Music for Free? How Free Ad-Funded Downloads Affect Consumer Choice

Kerin, R. A., Hartley, S. W., & Rudelius, W. (2013). Marketing. (11th ed.). New York, New

Brown, T. (2014). Basic Marketing Research, 8e, 8th Edition. [VitalSource Bookshelf version]. Retrieved from http://online.vitalsource.com/books/9781305178571/page/24

Figure 3 Flow chart showing the change in the way music is distributed with the entrance of new actors such as streaming services (Oestricher & Kuzma, 2009)

Since April 2003, iTunes Music Store has permitted the consumer to purchase music and digital books over the Internet with success. By 2005 their shares increase significantly as a result of their tremendous success. Their product became a platform for the digital music business to explode into the industry it is today. This also made digital music affordable to the consumer who may have gone to illegal downloads in the past which in turn ensured that the music industry was getting paid for their product as well. The $0.99 cents per song download provided $0.70 cents to be paid to the record companies and the remainder ($0.29 cents) was Apple profit. By August 2005, some of the larger record companies felt that their product was

3-4). While these statistics provide a look into the numerical growth of the streaming industry, it is also important to discuss the power that these streaming services have generated—over both the music industry and over established/aspiring artists. Subscriptions are on the rise, having increased significantly over the past ten years, but as is the amount of users streaming music on a free-trial or ad-supported basis—ultimately undercutting the music industry and artists alike. Blewett and Gollogly (2017) elaborate on this point, stating that, by the end of 2016, paid music streaming subscriptions drove a revenue growth of 60.4%—this growth more than offsetting a “20.5% decline in downloads” and a “7.6% decline in physical revenue” (Blewett & Gollogly, 2017, para. 4). Moreover, Borja and Dieringer (2016) explore the concept of streaming even further in their academic article, positing that the decline in paid digital downloads may be a direct result of streaming—as, music streaming can be perceived as a “complement” for music piracy, in which listeners can freely sample music to pirate later on (Borja & Dieringer, 2016, p. 1). The authors also suggest that streaming can provide a “venue for discovering and listening to new releases”; and after completing their 1052 surveys, conclude that streaming increased the likelihood of piracy by

The question then became “Just because we can get the music we want without paying for it, should we?” (Tyson, 2000, p.1). This issue of illegal downloads, which is also referred to as piracy, has been a hot topic ever since the introduction of Napster. According to Recording Industry Association of America “In the decade since peer-to-peer (p2p) file-sharing site Napster emerged in 1999, music sales in the U.S. have dropped 47 percent, from $14.6 billion to $7.7 billion” (RIAA, 2014).

No one can deny that technology is actively changing the music industry. Production, distribution and sales of music have been affected dramatically within the last 10 years along with artists, composers, and technicians. Most of the changes have been great for consumers, but vastly negative for professionals in the music industry, however a few artists have found ways to adapt to the changing atmosphere of digitally downloaded music and use it to their advantage. We’ve seen music change form from physical, tangible products like records and CD’s to electronic single tracks stored in an invisible cloud. Two major factors in this sudden revolution are online music stores (specifically iTunes) and file sharing websites that allow music to be downloaded illegally.

Despite relevant findings, many individuals are under the impression that digital media services, such as digital downloading and streaming have a positive impact on the Music industry for reasons including music

Introduction: Setting the trend for the future, the distribution and consumption of recorded music transformed dramatically with the launching of Apple’s iTunes in 2001. The proliferation of online music subscription services and other music sharing services exerted a great pressure on the conventional music distribution business model. Combined with this transformation, piracy of digital music had a profound impact on the whole industry. These worsening conditions in the market place for recorded music forced both established and upcoming new artists to experiment with new ways of selling their music.

This dissertation is submitted in partial fulfillment of the requirements for the Degree in Marketing Practice

When speaking economically, the digital music sector of the international music industry is undoubtably the most important sector in the industry. Within the last decade, music has seen cardinal changes in the way both major and independent labels distribute their products. An industry that once relied on Payola 's and mass distribution of physical records and CD 's now relies heavily on the power of the internet. The first instance of mass distribution of music through the internet was by the service Ritmoteca.com in 1998 [1]. Ritmoteca had a library of over 300,000 songs, offering individual songs for 99 cents each and albums for $9.99. After signing distribution deals with many major music labels such as Warner

In the midst of the United States’ “dot com bubble” (years 1997-2000), there was a surge in technology that brought about file sharing and digital downloads. Threatening the survival of the music industry and introducing a unique set of challenges for the industry to overcome. To remain relevant in the new global market of digital music online, the music industry would have to evolve and change with the introduction of each new facet technology had to offer. The introduction of digitally compressed music files, so easily attainable for a small fee or downloaded legally (pirated) for free, made the music industry reevaluate how to make a profit and protect copyrights. Social media created a visible opportunity for both consumers and artists to maintain digital relationships while providing a platform for consumers to follow and discover new musicians and bands, naturally, making the internet a promotional medium for artists. As the corner record shops closed to make way for virtual storefronts and instant downloads; the internet, digital downloading, and social media made an enormous impact on the music industry that has changed the way consumers purchase, source, listen to, and produce music today.

While some may argue that downloading music illegally increases an artist’s popularity by exposure, doing so greatly harms the artist and the dedication they put into producing their music. Supporters of free music downloading claim that online sites only increase the popularity of an artist’s music by giving them more exposure to a bigger audience. John Dino, a supporter of free music downloading states in his speech, “sites, such as Napster are helping artists’ music to be spread around worldwide, while simultaneously granting listeners a simple way to access music” (Theft in Music). These free online sites give listeners a way to test an artist’s music to see if they are truly interested in buying. By doing so, it saves the listeners from buying music they could potentially not like, and it saves the artist from gaining false music purchases that listeners could actually not be listening to. This process can limit an artist’s fans to only listeners that are interested in the artist’s music and fans that generally want to support and endorse the artist by buying their merchandise or going to their concerts. In turn, the artist’s sales should profit as more people are listening to the artist’s music and buying their products which allows them to become more known worldwide as they are getting more easily recognized on a global scale. Regardless, even if listeners find that they are not interested in the artist’s music and therefore do not purchase their music, the music industry can still benefit from the wide-access other artists receive. According to a speech done by Ariana Torres, she summarizes that the music industry still makes money despite loss from free music downloading that the industry can then turn into more contracts (“Downloading Music”). The music industry is highly flexible mainly because they focus solely on popular artists, or emerging artists that could potentially make a hit and gain the industry profit from their sales. Either way, the industry still makes money because of the people listening to different artists’ music. The chance of a listener listening to only one artist is highly unlikely, so that means the listener has to be listening to two or more artists’ music. This means that

Ever since 18-year-old Shawn Fanning created Napster in his Northeastern University dorm room in 1999, downloading and sharing music online has become one of the most popular things to do on the Internet today. But why wouldn't it? Getting all your favorite songs from all your favorite artists for free, who wouldn't want to start sharing music? The answer to that question are the people who feel that stealing from the music industry is not morally right, because that is exactly what every person who shares music is doing. People who download music think it's something they can get away with but now it might be payback time to a lot of those people.

Companies like Apple, have decided that it is best to get in with the downloading business. However, an end to the illegal downloading conflict remains to be realized. The RIAA and associated artists continue to wage war against illegal downloaders while computer savvy audiences persist in sharing music files online every day. While it is undoubtedly true that downloading music is a crime, it remains to be proven that it is wrong. Without establishing this principle, most downloader's are likely to continue the activity. Even with new, inexpensive and available means of downloading files, they can still be shared for free online. The rift must be repaired between music lovers who feel that they have been taken advantage of in the past and recording companies and artists who worry about their future livelihood.