Problems with illegal music downloads

- Sales of CDs (physical unit albums) decreased 20% in 2007, and 11% in 2008
- Music retail stores closed
- Overall purchases of music including legal digital downloads increased 15%
- About 10 million people logged onto P2P music-sharing sites during a typical day in the US


The history of P2P networks

- Central servers that restore indexed music titles: Napster
- Local shared directory (local client) on each individual computer
Kazaa FastTrack (single client server)
BitTorrent, BitComet, eDonkey, Foxy (multiple client servers)


How can P2P networks make money?

- Request pop-up advertisements and unsolicited e-mails from vendors who pay for the service with spyware and adware programs
- Advertising music sales directly on their sites


Solutions?

- Digital rights management software: To limit users to listen the same song on different software applications or hardware
- Reduce the music CD price
- Copy control CD: more secure techniques for copy control
- New music saving format: To develop a new music saving format to replace CD-ROMs (compact disc)
- Education and government advocacy
- Increase the legal penalty
- More attractive product


Blame the Internet or use the Internet?

In such circumstance, the biggest challenge for music sales is how to make consumers consume their money. Instead of punishing those P2P networks, they can yet be regarded as collaborative ventures. EMI, one of five largest record companies, took its first step in 2006. They authorized Qtrax to become the first legal P2P online music service that supports advertising. People could download music after they fully watch the commercials or choose to pay for downloading. Not only would EMI guarantee the income from the P2P sharing networks, but also both EMI and P2P networks could share the profit opportunity from those advertising. Here are some strategies for the electronic commerce of music sales.

- Basic advertising: Radio, TV commercial, and any advertisement combining with new consumption model
- E-marketing: low risk and high reward
Try out on the Internet
Free downloads and paid downloads
Normal users and advanced users
The Internet group sharing: use the influence of fan forums, message boards, and e-mails to share music videos to fans’ blogs (spontaneous sharing) just like rolling a snowball
- Physical activities: expose singers in front of fans as much as they can so as to increase singers’ celebrity rating
Holiday season activities: Valentine’s Day online drawing
Small concert in campus, pubs, malls, or even on the streets
Large concert: cooperate with other singers
Sell music CDs in the concert place


Conclusion

Laudon, Kenneth mentions that the music sales online cause great loss because of the low profit, like 99 cents per song, and loss the whole concept of “an album”. However, customers will not be stingy if the music products are really worth for them to spend money. A successful music product will either make customers feel reluctant to use pirating or have no choice but to use the original CD.

Reference: Laudon, Kenneth C. & Traver, Carol Guercio. (2009). E-Commerce - Business, Technology, Society. Fifth Edition. Pearson Prentice Hall. USA [ISBN: 0-13-1735160]

Because free competition is the fundamental principle to support the US economic system, all the US companies are able to engage in any production, marketing, or service in any open environment. However, any business tort will be penalized by intellectual property laws.

While intellectual property is protected by laws, the government also has to prevent the business that owns intellectual property rights from monopolizing the market. For many years the US has put the intellectual property rights (specially is patent) under the surveillance of the fair trade laws. It gives the balance between IP rights and free competition. The developers of a new product or an idea have right to apply for patent, but they also have to agree to transfer the patent to other manufacturers when the market demand increases.

For example, Klennex is a widely known soft tissue company. Other companies are able to produce similar tissues and packing as Klennex, but any imitative trademark, name, or even blurb is illegal. Another example is Coca-Cola. Other coke companies may use similar products to compete with Coca-Cola, but different product design and idea are required.