1. (c) Jakob Iversen, 2003 Online Music Industry 311: Fall 2003

2. (c) Jakob Iversen, 2003 Background/History 2000: MP3 format released 2000: MP3 format released Lots of web sites made files available Lots of web sites made files available Easy to shut down for record industry Easy to shut down for record industry Napster Napster Files on people’s own computers Files on people’s own computers Central file list – got sued and shut down Central file list – got sued and shut down Kazaa Kazaa No central file list – cannot be held liable for illegal use when there’s also legal uses – plus they’re located offshore No central file list – cannot be held liable for illegal use when there’s also legal uses – plus they’re located offshore PressPlay PressPlay Legal downloads - $10/month no burning ($1 per song for burning) Legal downloads - $10/month no burning ($1 per song for burning) iTunes iTunes Legal downloads - $1 per song Legal downloads - $1 per song

3. (c) Jakob Iversen, 2003 P2P vs. Network Web site Web site Web owner makes files available Web owner makes files available User types in web address, downloads file from web server User types in web address, downloads file from web server Centralized Centralized P2P P2P Users make part of their hard disk available to other users Some systems have central list of all files Other systems propagate searches among clients Files downloaded directly from other client Decentralized

4. (c) Jakob Iversen, 2003 Porter’s Value Chain From Fundamentals of Information Systems, Ralph Stair and George Reynolds, 2003, p. 20.

5. (c) Jakob Iversen, 2003 Porter’s Value Chain for online music From Fundamentals of Information Systems, Ralph Stair and George Reynolds, 2003, p. 20.

6. (c) Jakob Iversen, 2003 Problems for the Music Industry Most investments made upstream, but revenue comes downstream Most investments made upstream, but revenue comes downstream Kazaa: 240 million users, 890 million files traded between 4.3 million users. Kazaa: 240 million users, 890 million files traded between 4.3 million users. 31% drop in CD sales since mid 2000 31% drop in CD sales since mid 2000 An estimated 40 million Americans have traded songs online An estimated 40 million Americans have traded songs online Ownership of CD burners has risen threefold since 1999 Ownership of CD burners has risen threefold since 1999 40% of music consumers own CD burners 40% of music consumers own CD burners

7. (c) Jakob Iversen, 2003 Recent Events RIAA sued 261 users of KaZaa RIAA sued 261 users of KaZaa Including a 12-year old honors student living in subsidized housing in NY Including a 12-year old honors student living in subsidized housing in NY UMG slashed prices to $13 UMG slashed prices to $13 Many new legal download sites announced (Sony, RealNetworks, Microsoft) Many new legal download sites announced (Sony, RealNetworks, Microsoft)

8. (c) Jakob Iversen, 2003 Opportunities New media, new markets New media, new markets Closer ties between artists and users Closer ties between artists and users Better way to discover other music you may like Better way to discover other music you may like The movie industry fares a lot better! The movie industry fares a lot better! Movies are cheap to buy, lots of extras on DVDs, decent download alternative on the way Movies are cheap to buy, lots of extras on DVDs, decent download alternative on the way

9. (c) Jakob Iversen, 2003 Questions Is filesharing legal? Ethical? A Problem? Is filesharing legal? Ethical? A Problem? Have you used filesharing? Have you used filesharing? Would you use filesharing in the future? Would you use filesharing in the future? What should the music industry do now? What should the music industry do now?