Findings

5.1.1 Digital music is good for music industry

In chapter 2 we found out the music industry had done a lot of action to overcome the difference. They accused and asked the legislative to resist the digital music. Obviously, they can’t prevent the rise of digital music. Music industry began to change to adapt to the environment. They compromised with the music platform and found out the power of free of the network. The network facilities make digital files can be spread without limitation. Through the spread of digital music, they will have lots of “fans.” That is great for the developmental strategy, for example, live entertainment, mobile music, single-file download, etc.

The music industry’s revenue has significantly reduced because of the emergence of digital music. Many researches try to explain the impact of digital music industry. However, their research results got the polarization. This article tries to explain the rule of digital music in music industry. The casual loop showed the Network Externality is the major reason to cause revenue to reduce. Piracy is not the factor to decrease albums sales volume. On the contrary, piracy can increase music industry’s revenue.

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5.1.2 “Free” - the future trend in Internet

“Free” can attract enough attention from consumers, even to make consumers to pick up the items they don’t need. In chapter 2, it proved the power of

“Free.” In the real world, “Free” is not really free, but the truly “Free” is achieved on the Internet. Whether the music platform charges or not, there are still innumerable

“free version” files on the Internet. The policy simulation showed the albums sales volume does not have a significant change in free condition. Music industry should use the situation to make new strategies and take an advantage to improve.

The Internet is the world’s largest market; it has the largest population, the largest resource, the fast transmission speed, and the most important is “Free.”

Network will make success. If we can use it effectively, the world does not lack some people publishing works on the Internet and become famous. The reputation is the important factor for business.

5.1.3 “Free” use of different situation in the others industry

Software, movie and music are similar. Internet not only makes them have a greater reputation and visibility, but also takes something away (Hennig-Thurau, et al., 2007). Characteristics of the products doomed them to have different developmental direction in “Free” (Anderson, 2009). For software, the “Freemium” pattern is useful.

They offered a free version (product A) that made available to anyone who wants it in the hope that some users will then choose to upgrade to the paid premium version (product B). The free version attracts potential consumers’ attention and trial; then they publish premium version to the consumers in need (e.g., enterprise version,

professional version). “Freemium” has a great performance and continues to be used in software industry.

Movie and music are more similar than software. Their main products can quickly transfer digital files on the network. Although they will have the largest and the cheapest promotion teams (network file-sharing users), that is also the main reason for their decline in revenue. Henning-Thurau et al (2007) made a detailed experimental describing the phenomenon of the movie industry. Downloading illegal movie was good for DVD rentals and sales, but it is bad for the movie theater’s revenue. For movie industry, movie theaters occupy over 90% of total revenue. If they use “Free” to promote new movies, they will lose more from the movie theaters than gaining from the DVD rentals and sales.

Judging from the above, the system dynamics model of “Free pattern” of this article constructed that distributed music industry can get great results for free.

Although the “Free pattern” only can be used in music industry, the other industries can also find appropriate “Free pattern” (Anderson, 2009).

5.1.4 Music industry should “Free” in Internet

Music industry must rely on promotion to make new album spread, and to further attract consumers to purchase. Therefore, the marketing budget of album plays an important role in the model. It can decide the volume of album sales. However, is the marketing budget really used effectively? Furthermore, which is the most efficient marketing channel?

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The best promotion channel is found in this study, and the concert/autograph session has the best effectiveness that 76% participators will have the purchase intention after session. The next is the Internet channel; the rate of purchasing intention via piracy group is 59%, which has almost the same effectiveness as TV channel promotion. Also, the rate of purchase intention via music platform members (nonpayment) is almost the same as the piracy group. However, if we consider the cost factor and compare it with the utility, the Internet channel will be the victory. It attracted most of the consumers, had a great purchase intention ratio and the most important is the lowest cost (even zero).

The charge of listening to online free music to consumers is feasible. Although

“Free” could make some loss (revenue of music platform), the music industry can still obtain profits by album sales. They shouldn’t be afraid of consumers who do not purchase albums because the consumers purchase the albums is no longer for listening to the favorite music but shifts to support the favorite entertainers and just for collection today (see Figure 5-1). Maybe the consumers have accustomed to use digital music that causes the albums sales volume and average purchasing volume to start dropping from 2000, which is without doubt that the problem that music industry would like to seek the solution diligently. However, this trend has not reversed.

In the other situations that were simulated in policy simulation, the change of dynamics system by “Free” could overcome the loss. This article designed two policy situations, and the result showed a good sign when the “Free” attracted additional 50% consumers or hold 120 booking concerts per year. There is no impossible mission, not to mention adding others revenue source which this study didn’t

investigate, for example, mobile music, music copyright authorization. The result makes “Free” more likely a practical implementation, and this article will describe the other advantage in free condition in next section (see chapter 5.2).

Figure 5-1 Reason for purchase original album Source: This Study