Events Selection

This research investigates the impacts which are made by different operational strategies and environmental change on music industry in the last decade. The change of environment and operational strategies which are practiced by music companies can be discussed in three dimensions, the new digital technologies, lawsuit strategies, and the business model innovation, respectively. These dimensions, furthermore, can be divided into several milestones in the last decade: MP3 music compression technology, Napster’s P2P file-sharing system, lawsuits against Napster, and the Apple’s iPod plus iTunes business model for legal online music purchasing. Figure 8 shows the time-span and milestones of operational strategy evolution in music industry last decade.

Figure 8 Sequence of Music Industry Related Events

Hence, three prominent environmental or strategic events periods are examined in our research: development of MP3 and P2P technologies, RIAA filing lawsuits against Napster for copyright infringement, and the opening of

1999 2000 2001 2002 2003 2004 2005

~1998 MP3

Technology

Napster’s P2P File Sharing System (Jun, 1999)

RIAA Sue the Napster (Dec, 1999)

Napster Shut Down (Feb, 2001)

iTunes Online Music Store (Apr, 2003)

Napster’s Legal Online Music Store (Oct, 2003)

iTunes Sells 0.5 billion Songs (July, 2005)

Apple’s iTunes Online Music Store respectively. These events periods are expected to influence the effectiveness of music industry. According to the earliest release of music-industry-related news in the Wall Street Journal, the New York Times, RIAA Press releases, CBS News.com, CNET News.com, CNN.com, Apple's PR website, and Apple Chief Financial Office Release, events are selected to inspect their influences on the music industry.

Table 2 is the summary of major events involving music industry from June 1999 to July 2005 selected after examining the previous news. These events including: the opening of Napster, RIAA sue the Napster for the copyright violation, the judgment on Napster was determined, the opening of Apple’s iTunes Online Music Store, and the 0.5 billion songs was sold via the iTunes. Table 2 also classifies these events into positive and negative events for the performance of music industry. According to the hint which previous studies (Navissi et al., 2004; Asvanund et al, 2004; Kimand and Mauborgne, 2004 ) have dropped to us that creating an effective business model may do much more than filing a lawsuit, all of these events except the opening of Napster are positive effects upon the performance of music industry in our hypotheses. And operating a brand-new business model is hypothesized to do much more impact, than filing a lawsuit against piracy, on the productivity of music industry.

Table 2 Summary of Major Events Involving Music Industry

News Summary News Source

Napster is available on the internet

Negative June, 1999 Shawn Fanning, 18, creates the Napster application and service while a freshman at Northeastern University. London programmer Ian Clarke completes the original Freenet design as a student at Edinburgh University, Scotland, and makes it available on the Internet.

RIAA Press

RIAA said on Tuesday (December 7, 1999) it has filed a lawsuit against the makers of the MP3-trading program Napster, accusing them of “operating a haven for music piracy on an

unprecedented scale.”

The 9th U.S. Circuit Court of Appeals rules that Napster knew its users were violating copyright laws through its music file-sharing service, but the court allowed the Web site to stay in business until a lower court redrafts its injunction.

The three-judge panel specifically cited a memo drafted by Napster’s co-founder Sean Parker as evidence the Web site knew its users were violating copyright laws. In that memo, the court said, Parker said the company needed to remain ignorant about the "real names" of the users because "they are exchanging pirated music." For that reason, the court found that Napster was involved in

"contributory and vicarious

infringement," and had full knowledge that it was allowing its users to infringe upon copyright laws.

Table 2 Summary of Major Events Involving Music Industry (continue)

News Summary News Source

Napster pay a settlement fee

Positive September 24, 2001

To settle a lawsuit, Napster strikes a deal with the National Music Publishers' Association to pay $26 million for past unauthorized use of music and $10 million down payment on future royalties.

Positive April 28, 2003

Apple launches the iTunes Music Store, a revolutionary online music store that lets customers quickly find, purchase and download the music they want for just 99 cents per song, without subscription fees.

Moreover, the iTunes Music Store features over 200,000 songs from music companies including BMG, EMI, Sony Music Entertainment, Universal and Warner.

Apple's iTunes store has just hit the 500,000,000 download mark (in only 19 countries). The iTunes Music Store continues to be the world's leading online music service. It operates in 19 countries which represents about 70% of the global music business.

This research analyzes the performance changes of the music industry in a worldwide point of view from years 1997 to 2005. In our sample, there are 51 companies operating different activities in the music industry, such as music publishing, music retailing, music distribution and music production. A music publisher is an agent, who deals in the marketing of songs; a music distributor, or music retailer, is a channel disseminating music in a physical or virtual way;

a music producer is an organization who manufactures licensed music copies.