The New Value of Digital Music: Is Ownership Still Important to the Record

Industry?

Joseph S. Szczepaniak

09039728

Masters in Music Industry Management London Metropolitan University

September 2011

0

The New Value of Digital Music: Is Ownership Still Important to the Record

Industry?

Joseph S. Szczepaniak

09039728

Masters in Music Industry Management

London Metropolitan University

September 2011

1

Table of Contents

Abstract ..................................................................................................... 2

I. Introduction ............................................................................................. 2 !"#$%&'()*+",#(-.#/'0,% ......................................................................... 3 Issues of Digital Music ............................................................................ 4

II. Product Review ...................................................................................... 5 The Growing Intangibility of Online Music ............................................. 5 Consumers Perceived Risk ..................................................................... 7 The Streaming Product: Complete Access ............................................ 8 Case Study: Spotify ................................................................................. 9 The Cloud: Netflix Case Study ............................................................... 10 The Value of Streaming ......................................................................... 11

III. Qualities of Ownership ....................................................................... 12 Ownership Tangibility ............................................................................ 12 Ownership Value .................................................................................... 13

IV. Finding Demand ................................................................................. 15 Conceptual Framework of Research .................................................... 15 Research Methodology .......................................................................... 15 Reducing Bias ........................................................................................ 16 Choice of Method ................................................................................... 17 Characteristics of Samples ................................................................... 17

V. Results from Primary Research ......................................................... 18 Respondent Behavior ............................................................................ 19 Specific Channel Behaviors .................................................................. 19 !1*(23$0+14(5$670 ................................................................................. 21 Respondents Behaviors to Downloading ............................................. 22 Behaviors and Trends of Specific Age Groups ................................... 22 Heavy Downloader Trends .................................................................... 24 Preferences of the Respondents .......................................................... 25 The Cloud Model .................................................................................... 26 Respondents Attitudes .......................................................................... 27 Consumer Attitudes Toward Piracy ...................................................... 27 Attitudes of the Underage Sample ........................................................ 30 Attitudes Towards Downloading and Ownership ................................ 31 Willingness to Pay ................................................................................. 32 Donating to An Artist ............................................................................. 35 Willingness to Pay for Streaming & Hybrid Models ............................. 36

VI. Application of Findings ..................................................................... 37 Developing the New Supply Chain ....................................................... 37 Multiple Channel Hierarchy- The HOME ............................................... 39 The HOME Structure .............................................................................. 39 Pricing .................................................................................................... 40 Barriers to Entry Through Litigation .................................................... 41

VII. Conclusion ......................................................................................... 42 Limitations & Further Research ............................................................ 43 Acknowledgements ............................................................................... 43

VIII. Bibliography ..................................................................................... 44 Further reading ...................................................................................... 46 Appendix ................................................................................................ 48

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Abstract: In the changing world of digital music, this study looks into the multiple

channels of music consumption to find whether ownership of digital music is still

valued by consumers. It investigates whether the demand of the consumer is being

met within the licensed supply chain and how consumers determine value in the

digital music market. Will ownership still be valued with the introduction of new

technology that is more dependent on the service of streaming? Is owning still a

suitable means of generating revenue and how can the industry add value to a

product with such high levels of intangibility & piracy? This study develops findings

from primary and secondary research to conclude how ownership fits in the new

digital ecosystem, and looks at how to develop new strategies that meet the

consumer!s demands of digital music.

I. Introduction

The impact of digitization and the Internet represents a profound change in the way

music is valued by the recording industry and its consumers (Styven, 2007).

Throughout its brief history, the recording industry has adjusted to new outlets of

media. Technology has continuously reinvented the medium that creates musical

recordings, and this new generation of technology has proven, like previous

technological innovations, to be disruptive (McDonough, 2010). From one

standpoint, there are many opportunities for the industry to grow and nurture a dawn

of new products that are more compatible, more engaging, and more advanced than

we have ever had with audio recording. However, these same opportunities also

give rise to the problems and issues the industry must face in order to persevere

(Nielsen, Digital Music Consumption and Digital Music Access, 2011). These

disruptive changes have altered the way business has been done for over 50 years,

and this new technology will bring a new industry that will have to adhere to the

growing demand of the consumer. These advancements in technology are shifting

the power of control and freedom from the creators and owners of recordings to its

consumers. Thus, it has changed the way business is run in the recording industry.

While these advancements are seen to disrupt the industr"!s norms, change is

rarely ever entirely disruptive (Young, 2008). The consumer is now the driving force

in the digital music revolution. By embracing digital media, by using new devices

and by changing the way they provide entertainment, record companies will need to

reinvent themselves in order to keep up with the pace of the consumer (IFPI, 2011).

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According to #$%&'%(!')*+,-*) .%/0.1) $() 2344, less than 60% of the digital music

market is using any one type of consumption. This fragmented market is divided

into multiple, competing channels that are cannibalizing each other and not

effectively fulfilling demand. The Nielsen report, which studied over 26 thousand

online respondents on their music consumption habits online, illustrated how this

hyper fragmentation poses a significant challenge for identifying where demand

actually exists within the market. Finding demand is essential for best capitalizing

upon the broad opportunities presented by the new ecosystem. If done properly it

can effectively combat piracy and the illegal sharing of music (Nielsen, Fragmented

Market, 2011). The report finds the usage habits of the three main channels of

music consumption; (i) downloading, (ii) streaming, and (iii) video services, and

helps determine what is most used and valued by consumers (2011).

This study follows up on the Nielsen report to find the reasoning behind the

50('67%.!' behaviors, and to better understand their attitudes towards the industry

and piracy. By analyzing the 50('67%.!' preferences, behaviors, and attitudes, this

study looks at new ideas for product marketing and distribution, and attempts to

develop a hierarchal system that meets the 50('67%.!' demands while also

providing artists and content owners with rewarding revenues to propel the music

business into the next generation of the music industry.

Today&s Record Industry

Numbers sent out by the industry!') 8''05$81$0() 8(9) $('1$161%' show a bleak, dire

time for the recording business. Online sales have grown in the last decade, but

overall revenue is steadily declining, and the entire industry has felt the contraction

caused :")50('67%.!' negative attitudes towards spending money on digital music

(IFPI, Digital Music Report, 2011). For the music consumer, this is one of the

greatest times of musical consumption since the invention of the phonograph.

Music recordings can now be found, accessed, and obtained in a matter of seconds,

and practically every song ever recorded can now be found online, with little to no

cost (IFPI, 2011). According to the International Federation of the Phonograph

Industry (IFPI), there are over 400+ licensed services online that provide recorded

music to fans in one way or another. Furthermore, there are countless unlicensed

sites that undermine all of these services (IFPI, Digital Music Report, 2011).

Music companies today license a range of services, not only in ownership of tracks

and albums through downloads, but also in universal access to entire music

libraries, such as streaming services, music videos, and cloud models. The range of

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channels and methods to consume music has steadily increased over the last

decade, with extreme growth in 2010 (IFPI, 2011). According to the IFPI Digital

Music Report, almost every conceivable viable way of accessing music online has

been licensed (Digital Music Report, IFPI, p. 6, 2011). As more commercial

partnerships continue to create new generations of applications, services,

subscription services, and digital lockers, efficient capitalization upon these

opportunities is contingent upon identifying where the demand exists (Nielsen,

Fragmented World of Music, 2011). The countless number of licensed and

unlicensed online channels for music consumption has created a complex

ecosystem that has both nurturing and hurtful aspects for the record industry. Many

issues, like digital piracy, have been left unresolved, while new services like

streaming are attempting to create new revenue streams in the market. The digital

platform has seen a dramatic increase in revenue growth since 2004, when the

digital mp3 player became a household item. Since then, the online record market

has grown by over 1000%, and now, almost 30% of the record industries revenue

comes from the 400 plus online licensed music services. In 2010, the global digital

music sector was worth an estimated $4.6 billion, up 6% from 2009 (Digital Music

Report, IFPI, 2011).

Issues of Digital Music

However, many issues still plague the industr"!' growth. Digital piracy is still the

single most important factor holding back further development of legitimate and

licensed music businesses. Much of the record companies revenue has been

;<%70..<8=$(=>)$(10)&$1$=81$0()50'1' ?*00.%@);*6'$5)81)1<%)1065<)0A)8):6110(>, Digital

Music Report, 2011). According to Moore, the CEO of IFPI, the biggest threat to the

future of the creative industries is the lack of adequate tools to fight digital piracy.

The strategy to battle piracy in court has seen much success in 2010. IFPI, along

with the Recording Industry Association of America (RIAA), have won a string of

court cases against illegal P2P networks, most notably against Limewire in 2010,

and have taken down numerous unlicensed and illegal distributors online (RIAA,

2010). The litigation strategy has begun to move towards other avenues of

preventing piracy, winning landmark cases against Internet Service Providers, who

are now forced to police the Internet for copyright infringers in major territories such

as the US, the UK and Australia (Mann, 2011).

This strategy of litigation and lobbying is seen by the industry as the best way to fix

the woes of rampant piracy, and it cannot be denied that legal action does have its

place in helping the music and all creative industries. However, there seems to be

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deeper underlying issues that, if not dealt with, will only make the legal strategies of

IFPI and RIAA just costly and insignificant failures. The challenges the record

industry face online may not just be with controlling Intellectual Property, but also

with the complexity of the product of music adapting to the online marketplace

(Nielsen, Fragmented World of Music 2011). The digital record industry is dealing

with a product that has developed intangible attributes as it transfers to a digital

format, which is perceived as a riskier purchase for consumers (La Roche et al.,

2003; Styven, 2007). Although new packages have been created in an attempt to

add value and lower this perceived risk, new technology such as streaming have

shown to be ineffective in stopping piracy or generating a profit. Nielsen Media

Research, in association with MIDEM, conducted a study in 2010 that researched

consumer!s behaviors towards the opportunities in the online music industry. The

purpose of this research by Nielsen & MIDEM was to emphasize the point that

efficient capitalization upon these opportunities is contingent upon identifying where

the demand exists. By better understanding what consumers are demanding, the

industry can create more effective channels of music consumption that fulfill that

demand, rather than antagonize it through litigation or price gouging (Nielsen,

Fragmented World of Music, 2011). This study conducts multiple surveys that

follow the results of the Nielsen report and seeks to better understand not only the

behaviors of consumers, but also their preferences and attitudes towards the

multiple facets of the fragmented market. By looking into the trends of consumers,

the industry can better understand the values consumers have towards the options

of access and ownership, and how to better provide and service them and create

new revenues for the music industry.

II. Product Review

The Growing Intangibility of Online Music

Technologies such as mp3 compression, iPods, streaming services and P2P

networks are the new technologies that create 1098"!')digital music market. But

while these inventions create new expanding markets, they also disrupt the current

market balance. New technology has also lowered the cost to create a recording,

and now making music and distributing it is easier than ever. According to many

industry specialists, including David Byrne, lead singer of the Talking Heads and a

prime advocate of new technology in the recording industry, the costs to record and

to sell records have been dramatically reaching zero (Byrne, 2007). The record as

a product has become less tangible by less investment, and this leads to a greater

perceived risk to the value consumer!' place on a recording (Styven, 2007).

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Freiden et al.(1998) states that tangibility refers to the products! physical properties

and the extent to which is can be seen, felt, heard, smelled, etc. Informational

goods, such as Intellectual Property, have physical attributes that give them tangible

qualities. Informational products, on the other hand, primarily rely on service

attributes, which is the actual performance or act of creation. Both services and

goods have tangible and intangible traits, and both have underlying factors that

resemble each other (Freiden et al., 1998). Freiden et al. says informational

products like music are their own unique type of product that slide across a

spectrum of tangibility. Music is dependent on how it is consumed by the end user

and reliant on its medium of consumption to give it tangible attributes (Freiden et al.,

1998; Styven, 2007). For informational products, the most tangible element

/%.5%$B%9):")1<%)50('67%.)$')1<.06=<)$1')7%9$67C))*6'$5!')/%.5%/1$0()0A)18(=$:$&$1")

to the consumer is reliant on the medium of recording, which is how the consumer

ultimately perceives its value as an informational product. The consumer relies on

these tangible aspects to lower the perceived risk in its purchase and to ultimately

determine the products value (La Roche et al., 2003).

The adaption of recorded music online has given recordings much more intangible

attributes, especially in new adaptions like streaming services. The consumer is

unable to physically hold or touch these tracks per se, and the product of a

recording has lost many of the tangible attributes that made it valuable in the past.

Recent adaptions of streaming, video and cloud services point to a shift towards a

more service oriented experience, making the informational product of music even

more intangible (Styven, 2007). The changing trends of music consumption and the

shift to a more intangible product and service are reflected by the decrease of

physical record sales and hi-fi equipment, and in the rise in portable audio players,

subscriptions to streaming services, and demand for music videos. Online music

has become less of a product derived from goods, and instead become more of an

intangible service that provides experiences. These new services have diminished

the need to take an informational product and produce it through a tangible medium

online (Styven, 2007). Furthermore, this move towards intangibility is matched with

the lowering costs of recordings, eliminating one more tangible attribute from digital

music (Byrnes, 2007). This shift to a cheaper service raises the perceived risk the

consumer finds in digital music, which creates a stronger unwillingness to pay.

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Consumers Perceived Risk

The concept of tangibility can be applied to music; thus creating a wide spectrum of

music products which range from intangible to very tangible. L$B%@)0.);/6.%>)76'$5)$')

seen strictly as an intangible experience and service, whereas digital recordings are

harder to place on this scale of tangibility (Styven, 2007). The digital platform for

recordings becomes more dependent on the consumers mentality, since there are

less tangible attributes the consumer can understand to make a correct decision

about the product (La Roche et al., 2003). Ultimately, intangibility online reflects the

consumer!s mentality towards the product or service, which can be ephemeral or

unclear to the perceiver and dependent on the knowledge or skill the consumer has

about the product (La Roche et al., 2003). This perception of uncertainty, or lack of

knowledge results in a higher perceived risk that consumers make about intangible

products (La Roche et al., 2003). For example, if a consumer wanted to make a

purchase of a piece of clothing, the consumer may perceive the purchase less risky

if they bought it in store, where they could feel it and try it on, rather than purchasing

it online. For the service industry, the perceived risk is much higher since the

consumer must experience the service after purchase. If a consumer wants to buy

a ticket to a concert, they will need to rely on knowledge of the artist or venue to

determine whether the service will be of value to them, and even after evaluating,

the concert still has a potential to not be considered valuable to the consumer.

McCourt also looks into the phenomena of perceived risk through the consumer!s

physical interaction with a product. As recordings shed their physical attributes over

the years, the physical interaction with those recordings also becomes removed

(McCourt, 2005). Digital sound files lack potential emotive context that its

predecessors of Vinyl and CD were rich in. Today, as recordings become cheaper

to make, cheaper to distribute, and cheaper to the consumer, its perception of value

decreases, and consumers are more hesitant to spend money on the product,

increasing their perceived risk. According to McCourt, unless this digital product is

;%('<.$(%9>) $() 8) /<"'$58&) A0.7@) $1)D$&&) <8B%) &$11&%) 10 no value to the owner (p. 250,

2005). However, McCourt also looks at the new values that arise due to

digitalization. Examples of the new values for the consumer are found in the

pleasures of obtaining, accessing and consolidating music in mass quantities, which

had not been seen by consumers before. In its current stage of evolution, the

business model for digital music is dependent on whatever gratifications can come

from a substituted value by its medium, and ultimately, the consumer finds value in

what it perceives to provide the most benefit and least risk (McCourt,2005).

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The Streaming Product: Complete Access

One of the key challenges for the record industry is converting users of unlicensed

digital services to legitimate ones. As Styven says, the industry must find ways to

compete effectively with free but unauthorized P2P networks, and one way to do

that is through new service-based environments (2007). Record companies see

enormous potential in strategic partnerships with ISPs, mobile providers, and other

digital third party companies who have established relationships with subscribers.

Record companies are looking for consistent revenue and long-term profitability,

and the subscription model for streaming is their way of obtaining this, and a way to

move consumers away from the digital product and downloading.

Audio streaming on the Internet is one of best examples of a service-oriented

product. It is a service where m6'$5)$');.%(1%9>).81<%.)1<8()0D(%9C))Music streaming

services is the latest generation of innovative technology in music consumption.

They add potential to the marketing and revenue mix in the ecosystem where the

consumer is the center (Nielsen, Music mobile apps and streaming services, 2011).

Streaming, and its potential successor, the cloud, is seen as the future of online

76'$5)50('67/1$0(C))+()233E@)F0..%'1%.)8(8&"'1)G0'<)H%.(0AA)'8$9@);I<%)/%.5%(18=%)

of online subscriptions and downloads will increase as more and more people,

especially young people, get used to the idea of music as a service rather than

'07%1<$(=) 1<%")<8B%) 10):6")8(9)0D(>) ?J1"B%(@)/C) KK@) 233ELC Styven also quotes

Dennis Mudd, CEO of Musicmatch, in saying that streaming will be a revenue

model 1<81)D$&&);'6'18$()1<%)76'$5)$(96'1.">)?/C)56, 2007). The industry also believes

the 50('67%.!') want to own music will decline as the product becomes more

intangible, with Peter Fader saying that consumers only really care about having

access to the music they like, and physical ownership is not something that is

sought after (knowledge@warton, 2004). As the mobile market moves towards

complete wireless access, on demand streaming can potentially be a viable option

for consumers, increasing accessibility and ease ability for them.

In the US, downloads and streaming were nearly even in terms of popularity in 2010.

Streaming services have shown a steady increase in popularity, taking consumers

away from downloading models (Buskirk, 2010). The NPD group even went as far

to say in 2010 that if the trend continues, in a matter of months streaming will

become the dominant listening behavior in the US, especially when consideration is

given to the growth of smartphones and television streaming (NPD, 2010). For the

industry, streaming is an excellent model because it brings control back to the

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owners of IP, as well as provide a long-term revenue strategy with forecasting ability.

Streaming is attractive to the consumer because of its low cost to the user and high

volume of tracks to listen to. However, many consumers have been slow to

turnover to subscription models. This may be due to high intangibility factors that

create a high perceived risk in the service. Many consumers are still unwilling to

pay for the service, citing the premium services do not add enough value to lower its

perceived risk (McCourt, 2003). New streaming services, such as the cloud and

mobile streaming, may make streaming more tangible as it enters the mobile market

and add features such as customization and perception of ownership that can

potentially add value to the service (Digital Music Report, IFPI, 2010).

Case Study: Spotify

The issue with streaming is that when a price is added to a platform, it drastically

increases the perceived risk of the service (Styven, 2007). According to #$%&'%(!'

MIDEM study, only 22% of online consumers said they would pay a monthly

subscription for streaming services (Nielsen, 2011). Spotify, arguably the largest

subscription service for audio streaming in the world, had over 10 million users in

2010. However, in that same time period, only had 650 thousand paid subscribers

(Presnikoff, 2010). In March 2011, Spotify declared its 1 Millionth paid subscriber,

and reported that over 15% of users are now subscribers (Halliday, 2011). This

change with Spotify has shown benefits for them and the industry, but has come at

a cost to its loyal users. Users are now unhappy with the service Spotify offers,

making their free service less attractive by lowering the amount of hours per month

allowed, and providing more premium content to paying customers in hopes to

increase turnover (Dredge, 2011). These were the methods used to increase

J/01$A"!')(67:%.)0A subscribers, and was seen as the company stepping away from

the original service they provided (Dredge, 2011). Spotify was unable to generate

enough revenue for a sustainable business with its free service, spending almost all

of its revenue collected from advertising to labels who demanded licensing fees for

the music they played. In 2009, Spotify had a net loss of £5.3 million, with almost

all of it allocated to music licensing (Halliday, 2010). The company is challenged by

balancing the priorities of the music business, the consumer, and its own initiative,

and has yet to find a successful model. According to Dredge, the free service

model is crucial to show people the service, but a subscription model is crucial to

pay licensing fees and be profitable (2011). Also, as Internet radio becomes more

popular, it remains to be seen if there will be any value in paid subscription models.

Subscription services can turn in many directions, such as podcasts or RSS feeds,

and the value may lie more in data trafficking rather than paid revenue (Watson,

10

2011). For streaming services, the question remains whether paying for an

intangible service that is also free is worth paying for (Dredge, 2011)

The main interest in streaming services is not in its potential to generate new

revenue, but possibly because it is a way to prevent people from pirating music.

I<%)$9%8)0A)8);A.%%>)'%.B$5%)A0.)76'$5)$')1<%)70'1)8//%8&$(=)0/1$0()A0.)1<%)=%(%.81$0()

who was .8$'%9)0()MA.%%)$(1%.(%1!)?N$1'0(@)2344LC Advertising revenue models have

shown their wide appeal with consumers and provide advantages of convenience

over quality, and access over ownership. But ultimately, it is the low perceived risk

of a free service that makes consumers attracted to these streaming services, and

not the experience. And without little to no value of ownership, the burden of a price

may be too high for the consumer. This new attempt to combat piracy and fuel the

smart phone age is leading the industry into new services of online consumption

and access, but it is still lacking the ideas of what consumers deem as valuable,

and may not be successful in generating enough revenue to make the industry

profitable (Kitson, p.1, 2011). As technology becomes more embedded into the

consumers daily lives, it is imperative to find what consumers deem as valuable in

order to have them pay a premium for it.

The Cloud- Netflix Case Study

Today, the new idea of connectivity and access comes from the online cloud, a

storage space for the 50('67%.!' data and digital music they own. It allows the

user to access his or her space anywhere via an Internet connection. With Google,

Amazon, and Apple launching services (with various price points), the cloud-based

model is becoming the most attractive, or at least newest, model for online music

services (Wolfe, 2011). The music industry, however, sees the cloud as a potential

threat, forcing companies that launch clouds to obtain the rights to stream

recordings, which is also an attempt to prohibit any illegal sharing of recordings

through these services (Wolfe, 2011).

However, the record industry might need to take a cue from other entertainment

industries that have seen success with the cloud model, most notably the movie

industry with their service Netflix. In the first quarter of 2011, the online video rental

service added 3.6 million subscribers, and has over 23.6 million subscribers today

(Peoples, 2011). Netflix has shown that users will rent content and pay for digital

content, even if they can get it for free illegally. Netflix creates value to consumers

by allowing streaming of movies through multiple devices, including mobile, and it

has a very attractive price point that has resonated with consumers. Since it began

11

offering its streaming service in the United States for $7.99, the number of

subscribers increased by 69%, and profits (not revenue) rose 50%. Netflix gives

consumers excellent products with a design that is easy to use, as well as some

added value in recommendations and variety. It provides a valuable service for

consumers at an acceptable price. Netflix also pays every single license fee for

every stream as well. In the first quarter of 2011, Netflix paid $192 million for the

acquisition of streaming rights and $377 million to the rights holders of the content,

paying $569 million towards licensing in the first quarter. Gross profits in 2010 were

$280 million (People, 2011). Compared to Spotify, Netflix is $2 cheaper for US

consumers, and is competing for the same consumers. Consumers may be

hesitant to pay a higher price when compared to other services that allow streaming

for other sources of entertainment, and offering a free service only gives consumers

more reason not to pay.

The Value of Streaming

The music industry has the opportunity to generate profits with sustainable business

models, however consumer expectations and the industr"!' values have yet to be

met. The intangibility of streaming services makes it a hard item to price, let alone

effective to generate profit. Consumers are now expecting to pay significantly less

for music. Perhaps the best ways to combat piracy are by setting new price

structures, eliminating free services, and adding more value to its premium services.

Consumers may see streaming services as free items, with less value than owning

the actual product of the mp3. There is a higher perceived risk in the service sector,

which is why intangible products must add value to its service to eliminate that

inherent risk (La Roche et al., 2003). It may prove to be a better strategy for

streaming models to be primarily marketing tools rather than sales devices, with

subscriptions and added bonus and not a main source of revenue. The abstract

system of the internet only increases the intangibility and perceived risk of music,

and the industry must find a way to either add value to the perceived risk or create

less intangibility in order to create a successful business model (La Roche et al.,

2003).

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III. Qualities of Ownership

Ownership Tangibility

Informational products such as digital music are high in experience attributes

because consumers must experience these products in order to evaluate their

quality (Styven, 2007). The value the consumer receives from informational

products is not found until after consumption, giving it what Styven calls credence

qualities. Products with high levels of intangibility tend to be high in credence

qualities. Due to the consumers lack of knowledge or skill, or due to external,

superficial factors, the experience is ultimately subjective to the user, and its

appreciation can be affected by outlying factors (Styven, 2007). The best example

of this is in the appreciation for a recording. The value of a recording can be

dictated by the opinions of critics or friends, placement of the recording on charts, or

even the image of the band (Styven, 2007; La Roche et al., 2003). All those factors

have little to do with the actual experience of listening to the recording, but still

create judgment on how it is experienced. La Roche concludes that intangibility

does increase a perceived risk, but the intangible factors may be more mental and

subjective rather than physical (2003).

Due to the complexity of music as an informational product, and the perception of

risk with online music consumption, the value therein lies on the tangibility of the

medium. While intangible products carry a high degree of credence qualities,

making it hard to evaluate the service before it is consumed, tangible characteristics

make it possible to evaluate a product before purchase, lowering its perceived risk

(Styven, 2007, La Roche et al., 2003). When a consumer is more knowledgeable

about a product, the consumer is able to understand a product better and lower the

perceived risk or judgment they might have (La Roche et al., 2003). Styven

highlights strategies to make an intangible product more tangible and says that

applying tangible strategies to intangible products on the Internet is still applicable

but needs to be interpreted somewhat differently. Ultimately, knowledge and mental

cues are the most reliant traits of a service or product in order to lower the

perceived risk and engage an experience (Styven, 2007).

The more tangible (or mentally tangible) a product is, the less risky it is perceived

and the more willing a consumer is to purchase it. Knowledge moderates the effect

of intangibility on perceived risk, and consumers will generally remain bonded to

what they know as traditional (La Roche et al.,2003; Nielsen, 2011). The music

industry is still investigating alternative sources of revenue to subsidize the problem

13

of illegal downloading and adhere to consumers demand. However, it is surprising

that the industry has not looked into why piracy is so popular with consumers, and

what tangible qualities and perceived risks it has that draws consumers to

Mdownloading & ownership! rather than Mstreaming & access!. It was found that

streaming services are much more intangible because of their credence qualities,

and its perceived risk is an important factor that strongly influences consumer

behavior, so why is the industry making that perceived risk greater by investing in a

more intangible product?

Ownership Value

According to Nielsen, nearly 50% of the global online population partook in

downloading activity without paying for it. Besides watching music videos,

downloading was the most used method of online consumption, and almost used

twice as music as streaming services (Nielsen, Fragmented Digital Consumption,

2011). The popularity of downloading and ownership is seen in this research, as

well as from the high rates of ownership through piracy. To understand the

popularity of downloading, it is crucial to find what traits it has that consumers may

deem valuable.

Downloading is considered the closest method to the traditional supply chain of

purchasing physical products, and is still the most tangible option provided for music

consumption online (Nielsen, Digital Music Consumption; Styven). Consumers are

resistant to new models of consumption, since they hold higher credence qualities

and perceived risk. La Roche et al. quoted a finding from Ross (1975) on how

consumers high in perceived risk are less likely to adapt quickly, or at all, to a new

brand introduced to the market (2003). Consumers find many tangible qualities in

the physical market of recordings, and although it lacks tangible qualities that make

the physical market valuable, it makes up for that lack of quality with its new sense

of digital ownership (McCourt, 2005). As tangibility becomes separated from the

product, the consumer finds new values that are associated with the digital

environment to create tangible qualities. Collecting, customizing, and sharing

become the new values of a product, and tangibility is found through the

compatibility of a product rather than in its physical attributes (Burkart, 2008).

Today, consumers collect, customize, and share digital music because of the

benefits it gives them, and the devices of iPods or P2P networks are the new

tangible aspects of the digital music industry. McCourt says that when a product is

not produced in its physical form, it is perceived as less valuable. However,

McCourt finds that as our commodities enter into the online platform, the

14

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lack of materiality in digital files actually heightens the sense of ownership into new

directions. This new direction is found in the different desires of collecting,

compressing, sampling, and sharing music in new ways that were nonexistent with

physical models (2005). McCourt finds that possessing digital files is a more

intense and intimate experience than owning physical recordings, based on three

desires: The desire to compact and collect huge amounts of data in a small area

(like with iPods), the desire for immediacy and fluidity in a controlled listening

experience, and the desire to customize the malleability of the music collection (p.

250, 2005). These new experiences of ownership increase the desire for the

product and lower the perceived risk in its purchase, and m8("):%&$%B%)1<81)/%0/&%!')

interest in owning things is too important for subscriptions or streaming services to

become dominant (McCourt, 2005; Styven, 2007).

The idea of ownership is embedded into many cultures, particularly the most

consuming countries like the US & UK, and many believe that people inherently

value what they own over what they rent (Walker, 2005). The adaption of the iPod

and mp3 players into global culture have only solidified ownership and downloading

as the ultimate medium of experiencing digital music, and effectively make the

intangible object of digital recordings more tangible (Bockstedt, 2006). Many

licensed providers of streaming services compensate for the lack of a physical

exchange through other value added features such as selection, personalization,

and community. But ultimately, all these features fall short of the actual ownership

of a recording. Informational products can be owned, and ownership of a product is

a central feature of consuming goods. One cannot own a service. They can only

own the right to have the service acted out in the future, which therein lies the

perceived risk (Freiden et al., 1998). There is no certainty until the service is

consumed, and that satisfaction relies on whether or not that the expectations of the

consumer were met. As our society becomes more connected, streaming services

will become more mentally tangible, and can potentially become more valuable to

the consumer as access and ease become more valued. As the market continues

to evolve into this new frontier of complete connectivity, it is crucial to find whether

the consumer will begin to value the services of music over the values of ownership.

By finding how consumers prefer these channels of consumption, a survey that

measures value in each of these channels of consumption can develop theories of

whether consumers will evolve with the changing market or continue to hold onto

the traditional methods of ownership and consumption. This understanding will help

15

the industry develop new strategies based the consumers values and reduce

perceived risks in the market to create a more efficient revenue model.

IV. Finding Demand

Conceptual Framework of Research

With multiple channels of consumption, and countless competitors in each of them,

there are broad opportunities (Nielsen, Fragmented World of Music, 2011). The

audience, like the market, is fragmented and segmented. Engagement levels vary,

and many different factors of compatibility with access still create a high level of

perceived risk (Styven. 2007). The debate between ownership and access can only

be found through what the consumer demands, prefers, and ultimately values (La

Roche et al., 2003). The more the industry understands what the consumers want

and how they obtain it, the better marketers will be able to develop relevant

strategies to reduce the perceived risk in those channels (Nielsen, Digital Music

Consumption, 2011; La Roche, 2005). This study attempts to find the behaviors

and trends of consumers in order to develop a more efficient marketplace that will

create value in digital music. By researching the consumer!s behaviors, attitudes, &

preferences, we can correctly determine their habits and values to develop

successful business models for online music consumption that can create added

value to the market and combat piracy effectively.

Research Methodology

For this study, a survey was conducted to find specific data about the preferences

and attitudes of digital music consumers. This subject choice was chosen by

finding results from a global survey released by Nielsen Media Research in 2011

and determining to continue surveying online music consumers. The survey was

conducted with 260 Questionnaires answered by the respondents who were

considered to be online music consumers. According to Veal, the questionnaire is a

good way to sample a total population, particularity in the leisure and tourism fields.

Quantitative data seemed essential to help give statistical evidence on many trends

in the industry, which can help create a more effective study and results. Many

industry bodies, including governmental, non-profit and commercial organizations,

rely on quantified data for making decisions on significant aspects of the field and

industry, which is what the purpose of obtaining the data was for (Veal, 2006). The

questions asked in the survey attempt to encompass a wide range of activities,

preferences, and attitudes of the online music consumer, and a questionnaire with

16

multiple types of questions is a good means of obtaining a complete picture of the

patterns of such a large population. Veal also says questionnaires provide the

means to gather and record information on the incidence of attitudes, meanings and

perceptions among the population as a whole, which is exactly what this survey is

seeking (2006).

Reducing Bias

Much care was taken to reduce bias and low response rates of the questionnaire.

Before responses were taken, two separate focus groups were held to ensure the

effectiveness of the questions and to find any bias that could be based in the order,

presentation, and subjectivity of the questionnaire. Both focus groups showed that

closed ended questions were best since it reduces bias or untruthful responses, and

allows questions to be answered relatively quickly. The focus groups also helped

ensure that the questions would effectively find the preferences and attitudes of

participants, while also gaining information on their online consumption habits. 34

of 36 questions were closed ended questions. The open-ended questions asked,

which asked for the websites primarily used for finding and downloading music, saw

some bias, as many choose not to answer in fear that illegal sites may be used

against them. Bias was also seen in the survey when participants were asked in

the third question <0D)78(")7/O!')90)1<%")90D(&089)$()8)week, with a high majority

of .%'/0(9%(1!' choose the second lowest answer. This shows that they might

have been not been responding accurately, either due to fear of admitting illegal

acts or out of pure laziness. However, no other bias was found throughout the rest

of the survey, and respondents actually showed more engagement as they

continued with the survey. Any survey that showed extreme bias,

unresponsiveness, or incompletion was thrown out to preserve validity in the results.

To give insight on the validity of the questionnaire, two almost identical questions

were asked twice throughout the survey, which gave insight to the validity of the

responses. One question resulted in a 92% match rate, while the other resulted in a

98% match. This assures that the questionnaire proved valid with a 5% difference

for results. For further details, please look at the appendix for additional validity

tests. Overall, all necessary steps to avoid bias were used in obtaining responses

for the questionnaires as well as to create an accurate sample of the total

population of online music consumers. Although the survey will have inherent bias

with responses, the results showed consistency throughout and are deemed valid

with reflecting margins of error and confidence intervals.

17

Choice of Method

The questionnaires from this survey were all interviewer completed, with 162 of the

surveys being done as a street survey, and the remaining 98 being done

electronically. The sample size of 260 was chosen because it was the maximum

size of a sample for the budget allowed, and was large enough to obtain a highly

reliable response rate. The street survey method was chosen because it allowed

the interviewers to select specific respondents who showed engagement with music

events, while also allowing randomness to online consumerism to ensure

representativeness. This particular method, also described 8')8();869$%(5%>)'6.B%"

by Veal, is more fitting for an arts environment, and the respondents were chosen

for multiple audiences that involved live music (2006). In this case, 3 different

music festivals in the London area were chosen to find respondents during July &

August of 2011.

Characteristics of Samples

Each festival has specific target audiences that could fit into different age ranges of

music consumers. This provided a unique way of sampling multiple age ranges of

the population, and comparing results with multiple controlled samples. The first

festival was the Underage Festival, held at Victoria Park in London, which only

catered to teenagers between the ages of 13 and 17. 42 respondents were

collected at this festival and because of the criteria of the festival, this sample had

100% certainty that every respondent fits within this age range. It should be noted

however, that these responses showed the highest inconsistency with results,

having the most incompletions and inconsistencies in validity of answers. Possible

reasons behind this are the age groups habits or opinions may not be as developed

as adults, and therefore, would not show consistency throughout. Furthermore, this

sample was the smallest of the four taken, showing less validity than others.

However, caution was taken to omit surveys that showed extreme inconsistencies

and any incompletions, and many of the findings show high response rates,

eliminating some margin of error.

The second festival was the Field Day Festival, held the day after the Underage

Festival in Victoria Park in August 2011. This festival is generally targeted towards

young adults, most likely between the ages of 18-30. It is a one-day music festival

that headlines many indie bands with very little mainstream appeal and would

generally appeal to young adult music consumers. 69 respondents were obtained

at this festival and are considered a valid sample, showing strong consistencies with

18

little incompletions, and can be considered a sample for the 18-30 age range of

online music consumers.

The third festival was the Canary Wharf Jazz Fest, a much smaller festival that is

generally targeted to London Jazz fans and is a free festival. The general age

range of this festival most likely fell between the ages of 24-35, but has probably the

least centralized age range since it is not targeted as specifically as the other two

festivals and was also a free festival. Most festivalgoers were attending not as

much for the music but for the atmosphere, and extra caution was taken to ensure

the 51 respondents were online music consumers. The results from the Jazz fest

showed consistencies and had very few incompletions.

The conduct in which respondents were approached also allowed for a unique way

of reducing bias and invalidity. The respondents chosen to participate were either

waiting to enter a festival or waiting for entertainment at a festival, eliminating any

factors of rushing or incompletion. This conduct ensured less bias of answers and

allowed respondents the freedom to answer privately and anonymously. All three

events were music related, which gives the respondents validity in being the correct

sample of music consumers. To ensure validity of the sample in relation to the

population being measured, the interviewer asked if they partook in online music

consumption regularly. Attendees were denied if they said they did not.

The last 98 respondents were obtained online. Links to the survey, which were

presented in the same order and structure as the street questionnaires, were sent

via email and social networks and gives consistent data on pure online music

consumers. This sample also had the only respondents from outside the UK.

V. Results from Primary Research

The results reveal characteristics that give insight into the behaviors, preferences,

and attitudes consumers have about the many channels and general ideas of the

online music ecosystem. The results develop general and specific trends based on

the findings for the characteristics of the total respondents, as well as provide

insights into two specific groups of consumers, teenagers and heavy downloaders,

to help determine the shape of the industries demand online. As trends of the

consumer are found, they will be applied to theories of new business models to help

reduce fragmentation between channels and to apply a hierarchy of demand that

19

can help generate value in not only the product, but in the entire market.

Respondent Behavior

The behaviors of respondents were found through basic questions that drew on the

habits and understandings of the respondents listening behaviors both online and in

the non-digital world. The survey drew upon how often respondents listened and

consumed music, as well identifying streaming and downloading behavior. To first

understand any preferences or attitudes, it is imperative to understand the types of

consumers we are looking at, both as a whole and in specific samples.

Overall, the results showed an active group of respondents who would be

considered regularly active consumers of music. A majority of respondents said

they listened to music 2 and 4 hours a day, with a slight skewedness towards more

than 4. Only 11% of respondents listened to less than 2 hours a day. In terms of

listening devices, 42% of respondents declared the mp3 player as the primary

device to play digital music, with the device of the computer second with 35%. The

popularity with mp3 players also showed in the results when respondents were

asked the primary location of experiencing music. 3 of the 4 samples stated their

primary location for listening to music was ;0()1<%)=0>)0.)96.$(=)98$&")851$B$1", which

is the only location where an mp3 player is compatible. Respondents were also

asked how many music concerts they go to a month to compare the digital music

sector to the live music sector.

Over two thirds said they attended between one and three shows a month, showing

some regular spending habits with other sectors in the music business. Only 18%

of the total respondents said they never attended a music concert. This provides

insight into how much the respondents regularly spend on live music, which can

help determine how much consumers are willing to spend on music on the Internet.

Specific Channel Behaviors

The survey then looked into some of the characteristics of each channel to better

understand what websites consumers are using to consume music. Looking first at

what respondents said about their favorite site to download music from, the survey

showed a surprisingly even amount of users who use licensed and unlicensed sites.

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only 3% more results that unlicensed (42% & 39%, respectively), with a potential

bias towards licensed sites. The bias was found with the high response rate of

iTunes, the most known digital distributor of music. ITunes had the most responses,

20

with 94 respondents (36%) saying it was their favorite site to download music from.

This is a high amount of responses for an open-ended question and may show

some bias from respondents, who were unwilling to give the name of an illegal site

or perhaps felt the need to give pleasing results. In fact, one respondent even said

they would prefer not to tell, showing there was possible hesitation with this

question.

Figure 1- Response rates for downloading sites

Respondents may have been using a familiar name preventing them from being

honest particularly respondents who participate heavily in downloading or use

multiple licensed and unlicensed sites. The amount of people who responded with

the names of unlicensed distributors should be noted however. Almost 40% of

respondents did mention the names of unlicensed websites, with The Pirate Bay

identified by 25% of the unlicensed responses. Respondents who were considered

regular downloaders (over 10 downloads a week) said they used unlicensed

websites 62% of the time, showing that the heaviest downloaders are most likely

using unlicensed sites.

When respondents were asked what website they used to primarily listen to (not

obtain) music online, unsurprisingly, many streaming sites were identified. The

website with the highest results in this category was Youtube, with 42 respondents

(16% of the total sample). This followed the results found in the Nielsen report

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mentioned the name of an Internet radio site, with 30 of those 68 (12%) using

Spotify as their primary site to find and hear music online. Blogs and social network

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sites had 56 results, with Pitchfork & Hypemachine, regarded as the top two

aggregate blogs by many experts today, had 9% of the total respondents. These

results generally match some of the industry numbers released in the Nielsen report

on the popularity of streaming services as key places for users to listen and find

music on (Nielsen, 2011).

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I<%) ;D815<>)/<%(07, which Nielsen reported on, showed that users are definitely

using video services more often. Some reasoning behind this watch phenom may

be in its accessibility and engaging experience with consumers. First, Youtube

hosts virtually every song, licensed or unlicensed in its database, and the search

ability on the site is one of the easiest ways to find music online, with users typing in

just a few lyrics to find the song they want. This search ability matched with

U0616:%!') =&0:al reach make it a very well known and attractive option for

consumers who want to find music on the web. Second, video services like

Youtube provide experiences much more engaging than audio streaming or

downloads. While audio only streaming provides personalization and

recommendation features, Youtube still has the advantage of providing images of

the musicians, which is one of the main marketing tools for musicians and bands.

Consumers are showing that this experience, in and outside the music industry, is

one that is enjoyable and engaging, and may be the preferred method of

consumption in the future for online music services.

In the survey conducted with this study, Youtube was one of the most popular

responses of users to hear music from, however, it was found that it is not the

primary way of finding music online, with only 25% of the respondents saying it was.

Some possibilities of why Youtube is not a primary method of find and listening to

music online may be in the compatibility of Youtube into daily activity. Youtube, or

any video website, requires our full attention and time, as well as the most

bandwidth for streaming. Music can also be engaged with multiple tasks throughout

our daily life, making it a much more flexible and accessible product than videos.

Consumers may be unable to give that much attention to one source online, and

consumers may find the video to be too engaging to be considered a primary way to

listen to music. Although music videos are the most engaging of products, its

limitations force it to be more of an effective marketing device rather than a product

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a channel for music consumption online will ultimately be limited to the attention the

consumer is willing to give it.

22

Respondents Behaviors to Downloading

The Survey found that 84% of respondents seek ownership after they have listened

to a track online. This overwhelming majority highlights how often consumers are

downloading and how they may be potentially using each channel interchangeably.

These behavior results showed that consumers are using different channels for

different tasks, and generally will download a track after they hear it online. The

frequency of downloading after listening can be regarded as a very specific finding

in the hierarchy of channels in the online ecosystem. When respondents were

asked how often do they download a track after they!B%) &$'tened to it online, 55%

said occasionally and 23% said Mostly. Only 7.69% said never. These results for

downloading frequency were also calculated into a frequency scale, with each

answer having a weighted number (1 being never, 4 being every single time), and

the average was calculated, with the average score for the total population being

2.43, which means almost half of the time respondents will download after listening.

Behaviors and Trends of Specific Age Groups

Each festival was broken down and studied to find any interesting outliers within

age groups. Although it was the smallest sample, the Underage Group showed

many dominant traits that should be noted. On average, the Underage group

resulted in a higher number of downloaders, having the lowest percentage of

.%'/0(9%(1')'8"$(=)1<%")90D(&089)3)7/O!' a week, and the highest percentage of

downloaders who download the highest choice of downloads per week. Overall,

teenagers valued their mp3 collections higher than the other samples, with an

average Likert scale number of 8.33 (out of 10), compared to the total number of

respondents with a 7.45. This followed trends that the Nielsen Report found in that

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23

younger audiences who are considered the digital natives are more active online

than other age groups (Nielsen, digital Music consumption and Digital Music Access,

2011).

The biggest thing to note with the Underage group is the extremely high percentage

of respondents who said they preferred downloading to streaming. 83% said they

preferred downloads to streaming, which was 12% higher than the next highest

sample. The underage group also had a 95% rate of respondents who regularly

downloaded tracks after they listened online. This also translated into significantly

higher rates of downloading behavior, with the underage group having almost 10%

more respondents who downloaded every single time after listening. These findings

contradict what was quoted by Josh Bernoff and Dennis Mudd about how streaming

is finding its way in youth culture, and go against many of the strategies that the

industry is trying to force onto this generation of music consumers.

Figure 3- comparing the three main samples on how frequent they download after listening

This contradiction of the young generation adapting to accessibility was also found

when respondents were asked about cloud technology. The Underage group

showed a significantly higher percentage of respondents who would rather

download than be provided with a cloud service, with 83% (compared to 56% for the

young adult group). The Underagers were also the highest percentage of people

who would still download and own music even if they had the option of streaming

directly to any mobile device with no problems of connection, further proving that

the new generation of music consumers may be learning the values of ownership

more than the values of accessibility.

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24

This high value of ownership was also seen in the high Likert score the underage

group gave of their mp3 collection. The score of 8.33 (out of 10) was significantly

higher than any other sample, as well as significantly higher than the total sample

score of 7.45. This high valuation for ownership of digital tracks may translate into a

higher willingness to pay as this generation grows older and have more disposable

income to spend. That is why it is crucial to develop a strategy that adds value to

the consumers rather than the industry, so future generations will inherently value

the product more.

Heavy Downloader Trends

The survey found a small but significant number of respondents who were

50('$9%.%9) ;W%8B"),0D(&089%.'> of music. The respondents who fit this criterion

were respondents who said they downloaded more than 20 tracks a week. This

category was weighted to include the people who answered in the upper half of the

choices, since a high majority of respondents answered in the 1-10 category of

downloads a week, and it was thought many respondents held back actual amounts

of downloading due to considerations of illegal downloading or to satisfy the

interviewer. Only 26 respondents said they downloaded more than 20 tracks a

week, which will give these results a significantly higher confidence interval.

However, if we look at the data in relation to the lower half of downloaders, we can

identify some interesting trends that can show validity in downloading behavior.

The survey found that respondents who downloaded more music would also value

digital music much more. Respondents in the lowest downloading frequency valued

their mp3 collection at 5.30 out of 10 on the Likert scale, with 10 being the highest

value. This score increased as respondents increased in downloading behavior,

with respondents who were considered heavy downloaders valuing their mp3

collection at an average of 9.13 out of 10 on the same scale. Heavy downloaders

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showed more worry in losing or deleting their mp3 collections. Also, heavy

downloaders showed more concern about quality compared to light downloaders,

with 92% of heavy downloaders saying an mp3 is less valuable if the track is of bad

quality. These results coincide with the theories of new ownership traits McCourt

mentioned in his study on ownership becoming less dependent on tangibility and

more on collecting and customizing music in the digital age.

25

Preferences of the Respondents

The behaviors of respondents begin to show how consumers use each of these

channels independently and interchangeably. Specific findings like the frequency of

downloading and the traits of young generations or heavy downloaders gives insight

into some of the traits of each channel, and as well as the traits of the consumer.

Next the study looks at the preferences of the consumer, to begin placing the

channels in order of the hierarchy to fit the consumer!s demands of each channel.

By finding what consumers use and prefer using, it will help determine what they

value and begin to shape the demand of the market of digital music.

Figure 4- results for each samples preference of downloading & streaming

It was found that respondents had a high level of downloading after streaming,

showing that consumers used both channels for specific reasons. While streaming

provided the experience of listening to music, downloading presented the option of

obtaining and claiming ownership on that music. Together, they create a product

that has little risk for the consumer, allowing them to choose to purchase or not

based on the experience of the music. It also provides a new way to search for new

music and determine the true value of the experience before a purchase is made.

But in order to develop a successful strategy to provide value to the channels of

consumption, marketers must find the value the consumer places on each channel

and how they value them interchangeably. This is best achieved by finding which is

preferred by consumers.

The data from the survey conducted showed a strong respondent preference of

downloading over streaming. As figure 4 shows, 65% of the total sample preferred

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downloading over streaming services, showing that consumers enjoy the idea of

ownership over accessibility. Even when both are free, consumers showed a strong

preference to downloading. The preference of ownership was further validated with

the results of why the respondents prefer downloading, with 42% of respondents

claiming they preferred downloading because they took pride in the ownership and

collection of music. Collecting music also rated high with a similar question of

finding the main reason to download, rating 5% higher than the option of

convenience. When compared to video services, 71%, said they preferred

downloading music to music video services. In total, 53% of the respondents

preferred downloading to both streaming services.

In every sample, over 50% of respondents said they preferred downloading to

streaming services, with teens being the highest age group with 83%. The group

with the lowest preference rate towards downloading was also the oldest. The

Canary Wharf Jazz fest had 51% of respondents preferring downloading, with one

third of respondents showing no preference.

The Cloud Model

When asked about cloud models, the survey showed that consumers prefer what

they know, and want to hold onto the traditional idea of ownership rather than adapt

to a more advanced technology. When asked if they could stream any track to any

device (including mobile) with no problems of connection, 62% of total respondents

said they would rather download. This was also matched with 65% of respondents

who would rather download than have access to tracks at any time via a wireless

connection. Even for respondents who prefer streaming to downloading, the cloud

idea is still one that consumers will need to see to believe. 46 out of 90

respondents (51%) said they preferred streaming but would still download music if

they had the option of a cloud. Across every age group, downloading was preferred

over the cloud. As more services enter the market, it may be questionable whether

these opinions will change. Cloud models have the potential to be the next

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an evolution happening in the digital music market that is leading towards a market

that is more about access than consumption. How it plays out for mainstream

consumers will depend on how it is executed and what value it brings to those

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27

Figure 2- Downloading is shown to be the most preferred model for all samples

Respondents Attitudes

The respondents in this survey showed that downloading and ownership is the

preferred method of consumption online, which figures 4 & 5 show. Factors like

collecting and control of a product are shown to be very important to the consumer,

and are considered valuable to them. Even with hypothetical new technology that

allows complete access, consumers are showing a strong bond with the traditional

supply chain and the values associated with it. As the demand and hierarchy of

streaming and downloading become clear, it is important to find the attitudes

consumers have of the services, and issues that surround each of the channels to

better understand any outlying factors or causes of bias. The survey looks at

consumer!s attitudes towards piracy and downloading to find whether the high

demand and preference for this channel is a viable option to create value in, or

whether the value is in the illegal means of obtaining it.

Consumer Attitudes Towards Piracy

When looking at attitudes of stealing, it must be remembered that attitudes are

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attempts to find an overall trend with attitudes, it can only find this by breaking down

the sample into the multiple characteristics of the consumer to better understand

each type of consumer individually. It cannot be expected that heavy downloaders

have the same attitudes as ;laid-back> consumers. First, the attitude towards

stealing is identified. According to MarkMonitor, one of the leading internet brand

protectors online, sites declared as digital piracy had almost 146 million visits per

day, which makes almost 53 billion visits per year. They also concluded the top

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28

three sites for digital piracy collectively generates more than 21 billion visits per year

(MarkMonitor, 2011).

The high levels of traffic to these sites show there is an extreme demand for free

products, and that consumers are showing little resistance in the fact that pirating of

music online is illegal. When it comes to the attitudes of consumers, there is a lot of

grey area that is dependent on many factors. The results showed the attitude of

stealing was very dependent on how it is presented to the consumer. When

respondents were asked if they thought downloading mp3s for free from an

unlicensed website was stealing, the results were very mixed. 42% said yes, 36%

said no, and 21% said only in large amounts. This shows a very split mentality on

what is deemed stealing when it comes to downloading, and there is a scale that is

potentially dependent on the amount that is stolen. Much of the attitude towards

stealing may not even lie in the notion of getting a track for free, but rather through

the medium and whether it promotes itself as a pirating or unlicensed

site. When asked if downloading from an unlicensed website should be free, 66%

of the total respondents said yes. However, when asked the same question, but

this time through a licensed website, 66% said no. It shows that consumers are

ultimately dependent on the websites credibility. When a highly notorious site that

freely admits itself as a pirated or unlicensed website gives away tracks, that sends

the message of theft to an average consumer. However, many websites that are

not notorious pirating websites, but instead blogs or tastemakers, give away free

downloads, which are, for the most part, unlicensed and without permission to

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F igure 3- A ttitudes towards pi racy vary on many factors

29

distribute any recordings.

This too constitutes an unlicensed distributor, which many consumers would

probably not consider as stealing, but instead, as marketing for the artist or band.

Many artists do look to these blogs as helping their cause of marketing their music,

and many labels send their music, giving them permission to use their songs.

However, many of these blogs do not seek the required permission to distribute,

and usually use pirating websites as the medium to distribute free music, such as

Rapidshare & Mediafire. In essence, blogs and pirating websites are both illegally

distributing unlicensed copies of recording!s, only pirating websites do it on a much

grander scale. This may show an inherent problem with online distributing or online

licensing, as well as consumer!s attitudes towards piracy. The question for the

industry is whether stealing is now dependent on its scale to the market.

The concept of stealing shows many mixed messages throughout the survey, and

shows a varying degree of what is considered stealing and what is not. Attitudes

are generally very dependent on situations and medium, which may be dependent

0() 1<%) .%'/0(9%(1!')/.0:8:$&$1")0A)=%11$(=)586=<1C) )I<$')78"):%)8)/0''$:&%) .%8'0()

behind the difference in mentality over licensed and unlicensed websites, and also

:%<$(9)1<%)$9%8)D<81)/%0/&%)50('$9%.)/$.85")0.)$&&%=8&C))E]^)0A)1<%).%'/0(9%(1!')A%&1)

that copying a friend!s mp3 collection was not illegal, which, according to the RIAA,

constitutes an illegal act. This lack of understanding, or perhaps lack of

enforcement, could possibly be an overstepping of boundaries by copyright owners,

who are looking to control every aspect of their works. Furthermore, the study

should also consider the main reason why people do not pay for a download is

because it can be obtained for free. A majority of respondents cited this reason

when as why they do not pay for downloads. Much of this may be caused by the

advent of the Peer-to- Peer network, which gives the consumer the perceptions that

when there are many participants involved, there may be a belief that nothing is

legally or morally wrong and the exchange value of music files is often close to zero

(Styven, 2007). Ultimately, these attitudes towards stealing must change, either

through business models that adhere to the consumer!s perception of licensed

distribution or through litigation strategies that prevent unlicensed websites to allow

piracy on any scale. Ultimately, in order to develop any type of market, eliminating

the attitude that stealing is only wrong in specific cases must be dealt with through

either a successful business strategy or litigation.

30

Attitudes of the Underage Sample

Looking 81)1<%)811$169%')0A) 1%%(8=%.!'):%<8B$0.@)there are some key indicators that

downloading, specifically free downloading is something that is becoming more

imbedded into the digital natives attitude. When asked if they thought downloading

an mp3 from a licensed website (such as iTunes or Amazon) should be free, the

results were 50/50, which was over 10% higher then the second closest sample and

almost 20% higher then the total sample of respondents as figure 7 shows. These

high percentages carry over into other questions regarding what should be free,

with 42% saying downloading for free from an unlicensed website is not stealing,

and 73% saying unlicensed website downloading should be free as well. The

underage group even showed higher response rates when asked if copying a

friend!s mp3 collection is considered stealing, showing a 5% higher response rate

'<0D$(=) $1) $'(!1C) Even worse news for the industry is the underage group shows

high percentages of unwillingness to pay. Some possibilities to these findings may

be resulted from teens having less disposable income, and are more willing to risk

downloading illegally. However, teens still account for a large segment of the

market, and as David Guetta said, the young generation who has been exposed to

not paying for music must be embraced rather than written off. This generation is

essentially the nucleus of the music industry, and it is imperative to find what their

perceptions are of the multiple channels of consumption (Nielsen, Fragmented

World of Music, 2011).

Figure 4- The Underage sample shows a more relaxed attitude towards piracy

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31

Attitudes Towards Downloading and Ownership

Looking 81).%'/0(9%(1!')811$169%') 10D8.9')downloading, the survey finds there are

two different hypotheses that conclude why people may prefer downloading to

streaming. The simple fact that downloading is preferred may be that it is still the

cheapest option with the biggest benefit. The ease of downloading, matched with

the attitude towards what constitutes stealing, makes it a very attractive product in

1<%)50('67%.!')%"%'C))W0D%B%., the intangible features of information products such

8')76'$5)78V%);%_5&6'$B%)/0''%''$0()8(9)50(1.0&)9$AA$56&1)10).%8&$`%>)?J1"B%(@)/C)KT@)

2007). When asked for the reason of not paying for a download, a high proportion

of respondents said because it is an easy option to get for free. The fact that

downloading is free however, only shows the less significant part of peoples

attitudes towards downloads. Streaming services and video offer free products, but

yet people still choose to own the product, and furthermore, go through illegal

means to obtain it. Even scare tactics from the industry have proven unsuccessful

in moving consumers away from free downloading, and the growth of licensed and

legal download sales shows there is still something that is valued to the consumer

in owning digital music. The true value of music to the consumer and fan is still in

1<%)0D(%.'<$/)0A) 1<%)/.09651C) )*5Y06.1)a601%')b0&9:%.=)1<81)76'$5) $');&%'')8:061)

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250, 2005). Collecting and owning music is still a desire to be sought online, even

as the product becomes less tangible. Pride in ownership showed to be high with

respondents in multiple areas. When asked for the reasons of why downloading is

preferable to streaming, 110 respondents said because they prefer owning music

and take pride in their collection. Respondents showed that the main reason they

preferred downloading to streaming was because of owning and collecting music,

rated higher than the choices of having the convenience of accessibility or reliability,

and not relying on internet connection or a 507/8("!' selection.

The attitude of ownership was also validated when asked what is the main

9.8D:85V)0A)0D($(=)7/O!'C))O2^)'aid they were afraid their collection could be lost

or deleted easily, showing that consumers value their mp3 collections and are

worried of losing them. Surprisingly, respondents were not worried about new

technology making mp3s or digital music obsolete, with only 8 respondents citing

this as the main drawback of owning mp3s. I<%)B8&6%)0A)7/O!')10)50('67%.')D8')

also seen with the Likert scale test with consumers, who valued their digital

collection more than a physical collection of music. The Digital collection value

score for the total samples was 7.45, compared to 6.17 for the physical collection

32

B8&6%) '50.%C) ) c6$1%) /0''$:&"@) .%&%B8(5%) 10) 1098"!') $X09) 56&16.%) $') 78V$(=) 9$=$18&)

recordings more valuable than its tangible predecessors.

Willingness to pay

I<%)50('67%.!')D$&&$(=(%'')10)/8")correlates to the perceived value and perceived

risk of the product or service. When attitudes are measured, what constitutes value

is ultimately what the consumer perceives as something more beneficial than its risk

or burden, which is usually represented by cost (Styven, 2007). The benefits

associated with preferences and attitudes are only determined valuable when the

cost reflects a fair price for those benefits.

This study found that downloading presents the most benefits to the consumer. It is

the channel that has the most tangibility and represents the traditional model of

exchange that consumers prefer. People manly want to download because they

enjoy collecting music, and since they do not see free downloading as stealing, the

perceived risk is very low for downloading. It could also be that the consumer may

perceive less risk because they see a less valuable product, which may translate

$(10)8)=.%81%.)6(D$&&$(=(%'')10)/8")A0.)$1C))J1"B%()'8"')1<81@);Digitization of products

leads to an increased abstraction, which may cause adverse reactions and beliefs

1<81) 1<%) 50(1%(1) $') 8.1$A$5$8&) 8(9)(01) 861<%(1$5>) ?J1"B%(@) /C) KE@) 233ELC) )Consumers

who are less willing to pay for a product may perceive it to be of less value than

physical products (Styven, 2007). One of the main areas that should concern the

industry is the depreciation of the products value to consumers as it moves online.

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33

The survey shows that many people are downloading, but when those downloads

transfer into monetary exchanges, the rate of paid downloads drastically goes down.

Only 13% of the total respondents said that all of their downloads were paid,

compared to 31% who said they never pay for downloads, which was the majority in

this category. On average, the group that never paid for downloads also valued their

mp3 collection less, with a Likert scale score of 6.83. This potentially shows that

consumers will value what they pay for, and that even the smallest price will add

value to a product.

When measuring the

frequency of paying for

downloads, the value scale

created a bell shaped curve.

This showed that the

respondents who

downloaded the most

frequently still paid for

downloads almost half the

time, and those who value

their 7/O!') 50&&%51$0() 8.%)

those respondents who

50&&%51) 7/O!') 1<.06=<) %a68&)

parts paying and not paying

methods. Furthermore, The results showed that consumers who pay more often

for downloads would also be more willing to pay a higher price. However, this is

also in relation to the download frequency, with respondents who pay more often for

download also significantly download less frequently, with on 3% of respondents

who pay every time downloading more than 20 tracks a week. This study found that

the most frequent downloaders are still willing to pay something for downloads, and

that digital music may be less valuable to the consumer, but it does not equal zero.

Overall, it was found that the total sample was most willing to pay between 1 and

25p for one mp3, with 28% of total respondents. Over all samples, including

respondents who never download, this price region showed to be the strongest

price for a download. Although to many in the industry, this price might be

considered undervalued, the high response rate for this price range may give insight

about new price points for downloads and can increase the willingness to pay.

Y0('67%.!' unwillingness to pay is inherent in their perceived risk, and its possible

!%!&!'!(!$!E!F!G!H!

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F igure 6- frequency of paying for downloads

34

the perceived risk of music consumption is from too high of a price.

Figure 7- The bell shaped curves shows frequent downloaders still pay

What constitutes value to the consumer is completely viewed through its price, and

it is the job of the market to capture this value proposition through its pricing

strategy (Styven, 2007). Judging from the results from this survey, consumers

perceive the value of digital downloads at a significantly lower price than its physical

counterparts, which may be attributed to the produ51) 8(9) $1') '6//&") 5<8$(!')costs

declining (Byrnes, 2007). Consumers are debating whether music files, either

streaming or downloading, are worth their price (Styven, 2007). A lowered price

range could potentially allow more willingness to pay, resulting in a larger market

share. People who responded in lower price ranges had a significantly higher

preference towards downloads, with 72% preferring it over streaming and video,

and 86% said they download after listening. A lower price point may be what the

78.V%1)(%%9')10)507:81)/$.85")8(9)$(5.%8'%)50('67%.!')D$&&$(=(%'')10)/8"C))R<%()

consumers were asked why they do not pay for downloads, 24% said because they

could never afford it, with this figure going up as the level of downloading is factored.

As Figure 12 shows, the relation between the price willing to pay by consumers and

the frequency of downloads that are paid for is much closer for the consumers who

download less. For higher downloaders, the gap between the price willing to pay

and the frequency of paying for downloads is much wider. For both downloaders,

1<%)/.$5%)D$&&$(=)10)/8")$')1<%)'87%@):61)'$(5%)1<%)78.V%1)<8'(!1)7%1)1<81)D$&&$(=)/.$5%@)

heavier downloaders will pay less frequently. It may be said that if the price heavy

downloaders were willing to pay was available, then the frequency of downloaders

paying may go up.

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35

Figure 8- As consumers download more, they are paying less frequently and willing to spend less

Donating to an Artist

A Surprising find was in the topic of donating, rather than paying for an album.

Consumers were asked to name the amount they would be willing to donate for an

album of their favorite artist. This question was included to determine a fair price for

an album, as well as find if the factor of supporting an artist could weigh in on

increasing the value of the product. On average, heavy downloaders donated more

to their favorite artist, with a weighted average donation of £4.66 for higher

downloaders compared to £3.78 for lesser downloaders. The donation factor of

payment was also measured and showed a favorable response rate for artists

looking for fan support. A majority of respondents said the reason they pay for

music is because it supports an artist or label they like. This notion of supporting an

artist was also measured by finding whether a donation would persuade

respondents to pay more, if they knew it was helping an artist they liked. This

strategy has proven popular with listeners and as a successful business model,

most notably with the band Radiohead, who released their 7th studio album through

1<%$.) 0D() D%:'$1%@) 8&&0D$(=) 90D(&089%.') 10) ;/8") D<81) 1<%") D8(1> (Byrne, Yorke,

2007). This model has also seen some success with new distributors of music, like

the site Bandcamp, which allows artists to select a donate button or pay anything

with no minimum for the music (Greenwald, 2011). This survey found the average

respondent would donate £4.65 for an album they enjoyed. Excluding outliers, the

average becomes £4.08.

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36

These figures of price were compared to the average price of an album available for

download on two of the largest distributors of music online, iTunes & Amazon

(findings can be found in the Appendix, section iii). An average price for the UK top

ten albums of the week of August 21, 2011 was compiled for the two distributors.

The research found that Amazon, on average, is £2 cheaper for the price of a top

ten album on iTunes. Amazon, who entered into the digital music market at the end

of 2007, have shown to be steadily declining their prices to better suit the

consumers willingness to pay, which started in the same range as iTunes (Lemon,

233TLC) )*8(") 0A)\78`0(!') /.$5%') 8.%) 5&0'%) 10) 1<%) /.$5%') .%'/0(9%(1') '6==%'1%9@)

and these new price points are something that should be looked into further to see

how consumers are reacting.

Willingness to Pay for Streaming & Hybrid Models

The willingness to pay a favorable price to the consumer seemed to not carry over

into other models of consumption. 35% of the respondents said they would never

pay for streaming, compared to 26% saying they would pay a monthly subscription

for streaming. When asked about downloading payment options, only 16% of

respondents said they would rather not pay for downloading (and take the risk of

being sued), compared to 28% choosing a fixed price per download as their

preferred method of purchasing downloads. This clearly shows that consumers will

be more willing to pay for a product they are able to collect and own, and that

streaming services may not have the tangible assets it needs to create value to the

consumer. Consumers are willing to pay, even with subscription models, as long as

they receive the benefit of ownership. To look into hybrid models of payment,

respondents were asked for their preferred payment method between subscription

and pay per use models. For a download subscription model, the majority of

respondents agreed to a £15 monthly subscription that gave them a limited number

of downloads (50), with a discounted price per download after that (.25p per track

after the 50 was reached). Both questions, however, showed low preference rates

A0.)1<%)0/1$0(')0A)A%%!')899%9)10)+(1%.(%1):$&&'@)D$1<)0(&")d^)A0.)'1.%87$(=)8(9)4K^)

for downloading.

These types of hybrid payment models, with the combination of product and service

values matched with the combination of subscription and traditional payment

methods, may be the future of the digital ecosystem. Ultimately, this research

shows that respondents were more willing to pay for downloads, which showed

value ownership qualities. Consumers are still tied to owning the product of music,

and still cherish the benefits of collecting, consuming, and customizing music that

37

can give them personal identity that streaming services may not be able to provide

at this time.

F igure 9- Response rates for multiple payment models, showing consumers are sticking to traditional methods of consumption, with consumers showing a more unwillingness to pay for streaming compared to downloading

VI. Application of Findings

Developing the New Supply Chain

The reasons in the decline of revenues for the record industry is in the fact that

consumers are only willing to pay for items they cannot get for free. (Nielsen,

Fragmented World of Music, 2011). However, it can be said that the market has

not been able to meet the demands of the consumer, which is dealing with a more

intangible and fragmented market. Whatever the reason, the digital music industry

has seen developments in its supply chain, from how music is created to how it is

listened to. These new products come with new rules, and new demands that the

industry must meet in order to profit from them. With the demand of the consumer

found, it is crucial to look into how that demand can be met through a hierarchal

system of channels that can provide value in the products, as well as its services.

Once this hierarchy of channels is met, it must provide value that is reflected in the

price structure in order to make it attractive enough to the consumer in order

compete with piracy.

The results found in this study create new ideas of what can create value in the

market to fulfill the consumers demand & control. It is imperative to apply these

findings into a new supply chain that adds value to the products and services

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38

through efficiency & price. As the research involved with this study found what

constitutes demand in the online music market, the application chapter looks at how

to met those demands through an effective ecosystem of channels.

Multiple Channel Hierarchy- The HOME

Consumers are expected to engage with multiple channels of consumption

interchangeably to fulfill their multiple needs and values. Some channels will no

doubt be more valued or riskier than others, and all are dependent on the

50('67%.!')/%.5%/1$0()0A) $(18(=$:$&$1"C) )Currently, each channel is working against

each other for the consumer!s attention, creating fragmentation in the market

(Nielsen, Fragmented World of Music, 2011). Fragmentation reduces each

channels representation and brand within the market, leading to less reliability and

an increased perceived risk of an already intangible product and service (Styven,

2007). A sense of hierarchy, or how each channel interrelates with each other, is

necessary to reduce this fragmentation and increase value in all channels (Nielsen,

Digital Music Consumption and Digital Music Access, 2011). Applying a hierarchy to

the market will add tangibility to each channel through association properties and

virtual cues that the consumer can rely on to obtain the product or service they

desire (Styven, 2007). These associations and virtual cues will be found in how

each channel markets itself in relation to each other, with each source of

consumption having a secure place in the market.

By developing a Hierarchy for the Online Music Ecosystem, or HOME, the market

can potentially reduce fragmentation and create value in the products and services

it offers. The idea of the HOME can be thought of as a one-stop shop for digital

music, with consumers using each channel interchangeably, and staying within the

same community and hierarchy to consume each channel. Thus increasing online

traffic, consumption, and value in the market. The HOME can provide placement

for each channel within the market, which are prioritized by the demand deemed by

the consumer, which can increase the consumer!'@) V(0D&%9=%@) .%&$8:$&$1"@) [)

dependency of each channel, while reducing the perceived risk of intangibility

(McCourt, 2005). As each channel develops a placement with each other, synergy

can potentially increase the value of all the services in the market to better provide

for the changing behaviors in consumers demand. As the HOME shows flexibility

and ease ability, the market can lead to a higher willingness to pay and increase

market share of the online consumer. It is important to note that the HOME is not a

monopoly or a conglomerate of music vending, but a platform and forum for music

consumption where competitors can find a safe haven to distribute music and work

39

in conjunction of each other rather than against.

The HOME Structure

To declare a hierarchy, it is crucial to look at the findings of demand that were found

in this study. By understanding each channels purpose, and relation to the

consumer, the market can begin to develop the HOME where listeners find value in

each channel, and can create an environment where the consumer will be more

willing to pay a fair price for the music consumed. This lowers the perceived risk for

the products and services associate with the HOME, and the industry can

potentially avoid strategies that will instigate more piracy, as well as nurture the

consumer!s values to a point where the benefits are worth the burden of price.

Currently, the market is dealing with a highly complex product that is fluctuating on

a scale of tangibility, which shifts between a product and a service. As this study

shows, the consumer still values the product, and is showing signs of valuing it

more so than it did in its physical sense. The benefits of instant gratification, ease

of use, compatibility, customization, and sense of community have shown to be

significant added values that the consumer responds to. By developing a structure

that creates a community for the consumer at its core, while meeting the demands

for each channel with fluidity and fair pricing, it can potentially create value that the

consumer will pay for. Ideally, the HOME structure should incorporate the tangible

attributes of a downloading product with the services of streaming, allowing the

consumer to enter, listen, enjoy, and purchase, all in one place that is welcoming

and valued.

40

Figure 10- A Diagram of the HOME structure

Pricing

The key point of value for the entire HOME is determined by its price. Judging from

the results of the survey, current price points are too high for consumers to begin

paying for products and services, and new strategies that incorporate the demand &

willingness to pay of the consumer must be implemented in order to successfully

create a profitable market. Marketers need to embrace an improved understanding

of what consumers deem as valuable. Their willingness to pay is linked with the act

of consumption and to the attributes they cannot get for free (Nielsen, fragmented

era, 2011). However, free services are good ways of attracting consumers into new

models of consumption, particularly ones that defy the traditional supply chain.

Whether the significant added value is in the medium, the experience, or the

delicate hierarchy that combines all of these, the price is the ultimate factor that

determines its success. As Styven writes, the value lies in ;the benefits received for

burdens endured. Once marketers understand what constitutes value for their

target markets, their goal is capturing and communicating this value proposition-as

clearly and compellingly as possible-1<.06=<)/.$5$(=>?/C)S3@)233ELC

The price must also reflect a significantly lower rate than what is offered today in

order to match the willingness to pay and combat piracy. Ultimately, consumers

showed high response rates for a price below 50p for one mp3. This price may be

to low cover any costs of licensing, however, hybrid models of subscription and per

41

use price points may be an answer of setting a profitable price. Respondents in this

survey showed a preference for subscription services, as long as the payments

constituted a value added service or product. Using hybrid models may be a good

balance for all services used together in the HOME, and, like the consumer, provide

flexibility in choice and options to find the best possible price for each sample of

consumer. Ultimately, pricing strategies that offer the most value will be the most

popular, and strong consideration of lower per use price points matched with

competitive subscription models may be ideal.

Incorporating alternative revenue streams through advertising and data trafficking

may prove to be useful, particularly if a community becomes a central focus in the

HOME structure. Ultimately, a social network system that incorporates peer-to-peer

technology may prove to be suitable for this type of hybrid service product,

particularly if other services like the cloud were included. The ideal focus of the

HOME is providing flexibility in not only its pricing structure to consumers, but also

in the dynamics of integration with other channels of the online market.

Barriers to Entry Through Litigation

Even with successful strategies and price structures, the lack of protection on the

Internet still creates a market where the value of all products and services can be

undermined. Effective protection of copyright is imperative to a successful strategy,

and must be effective in not allowing services to copy strategies, content, or other

significant added value. Copyright protection is the inherent value in a recording

and creates a barrier to entry for distributors. When recordings have effective

protection, it creates a substantial obstacle for competitors to legally distribute

music online, creating more value in legal distributors (Burnes et al., 2004).

Protection is also balanced with licensing, which is a direct way to help benefit the

labels and artists for their product. A market that depends on licensing without any

protection creates an unfair marketplace for the distributors who are benefiting both

the consumers and the owners. Greater protection online is essential for any digital

ecosystem to work effectively, and methods should be taken into account in order to

protect content online. Whether these methods should be the responsibility of the

law or with the owners and artists is a topic for another study. However, the

balance of an effective business model matched with effective protection of content

will create a market that is beneficial for all parties involved. The main benefit of

this paper is to show the industry that piracy can be dealt with not only through

changing the law, but by adapting the industry to the market. By better

understanding why consumers choose to steal, the industry can begin to

42

understand how to capitalize on that. The industry cannot depend on litigation

strategies and lobbyists that will only instigate more resentment towards the

industry from consumers. Ultimately, the record companies need to understand the

balance of power between the owners and consumers and learn where the power

has shifted in that digital ecosystem. The consumer now has the control of the law

and the ultimate power of demand, and new strategies must meet this power if the

industry wants future generations to value recordings at all. As Fox and

Kochanowski point 061@) ;Y0/") /.01%51$0() &8D') 10) 981%) <8B%) /.0B%9) 6('655%''A6&@)

and litigation has not halted the downloa9$(=) 0A) 76'$5) A$&%') 0B%.) 1<%) $(1%.(%1e)

Litigation is not a business strategy. Ultimately, the best response to online piracy

$')8)&%=$1$781%)8&1%.(81$B%>)?F0_@ Kochanowski, p. 203, 2004).

VII. Conclusion

The digital age of consumption has created a new ecosystem for the creative

industries that has shifted the power of supply into the consumer!s possession. For

success in the digital ecosystem, it is crucial to understand the behaviors that shape

the demand of the consumer, and how to effectively provide for them. Recordings

have developed in the digital ecosystem as both a tangible product and as an

intangible service, which has created new methods of appreciation with consumers,

and new ways to value both the ability to access and own digital music. As the

market evolves, it is imperative to understand why consumers still pursue the want

to own digital music and what ownership provides to our culture as it enters into

new ideas of sharing and communicating in a connected world. New concepts of

value are now associated with ownership in the digital ecosystem, and will continue

to shape how the consumer demands the product of music. The industry should

begin to look at ways to adhere to the demand through effective marketing and

sales strategies that incorporate the multiple channels of consumption into a useful

and valuable asset that solidifies the market and creates a synergetic value that can

bring benefit to artists, owners, and business!')$()1<%)76'$5)$(96'1."C

By investigating the demand of the consumers, this study has found significant data

that provides reasoning behind the factors of piracy and ownership, and how to

apply these findings into legitimate and licensed services. As the market continues

to explore new directions of consumption, the industry needs to continuously

develop strategies that will adhere to the consumers needs, rather than to the

industries desires. Through effective marketing, sales and business strategies the

43

digital music industry can become an industry that is successful in fighting piracy in

the digital ecosystem.

Limitations & Further Research

As with any analytical study, assumptions were made in order to draw conclusions,

and specific weightings with questions that involved subjective ideas, like piracy,

were necessary because of inherent bias, particularly with the questions about the

sites used to download from and how many downloads respondents made a week.

Although precautions were taken to reduce bias, surveys will still carry some bias in

results due to its nature. Also, it was found that the questionnaire focused on

downloading behavior, which may of neglected the opinions or traits of consumers

who preferred streaming. This may have resulted in higher rates of downloading

than what consumers may believe, with some questions not giving options that did

not relate to non-downloading activity. Many of these limitations were factored in to

the results and findings to reduce bias, and as with any survey, there will be

inherent limitations that the interviewer cannot control. Statistical analysis of validity

and reliability can be found in the appendix to give a margin of error for the results

Some areas for further research should be in looking at specific attitudes towards

new models of consumption, particularly the cloud models as they become more

prevalent in the market. Application of the HOME strategies should also be further

researched to ensure that the values of the consumers could be met with the

suggested ideas of the HOME and how it can better benefit the artists. Another

main area of topic is to look at new licensing strategies that can potentially lower

costs for the industry and find new ways to benefit the owners and creators of

recordings, which will also create more efficiency in the market place as it becomes

more integrated with the digital ecosystem. This can also be obtained in

researching specific hybrid pricings strategies to find what consumers respond to

best.

Acknowledgements: The author would like to acknowledge Joseph D. Szczepaniak

& Peter Dyson for their assistance with this paper, as well as a very special

acknowledgement and thank you to Kathryn Ballo, who assisted with many of the

tasks in completion of this study.

44

VIII. Bibliography

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musicians.html [01/09/2011]

45

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47

Further Reading

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strategies for digital experience goods in vertically segments markets, Information

Systems Research, 16 (4), pp. 400-417

IFPI (2008) Valuing the use of Recorded Music. London, produced by

PriceWaterhouseCoopers (PwC).

Marshall, L. (2004) The effects of piracy upon the music industry: a case study of

bootlegging. Media Culture & Society, 26 (2), pp. 163-181

Oberholzer, F., Strumpf, K., (2007) The effect of file sharing on record sales: An

empirical analysis, Journal of Political Economy, 115, (1), pp. 1-42

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Sousa, J. (1906) The Menace of Mechanical Music. !""#$%&'()*+,-,./'$, 8, pp.

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Schwartz, M. (2011) ISPs agree to copyright alert: What it means. [WWW]

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48

Appendix

i.i Total Respondent Data from Survey

49

Appendix

i.i continued

50

Appendix

i.ii- Data Of all Samples Surveyed

51

Appendix

i.ii continued

52

Appendix

ii.i i Data organized by downloading habits

53

Appendix

ii continued

54

Appendix

ii.ii Data organized by willingness to pay

55

56

Appendix

iii. Price Comparison Chart of Top Ten Albums in the UK, week of 21/8/2011

Appendix

iv.i Validity Test

To find the validity of respondents answers, similar questions were asked throughout the survey in

order to find out if the respondents were being consistent with their answers. Below is the findings

that ensure a high validity in the responses, and ensure that the statistical evidence provided in

this research has been proved valid.

Validity Test #1

In respondents answers to questions #17 & #28, which both asked whether the respondent

identified downloading for from an unlicensed website is illegal or considered stealing, 97% of

respondents who answered no to #17 also answered no to #28.

57

Validity Test #2

h%'/0(9%(1')D<0)8('D%.%9);#0>)10)a6%'1$0()jO '<06&9)0A)8&'0)8('D%.%9);+)/.%A%.)'1.%87$(=)0B%.)

90D(&089$(=>)10)a6%'1$0()j43C))+A)D%)&00V)81)1<%).%'/0(9%(1')D<0)8('D%.%9);+)/.%A%.)'1.%87$(=>)10)

#10, we find 12 respon9%(1'C))Z61)0A)1<0'%)42@)433^)0A)1<%7)8&&)8('D%.%9);+)/.%A%.)'1.%87$(=)0B%.)

90D(&089$(=>)10)a6%'1$0(')jO@)'<0D$(=)B8&$9$1")$().%'/0(9%(1')D<0)/.%A%..%9)'1.%87$(=C

Validity Test #3

Question #4 asked how many downloaded a consumer downloaded a week, followed by question

# 5 asking if they preferred downloading over video services. Looking at respondents who

answered with high amounts of downloading, 12 out of the 13 who responded with the highest

8706(1)0A) 90D(&089$(=!')8&'0) '8$9) 1<%")/.%A%..%9)90D(&089$(=)over #5, as well as to #3, which

was preferring downloading over streaming. It would raise questions if heavy downloaders did not

prefer the method they used regularly, and considered heavily by regular standards. By looking at

these results, it was found that respondents who heavily preferred downloading provided valid

answers and results.

Appendix

iv.i Reliability Test- Confidence Intervals

For what data could be processed into numerical formats to calculate standard deviations,

Confidence intervals were found to find a general margin of error for the data found in this study.

The two questions that gave the researcher a good group of values were the two questions using

the Likert scale on the respondents value of mp3 and physical products. A 90%, 95%, and 99%

confidence interval was found for both categories.

Confidence Intervals

Next set of data is downloading and purchasing frequency, which was averaged into scores

between 1 and 4 for frequency of downloads per respondents and 1 and 5 for the other two.

58

From these figures, we find confidence intervals for 90%, 95%, and 99% integrals for certain

aspects of the consumers values and purchasing experiences. These 5 figures can be weighed in

to find a general estimate for a margin of error for the consumers experience of downloading and

valuing music. Averaging the margin percentiles, we can use this average as a very rough

estimate to find the margin of error for this research. For a more specific confidence interval, and

for further research, this method should not be used and confidence intervals for any data set that

is being reviewed should use a more defined analysis of confidence intervals and margins of error.

This is only meant to get a general finding for the entire data set rather than get specific findings on

deviations.

Appendix

iv.ii iAll theories, evidence, strategies and ideas expressed in this paper are under protection of

copyright by the author. Any infringement can and will be fought in a court of law. © 2011. All data

is made available by the author which can be accessed through the mediafire upload site under

;J`5`%/8($8Vkdissertation findings-3dl2344>C) )I"/%) $() 1<$') &$(V)10)A$(9)8(9)=0)1<.06=<)1<%)9818)10)

find further results overlooked by the author. http://www.mediafire.com/?1qjj7t8oeyalgm1