1. Economics RBB BRUSSELS 12 MAY 2006SIMON BISHOP THE ECONOMICS OF THE MUSIC BUSINESS Competition Law and Intellectual Property Protection in the Music Industry

2. SIMON BISHOP Economics RBB 2 THE ECONOMICS OF THE MUSIC BUSINESS 12 MAY 2006 Key industry characteristics Implications for competition in the music industry – Impact of digital downloads? Future possible competition law issues Overview

3. SIMON BISHOP Economics RBB 3 THE ECONOMICS OF THE MUSIC BUSINESS 12 MAY 2006 Music Industry is Highly Dynamic Technological developments New music products released almost every day

4. SIMON BISHOP Economics RBB 4 THE ECONOMICS OF THE MUSIC BUSINESS 12 MAY 2006 The Music Industry is Characterised by… Highly differentiated products  Demand is highly variable  Demand is often short-lived

5. SIMON BISHOP Economics RBB 5 THE ECONOMICS OF THE MUSIC BUSINESS 12 MAY 2006 The Music Industry is also Characterised by… High fixed costs / low marginal costs  Prices can not be related to manufacturing / distribution costs  Protection of IP rights is extremely important

6. SIMON BISHOP Economics RBB 6 THE ECONOMICS OF THE MUSIC BUSINESS 12 MAY 2006 Implications for Competition Non-price factors are an important parameter of competition Pricing is complex and non-transparent Determined at Customer Level?Determined at Album Level? Wholesale List Price (PPD) Invoice Discount Retrospective Discount Co-op Payments Returns Policy

7. SIMON BISHOP Economics RBB 7 THE ECONOMICS OF THE MUSIC BUSINESS 12 MAY 2006 The Internet and its Implications for Competition Changes in Music Distribution Physical product Retail Store Download Internet Mobile Internet

8. SIMON BISHOP Economics RBB 8 THE ECONOMICS OF THE MUSIC BUSINESS 12 MAY 2006 What is the Impact of Piracy? Pricing constraint? Demand impact?

9. SIMON BISHOP Economics RBB 9 THE ECONOMICS OF THE MUSIC BUSINESS 12 MAY 2006 Future Possible Competition Law Issues Mergers – What lessons from Sony / BMG? Apple the next MS? – Network effects? – Interoperability?