ISP) and institutions of higher education, - requires webcasters and commercial broadcaster to pay licensee fees: these fees are set to 0.07 cents per performance with a minimum of USD 500 a year; fees are collected by the Royalty Panel (CARP), - does not affect conditions of copyrights infringements, including fair use.

DMCA lays the ground for the legal foundation of pay per use even for material that is no longer protected by the copyright law. In the extreme case of first-degree or perfect price discrimination, use is not reduced at all. However, price discrimination tends to reduce the surplus to consumers and raises distributional concerns. DRM can also be used to target different segments with different types of restrictions and pricing schemes. Since DRM can transmit information on consumers’ behavior (see the discussion on privacy above), firms can use DRM to version their products to consumers' needs.

Some authors have advocated the use of “Rights expression language” to enhance creativity and deal with multiple rights owners (Bechtold 2003). Others are proponent of a “Copyright Commons”, where DRM is used to control copyrighted works that are registered in a metadata system (Lessig, 2001; DRM is used to enforce openness and enrich the commons). Several artists have released content under Copyright Commons licenses: Chuck D., Beastie Boys, David Byrne, Gilberto Gil and Cornelius (see BBC News, “A Sharing Approach to Copyright”, Oct. 5, 2004).

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Appendix G
Source: http://www.is.tu-darmstadt.de/download/2005_ecis_strategies-for-digital-musicmarkets.pdf As shown in figure 2, most of the survey’s participants would not pay more than 99 Cents per music download. The only exceptions are rarities, for which 25.6% of respondents claim that their willingness to pay exceeds 1€. Furthermore, 28.5% of the people questioned are willing to pay a price for current hits between 50 and 99 Cents, while only 12.3% and 14.6% would pay the same price for older titles respectively newcomers. Hence, price discrimination dependent on level of publicity and availability of recordings can be regarded as an interesting pricing strategy for providers of online music.

The figures illustrate that a price cut would probably lead to increased revenues. However, a low price strategy is currently not feasible for digital music retailers due to the high variable costs since a large portion is appropriated by the respective label.

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Appendix H
Source: http://www.readwriteweb.com/archives/music/ Interview with Neil Young on Music Piracy Written by Marshall Kirkpatrick / May 6, 2008 12:33 PM / 8 Comments Free Music I elbowed in between elder bloggers Tim O'Reilly and Dan Farber in the interview to ask what Young thought of Trent Reznor's giving away free music and RadioHead's saying they aren't going to do so anymore. At first I thought he wasn't going to give me anything good, saying: "The recording business is going somewhere but I don't care about that, I try to remove myself from the business part. The artistic part of me tries to. The world will work it out." He went on though to point out that his project Living With War always was and still is fully listenable for free on his website. It delivered a message he wanted to get out, he said. His thoughts about the content included in his giant life collection? Blu-ray may be riddled with DRM but Young doesn't think that will be an issue. "Ten Blu-ray disks doesn't lend itself to P2P," he pointed out. "They [the fans] are going to do that anyway - people are going to copy all this music. We don't have to deal with that. All we're doing is supplying the mother-lode, trying to give them quality whether they want it or not. You can degrade it as far as you want, we just don't want our name on it." More than just indifference, Young was downright enthusiastic. "It's up to the masses to distribute it however they want," he said. "The laws don't matter at that point. People sharing music in their bedrooms is the new radio." Go Neil!

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Appendix I
The dissertation’s planning stage. SSM’s tools were used. A Cardiff University owned system operated by myself to systemically analyse the digital music industry for the identification of an effective e-business model by carrying out research on the current digital music industry and the people involved and creating a conceptual model to the satisfaction of the University within time constraints. C – University A - myself T – systemically analyse the digital music industry for the identification of an effective ebusiness model W – carrying out research on the current digital music industry and the people involved and creating a conceptual model O – Cardiff University E – time Using the above Root Definition a Conceptual Model can be created with the activities that should be performed for the system to achieve its purpose .i.e. for this dissertation to achieve its purpose. This will ensure, if strictly adhered to, the completion of the dissertation on time with major deliverables and objectives produced during the lifecycle of the dissertation. Refer Figure 8 for the conceptual model.

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Conceptual Model for Planning Stage

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Appendix J
Source: Source: An Economist’s Guide To Digital Music http://www.sfbtr15.de/dipa/32.pdf There are several hidden costs of downloading:

Time is wasted by searching and testing the files after it downloads since it is only possible to assess the technical quality and the content after downloading

Erroneous, incomplete, badly compressed files since albums are usually in the form of compressed archives

Worm viruses that proliferate on a P2P network, which can replicate in the computer’s memory and slow down the computer

Adware/spyware is rampant in P2P software causing consumers to install spyware to thwart spying software that can violate their privacy

Storage hungry since transporting files to portable media or burning DVDs is time consuming

Users usually have to upload files due to built-in priority rating that determines how fast a user can download the requested file. Uploading files is uses computer resources and involves a risk of being sued and also opens the computer to intruders who can hack system files

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Appendix K
Appendix K-1
Artist Vs. Consumer Artist Assemble information on file-sharing applications Assemble information on digital music retailers Assemble information on the latest potential music distribution sub-channels Assemble information on consumer digital music listening sources Consumer Assemble information on labels and selfdistributing artists Assemble information on music licensing Assemble information on file formats Assemble information on flexible usage on music Assemble information on secure payment methods Comparison The artist should know about the potential channels to distribute their music on. i.e. any application or web entity that can be used as a sub-channel. Appendix NMS. The music provider should know about selfdistributing artists, licenses, file formats, risks, etc. to act as the link between the artist and the consumer to target the consumer’s needs.

Assemble information Assemble information on virtual social on consumer communities perceived risks involved Assemble information on file-sharing Assemble information applications on sound quality Assemble information on interacting with record labels Determine potential sub-channels Determine the copyright laws, suitable pricing and technological constraints Provide preference options Access licensed music Provide secure The artist should narrow down a list of potential sub-channels to distribute music, which can be complemented with preference options as a requirement by the consumer if the music is to be paid for.

Share and distribute music on selected

These are complementary activities benefiting both the artist and consumer since the artist

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sub-channels payment methods wants to share and distribute music whilst the consumer wants to access it. However, there is a slight conflict with the fact that consumer is willing to pay for music but the artist is not interested in payment at this stage. The artist should evaluate and select the subchannels for sharing music in terms of cost and popularity and then select them. The consumer would prefer flexible usage and the music being licensed. Interacting with labels helps the artist to reach their audience quicker and easier.

Evaluate potential sub-channels in terms of cost and popularity Select sub-channels for sharing music Interact with record labels Take control action to ensure that the selected sub-channels are popular, low-cost and suitable Take control action to ensure the sharing of music captures the time and attention of the consumer Take control action to ensure the record labels are appropriate

Determine appropriate licensed music Determine flexibility of music usage

Take control action to ensure the music provided is easily listenable, on-demand, flexible and legal Take control action to ensure that the music is accessed without risk

The artist wants the selected sub-channels to be popular, low-cost and suitable whereas the consumer is interested in being provided with listenable, on-demand music, which is flexible and legal. The artist wants the time and attention of a consumer and the consumer if captured is willing to pay if the music can be accessed without risk. Working with labels appropriate to the artist’s music will be help the

Appendix K-2
Artist Vs. DMR DMR Determine the characteristics of a smooth running software or website Artist Determine potential subchannels Comparison These activities are complementary where the DMR wants to provide a consumer focused method to offer music and the

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artist wants to decide on potential sub-channel, which could include DMRs. The DMR wants to provide a smooth running and easy-to-use software for accessing music whereas the artist wants to share music on any potential channel, which could also include a DMR. The DMR is concerned with finding out about current services whereas the artist wants to assemble information on the latest distribution subchannels where the DMR could be a potential subchannel.

Provide a smooth running and easyto-use piece of software or website

Select sub-channels for sharing music Share and distribute music on selected sub-channels

Assemble information on current digital music services Assemble information on current pricing schemes Assemble information on bundling and packaging music Assemble information on artistrelated value-added material currently offered Assemble information on licensed music Assemble information on music networking communities

Assemble information on file-sharing applications Assemble information on digital music retailers Assemble information on the latest potential music distribution sub-channels Assemble information on consumer digital music listening sources Assemble information on virtual social communities Assemble information on file-sharing applications Assemble information on interacting with record labels

Distribute music with an interactive consumer experience Determine music that can be legally distributed

Evaluate potential subchannels in terms of cost and popularity

The DMR offers legal music with an interactive consumer experience to entice consumers with a differentiated service

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Develop a service that is interactive and different to the current offerings whereas the artist wants to evaluate sub-channels in terms of cost and popularity, which could lead to selecting a differentiated DMR. The DMR wants to ensure a smooth running and easy-to-use website or software and a licensed differentiated service whereas the artist wants to select low-cost and suitable sub-channels which will eventually capture the time and attention of a consumer.

Take control action to ensure the software and/or website is easy-touse and smooth running Take control action to ensure the distribution is licensed and differentiated

Take control action to ensure that the selected sub-channels are popular, low-cost and suitable Take control action to ensure the sharing of music captures the time and attention of the consumer Take control action to ensure the record labels are appropriate

Appendix K-3
Artist Vs. Networking Record Label Networking Record Label Assemble information on current developments and trends in technology and media industries Assemble information on collaborating with artists Assemble information on liaising with mobile phone manufacturers Assemble information Artist Assemble information on filesharing applications Assemble information on digital music retailers Assemble information on the latest potential music distribution subchannels Comparison The activities are of similar interest to both the entities. The only difference being that the artist’s scope is technology and online related whereas the label covers the media industry as well. This shows that the label can expand the artist’s reach since the artist is limited to a smaller sector.

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on collaborating with digital music authorities and social networks Assemble information on liaising with audio device manufacturers Assemble information on collaborating with digital music retailers Assemble information on current developments and trends in technology and media industries Assemble information on connecting with IT providers Analyse businesses in terms of promotion and distribution of digital music capability Take control action to ensure the exploitation will result in the label becoming a highly influential connected entity Take control action to ensure the selected businesses can be used to promote and distribute digital music Assemble information on consumer digital music listening sources Assemble information on virtual social communities Assemble information on filesharing applications Assemble information on interacting with record labels

Evaluate potential sub-channels in terms of cost and popularity Take control action to ensure that the selected subchannels are popular, low-cost and suitable Take control action to ensure the sharing of music captures the time and attention of the consumer Take control action to ensure the record labels are appropriate Select sub-channels

The label wants to become a highly influential connected entity to be able to promote and distribute digital music. The artist wants to select appropriate sub-channels to capture the time and attention of a consumer and also interact with labels who can promote their music. However, a highly influential label might not be appropriate to the artist in terms of cost.

Undertake exploitation

The label wants to select businesses to network and form alliances with and exploit trends with

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for sharing music Select businesses to network and form alliances with Share and distribute music on selected sub-channels the intention of promoting artists. The artist wants to share their music on selected subchannels, which could include labels.

Appendix K-4
Artist Vs. Promotion Record Label Promotion Record Label Assemble information on potential artist Assemble information on blogs Assemble intelligence on digital music influencing sub-channels Assemble information on forums and review sites Assemble information on digital music retailers Assemble information on guerrilla marketing strategies Assemble information on viral marketing Artist Assemble information on file-sharing applications Assemble information on digital music retailers Assemble information on the latest potential music distribution sub-channels Assemble information on consumer digital music listening sources Assemble information on virtual social communities Assemble information on file-sharing applications Assemble information on interacting with record labels Evaluate potential subchannels in terms of cost and popularity Comparison The activities are of similar interest to both the entities. The label is concerned with finding out about strategies to promote the artist and about the sub-channels that can be used to promote the artist on whereas the artist is interested in finding out about sub-channels concerned with sharing and distributing the artist’s music on.

Evaluate strategies in terms of popularity and cost Evaluate distribution sub-channel

Develop strategies

Select sub-channels for

The label wants to evaluate its promotion strategies and the artist wants to evaluate the potential sub-channels. Both in terms of popularity and cost. The label wants to develop

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Select strategies Select distribution sub-channel Implement selected strategies on subchannel Determine appropriateness of media to artist sharing music Share and distribute music on selected sub-channels the promotion strategies and the artist wants to select sub-channels for music promotion.

Determine potential subchannels

Take control action to ensure strategies are innovative and appropriate to the artist Take control action to ensure the artist is speedily and economically proliferated throughout the Internet due to the implemented strategies

Take control action to ensure that the selected sub-channels are popular, low-cost and suitable Take control action to ensure the sharing of music captures the time and attention of the consumer Take control action to ensure the record labels are appropriate

The label wants to promote the artist on media appropriate to the artist. The artist wants to decide on potential subchannels to share music on. The label wants to ensure the strategies are innovative and appropriate to the artist to speedily and economically proliferate the artist whereas the artist wants to select subchannels that are popular, low-cost and suitable to share music and capture the time and attention of the consumer. The artist can achieve this by using the label as a subchannel who will in turn promote the artist.

Appendix K-5
Consumer Vs. DMR DMR Assemble information on current digital music services Assemble information on current pricing schemes Consumer Assemble information on labels and self-distributing artists Assemble information on music licensing Assemble information on Comparison The activities are quite similar. The DMR can complement its activities with the consumer’s since it reflects what a music provider should find out to

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Assemble information on bundling and packaging music Assemble information on artistrelated value-added material currently offered Assemble information on licensed music Assemble information on music networking communities digital music pricing Assemble information on file formats Assemble information on flexible usage on music Assemble information on secure payment methods Assemble information on consumer perceived risks involved Assemble information on sound quality Provide preference options Provide secure payment methods Determine appropriate licensed music Determine flexibility of music usage Determine consumer perceived risks in this context Access licensed music Assess consumer perceived risks satisfy the consumer.

Provide a smooth running and easyto-use piece of software or website Determine the characteristics of a differentiated service Determine the characteristics of a smooth running software or website Determine music that can be legally distributed Develop a service that is interactive and different to the current offerings Distribute music with an interactive consumer experience

Both activities are consumer focused and can be complementary. The DMR wants to determine the characteristics of a differentiated service and smooth running software or website whereas the consumer is concerned with appropriate licensed music and flexible usage. The DMR wants to develop a service that is different to the current offerings and the consumer wants to access licensed music and assess their perceived risks. These are complementary activities where the DMR wants to ensure the distribution is licensed and differentiate by providing a smooth running software and/or website and the consumer wants to access music without risk and

Take control action to ensure the distribution is licensed and differentiated Take control action to ensure the software and/or website is easy-touse and smooth running

Take control action to ensure that the music is accessed without risk Take control action to ensure the music provided is easily listenable, ondemand, flexible and legal

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wants listenable, ondemand, flexible and legal music, which the DMR can provide.

Appendix K-6
Consumer Vs. Networking Record Label Networking Record Label Assemble information on current developments and trends in technology and media industries Assemble information on collaborating with artists Assemble information on liaising with mobile phone manufacturers Assemble information on collaborating with digital music authorities and social networks Assemble information on liaising with audio device manufacturers Assemble information on collaborating with digital music retailers Assemble information on current developments and trends in technology and media industries Assemble information on connecting with IT providers Analyse businesses in terms of promotion and distribution of digital music capability Consumer Assemble information on labels and self-distributing artists Assemble information on music licensing Assemble information on digital music pricing Assemble information on file formats Assemble information on flexible usage on music Assemble information on secure payment methods Assemble information on consumer perceived risks involved Assemble information on sound quality Comparison The label is concerned with activities on finding out about trends and developments in technology and media industries and linking with different businesses whereas the consumer is concerned with the music provided from labels and artists and quality of music, etc.

Provide preference options Provide secure payment methods

The label wants to analyse businesses in terms of their promotion and distribution capability whereas the consumer wants preference

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options and secure payment methods when accessing music. The label wants to exploit businesses to exploit and the consumer wants to access licensed music that is flexible and without risk.

Select businesses to network and form alliances with Undertake exploitation

Determine appropriate licensed music Determine flexibility of music usage Determine consumer perceived risks in this context Assess consumer perceived risks Access licensed music Take control action to ensure the music provided is easily listenable, ondemand, flexible and legal Take control action to ensure that the music is accessed without risk

Take control action to ensure the exploitation will result in the label becoming a highly influential connected entity Take control action to ensure the selected businesses can be used to promote and distribute digital music

The labels wants to ensure that the exploitation will lead to it becoming a highly influential connected entity by linking with businesses that can be used to promote and distribute digital music and the consumer wants to ensure that the music provided is easily listenable, on-demand, legal and that it can be accessed without risk.

Appendix K-7
Consumer Vs. Promotion Record Label Promotion Record Label Assemble information on potential artist Assemble information on blogs Assemble intelligence on digital music influencing sub-channels Consumer Assemble information on labels and self-distributing artists Assemble information on music licensing Assemble information on digital music pricing Comparison The labels activities are to find out about digital music influencing subchannels and the consumer is concerned with the music provided from labels and artists and

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quality of music, etc. Assemble information on forums and review sites Assemble information on digital music retailers Assemble information on guerrilla marketing strategies Assemble information on viral marketing Develop strategies Select distribution sub-channel Evaluate strategies in terms of popularity and cost Evaluate distribution sub-channel Select strategies Implement selected strategies on subchannel Determine appropriateness of media to artist Assemble information on file formats Assemble information on flexible usage on music Assemble information on secure payment methods Assemble information on consumer perceived risks involved Assemble information on sound quality Provide preference options Provide secure payment methods Access licensed music

The labels wants to develop strategies and select strategies based on a cost and popularity evaluation to be implemented on selected sub-channels whereas the consumer is interested in accessing licensed music with preference options and secure payment methods. The label wants to determine whether the media is appropriate to the artist and the consumer is concerned with deciding on the flexibility of music and the appropriate licenses and risks.

Determine flexibility of music usage Determine appropriate licensed music Determine consumer perceived risks in this context Assess consumer perceived risks Take control action to ensure that the music is accessed without risk Take control action to ensure the music provided is easily listenable, on-

Take control action to ensure strategies are innovative and appropriate to the artist Take control action to ensure the artist is speedily and economically

The label wants to snsure that the selected strategies are innovative and appropriate to the artist and as a result the artist is speedily and economically

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proliferated throughout the Internet due to the implemented strategies demand, flexible and legal proliferated through the internet whereas the consumer is concerned with accessing music without risk and that the music is easily listenable, on-demand, flexible and legal.

Appendix K-8
DMR Vs. Networking Record Label Networking Record Label Take control action to ensure the exploitation will result in the label becoming a highly influential connected entity Take control action to ensure the selected businesses can be used to promote and distribute digital music Analyse businesses in terms of promotion and distribution of digital music capability Select businesses to network and form alliances with Undertake exploitation DMR Take control action to ensure the software and/or website is easyto-use and smooth running Take control action to ensure the distribution is licensed and differentiated Comparison The label’s view is focused on increasing its popularity where as the DMR is concerned with satisfying the consumer. There is a link between the DMR and label. The label will work with DMRs that are capable of promoting and distributing digital music and the DMR will provide a licensed and differentiated service, which will entice labels and thus benefit both entities.

Decide how to make the software or website smooth running and easy-touse Provide a smooth running and easy-touse piece of software or website Distribute music with an interactive consumer experience

The label wishes to select business including DMRs to form alliances with and exploit trends in the industry. The DMR wishes to be more consumer focused by providing easy-to-use software and an interactive experience. These should be differentiated.

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution
Develop a service that is interactive and different to the current offerings Assemble information on current digital music services Assemble information on current pricing schemes Assemble information on bundling and packaging music Assemble information on artist-related valueadded material currently offered Assemble information on licensed music Assemble information on music networking communities

Assemble information on current developments and trends in technology and media industries Assemble information on collaborating with artists Assemble information on liaising with mobile phone manufacturers Assemble information on collaborating with digital music authorities and social networks Assemble information on liaising with audio device manufacturers Assemble information on collaborating with digital music retailers Assemble information on current developments and trends in technology and media industries Assemble information on connecting with IT providers

Similar views to find out about current developments. The label is concerned with assembling information on forming alliances with different beneficial businesses. The DMR is concerned with finding out abut the current prices, ways of music are bundled and distributed to differentiate theirs accordingly.

Appendix K-9
DMR Vs. Promotion Record Label

133

MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution
DMR Assemble information on current digital music services Assemble information on current pricing schemes Assemble information on bundling and packaging music Assemble information on artistrelated value-added material currently offered Assemble information on licensed music Assemble information on music networking communities Promotion Record Label Assemble information on potential artist Assemble information on blogs Assemble intelligence on digital music influencing sub-channels Assemble information on forums and review sites Assemble information on digital music retailers Assemble information on guerrilla marketing strategies Assemble information on viral marketing Evaluate strategies in terms of popularity and cost Evaluate distribution subchannel Comparison The DMR should find out information on the current offerings, distribution methods and licensed music. The label should find out information on potential advertising channels including DMRs and strategies to promote artists.

Decide how to make the software or website smooth running and easy-touse

Provide a smooth running and easyto-use piece of software or website

Select distribution subchannel Select strategies

Determine the characteristics of a differentiated service

Determine appropriateness of media to artist

The DMR is concerned with deciding how to provide a smooth running software and/or website whereas the label wants to evaluate its strategies and distribution sub-channels. The DMR is a potential sub-channel. The DMR wants to provide a smooth running and easyto-use piece of software and/or website whereas the label wants to select a distribution channel and select strategies. The DMR can be selected as a distribution channel. The DMR wants to decide on the characteristics of a

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution
Determine music that can be legally distributed Determine the characteristics of a smooth running software or website differentiated service, legal music that can be distributed and characteristics of a smooth running software and/or website. The label wants to determine the appropriateness of the media to the artist. This is a conflicting activity since the label is artist focused and the DMR is consumer focused. The DMR wants an interactive consumer experience to differentiate its service whereas the label wants to develop strategies and implement them on the selected subchannels. This could include DMRs. The DMR wants to ensure that the software and/or website is easy-to-use and smooth running and licensed music is distributed and that the service is differentiated. The label wants to ensure that the artist is speedily and economically proliferated throughout the Internet due to the implemented strategies and that the strategies are innovative and appropriate to the artist.

Develop a service that is interactive and different to the current offerings Distribute music with an interactive consumer experience

Develop strategies Implement selected strategies on sub-channel

Take control action to ensure the software and/or website is easy-touse and smooth running Take control action to ensure the distribution is licensed and differentiated

Take control action to ensure the artist is speedily and economically proliferated throughout the Internet due to the implemented strategies Take control action to ensure strategies are innovative and appropriate to the artist

Appendix K-9
Networking Record Label Vs. Promotion Record Label

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution
Networking Record Label Assemble information on current developments and trends in technology and media industries Assemble information on collaborating with artists Assemble information on liaising with mobile phone manufacturers Assemble information on collaborating with digital music authorities and social networks Assemble information on liaising with audio device manufacturers Assemble information on collaborating with digital music retailers Assemble information on current developments and trends in technology and media industries Assemble information on connecting with IT providers Analyse businesses in terms of promotion and distribution of digital music capability Select businesses to network and form alliances with Undertake exploitation Evaluate distribution subPromotion Record Label Assemble information on potential artist Assemble information on blogs Assemble intelligence on digital music influencing subchannels Assemble information on forums and review sites Assemble information on digital music retailers Assemble information on guerrilla marketing strategies Assemble information on viral marketing Comparison The activities between both entities are contrasting but can be combined to offer a better service.

Develop strategies Select distribution subchannel Evaluate strategies in terms of popularity and cost

The networking label is interested in analysis other businesses to liaise with them to distribute digital music. The promotion label wants to formulate and implement strategies to promote artists. These activities can be seen as complementary as the

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MSc Strategic Information Systems Dissertation 2007 Title: A Systemic Analysis of Digital Music Distribution
channel Select strategies Implement selected strategies on sub-channel Take control action to ensure strategies are innovative and appropriate to the artist Take control action to ensure the artist is speedily and economically proliferated throughout the Internet due to the implemented strategies strategies can be implemented on the selected businesses.

Take control action to ensure the exploitation will result in the label becoming a highly influential connected entity Take control action to ensure the selected businesses can be used to promote and distribute digital music

The networking label wants to ensure that the selected businesses will help the label to become influential and can then leverage this to promote digital music. This is complementary with the promotion label as the promotion of digital music will help promote the artist using the appropriate strategies.

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