Based on the dramatic changes in the music industry, the purpose of this research is to investigate the impacts which are made by the new digital technology, such as the MP3 and P2P file-sharing systems, Lawsuit strategy, the RIAA sue the Napster for copyright violation, and the business model innovation, the Apple’s Online Music Store, on the productivity of the global music industry. According to our researche, furthermore, this thesis makes a comparison between the effectiveness of different strategies which intrinsic
firms may play when the environment is changed, and try to clarify the essential difference of anti-piracy strategies.
Considerable amount of researches and articles had discussed the negative and positive impact of technology change and business model innovation, such as MP3 downloading, P2P file-sharing, and the online music stores, on the performance of intrinsic firms in music industry. Navissi, Naiker, and Upson (2005), for example, used Napster as a proxy for diffuse piracy through the Internet and examine the effects of 11 prominent Napster-related events on the equity value of firms in the US music industry. Finally, the results of their research suggested that Napster’s service created wealth in the music industry.
Another survey based on the aspect of consumer behavior and culture comparison to explain the music piracy, and tried to find out the best strategy of anti-piracy. Condry (2004) compared the music file-sharing behavior between the US and Japan, and found that a focus on fan participation in media success provides an alternative perspective on how to encourage flourishing music cultures. Asvanund, Clay, Krishnan, and Smith (2004) also claimed that solely shutting down individual file-sharing networks does little to change user behavior according to their discovery of the increasing free-riding behavior on P2P networks. Moreover, the real opportunity is to create blue oceans of uncontested market space, Kim and Mauborgne (2004) proposed this argument in their article published on the Harvard Business Review in October 2004.
These previous studies have dropped us a hint that creating an effective business model may do much more advantages for music industry than just filing a lawsuit against piracy, hence. Nevertheless, the previous studies were lacking empirical evidences to prove this viewpoint. Consequently, our research makes some comparisons on the productivity change of the global music firms between these two strategies, filing a lawsuit on Napster and innovate an iTunes Online Music Store business model, and try to illustrate the results further. On the other hand, the network externality has been proofed of significant effects on the E-business and P2P file sharing network in the previous literatures. For example, the study Asvanund et al. (2004) suggested that the optimal size of the P2P network is bounded in their studies. While the network externality, or network size, will change the utilities of users and provides value to them (Strahilevitz, 2002; Saloner and Spence, 2002), it is considered an important attribute of the online music selling in our research.
Our research, first, examines the efficiency change of individual firms, when
the new digital music technologies, lawsuit against Napster, and the new business model of iTunes were launched, with DEA models and Malmquist indices. These approaches can not only measure the performance of a firm, but also reflect a long-term aspect that could never be discovered before by the traditional financial measurements. Accordingly, this study adopts such measurements of efficiency, other than traditional financial performance indexes, to demonstrate our assumptions, and the results of our study can be enriched. Furthermore, in order to extract the influence of the era of online content selling, effects of network externality and music piracy rate are concerned in our models. Since different strategic events, such as introducing a P2P file-sharing network, filing a legal action and launching a new business model, will impact the scale of the network, and piracy rate as well; and further, the performance of the music industry will be affected through these externalities change. Therefore, our research examines the efficiency change of individual firms and considers the externalities as external variables in our Data Envelopment Analysis model.
Hence this study examines the productivity variation of 51 global music firms with DEA Malmquist methods, and tests the expected productivity effects of three milestones of digital music evolution, development of MP3 and P2P technologies, RIAA filing lawsuits against Napster for copyright infringement, and the opening of Apple’s iTunes Online Music Store, on these music firms by Tobit models. All of these events, except the appearance of MP3 and P2P software, are positive effects upon the productivity in our hypotheses.
Researcher also applies a nonparametric approach to confirm the hypothesis that the business model innovation will improve the performance of music companies more than filing litigations. Meanwhile, this thesis tries to clarify the process that these events affect the industry through performance improvement and the externalities, such as network scales and piracy rate change. The researcher supposes that these events will not only pose influences directly on the performance of music industry, but also via externalities change in an indirect way, referring to Figure 1, and employs regression analyses to verify this assumption.
Figure 1 The influences of new technology, lawsuit strategy and business model innovation on the performance of music industry