5. Empirical Results
5.1 Production Frontier Analysis
This research employs the proposed approach of Malmquist Indices in Exogenous-Variables Concerned CCR Input-Oriented Model (refer to chapter 4.2) to analyze 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. The calculations of Malmquist indices are based upon two inputs (i) Employees (thousands people), (ii) Capital Assets (Millions of dollars); one outputs (i) Gross Sales (Millions of dollars); and two exogenously fixed variables (i) Music Piracy Rate (%), (ii) Domestic Internet Users (per hundred inhabits). The sample statistics, which describe and summarize sample data, for every DEA variables are listed on Table 5 year by year from 1997 to 2005. Sample mean and mode behalf the centrality of data; standard error, kurtie, skewness, minimum and maximum value of data represent the shape of distribution.
Table 5 Sample Statistics in the DEA model from 1997 to 2005
Piracy Rate(%)
Internet Users(per
100 inhabits)
Gross Sales(millio
n dollars)
Employees(
1,000 people)
Capital Assets(milli
on dollars) Sample Mean 31.737 12.460 2119.309 11.469 606.198 Standard Error 1.751 0.687 877.798 5.928 328.169 Median 27.000 14.930 140.959 1.590 16.790
Mode 27.000 14.930 - - -
Kurtie 15.042 1.162 16.245 31.288 15.449 Skewness 3.585 -1.498 3.804 5.431 4.033
Min 27.000 0.250 0.004 0.014 0.012
Max 84.000 15.000 28679.364 221.157 9146.653 1997
Confidence(99.5%) 5.228 2.050 2620.441 17.697 979.663
Table 5 Sample Statistics in the DEA model from 1997 to 2005(continue)
Piracy Rate(%)
Internet Users(per
100 inhabits)
Gross Sales(millio
n dollars)
Employees(
1,000 people)
Capital Assets(milli
on dollars) Sample Mean 28.756 19.488 1993.671 10.344 677.670 Standard Error 1.557 0.843 948.938 5.855 397.328 Median 25.000 22.200 80.919 0.701 18.925
Mode 25.000 22.200 - 0.149 -
Kurtie 20.960 2.702 23.733 34.715 22.799 Skewness 4.266 -1.820 4.619 5.746 4.712
Min 25.000 1.010 0.139 0.024 0.005
Max 82.000 24.800 35362.583 235.610 14261.588 1998
Confidence(99.5%) 4.627 2.504 2819.456 17.395 1180.531 Sample Mean 28.114 31.766 2216.630 10.883 790.817 Standard Error 1.397 1.348 1078.890 6.373 492.938 Median 25.000 36.700 131.463 0.648 20.271
Mode 25.000 36.700 - - -
Kurtie 25.574 2.110 27.916 37.975 30.359 Skewness 4.735 -1.700 5.021 6.024 5.373
Min 25.000 2.170 0.092 0.007 0.010
Max 81.000 37.240 43879.020 275.591 20116.840 1999
Confidence(99.5%) 4.133 3.988 3192.605 18.858 1458.682 Sample Mean 27.868 38.646 2489.098 12.059 918.501 Standard Error 1.587 1.561 1155.751 6.864 552.199 Median 24.000 44.060 182.491 0.925 25.480
Mode 24.000 44.060 - - -
Kurtie 20.680 3.935 19.973 30.492 22.428 Skewness 4.188 -1.963 4.244 5.373 4.652
Min 24.000 3.790 1.454 0.026 0.400
Max 79.000 44.060 39239.586 253.286 18765.484 2000
Confidence(99.5%) 4.737 4.660 3450.199 20.491 1648.448
Table 5 Sample Statistics in the DEA model from 1997 to 2005(continue)
Piracy Rate(%)
Internet Users(per
100 inhabits)
Gross Sales(millio
n dollars)
Employees(
1,000 people)
Capital Assets(milli
on dollars) Sample Mean 29.057 44.043 3107.951 17.060 1151.488 Standard Error 1.674 1.657 1567.133 11.003 691.205 Median 25.000 50.100 270.152 1.143 39.913
Mode 25.000 50.100 - - -
Kurtie 16.373 5.579 22.165 31.228 18.124 Skewness 3.716 -2.089 4.493 5.492 4.245
Min 25.000 5.800 6.101 0.001 0.231
Max 77.000 50.100 51056.137 381.504 20824.779 2001
Confidence(99.5%) 5.026 4.974 4704.462 33.032 2074.964 Sample Mean 28.156 48.578 3745.806 8.215 776.236
Standard Error 1.860 1.666 1997.845 3.162 393.917 Median 23.000 53.800 338.284 1.067 45.419
Mode 23.000 53.800 - 0.065 -
Kurtie 15.132 11.093 22.579 10.490 11.870
Skewness 3.531 -2.957 4.555 3.226 3.511
Min 23.000 7.700 6.250 0.027 0.162
Max 77.000 53.800 60970.273 80.632 9830.000 2002
Confidence(99.5%) 5.621 5.035 6037.722 9.557 1190.464 Sample Mean 27.600 52.155 2674.719 7.014 509.575 Standard Error 2.055 1.803 1240.272 2.860 279.199 Median 22.000 55.580 364.985 1.060 50.367
Mode 22.000 55.580 - 0.218 -
Kurtie 16.892 11.865 13.126 12.544 21.560 Skewness 3.801 -3.171 3.546 3.486 4.488
Min 22.000 9.560 5.984 0.013 0.101
Max 80.000 59.190 32099.676 73.221 8017.991 2003
Confidence(99.5%) 6.242 5.478 3768.005 8.689 848.220
Table 5 Sample Statistics in the DEA model from 1997 to 2005(continue)
Piracy Rate(%)
Internet Users(per
100 inhabits)
Gross Sales(millio
n dollars)
Employees(
1,000 people)
Capital Assets(milli
on dollars) Sample Mean 27.593 57.567 2956.436 7.468 528.504 Standard Error 2.268 2.133 1260.012 3.069 274.400 Median 27.000 62.280 396.130 1.300 60.180
Mode 21.000 62.280 - - -
Kurtie 14.458 11.729 8.048 14.186 16.325 Skewness 3.503 -3.145 2.924 3.610 3.922 Min 79.000 65.300 26650.842 76.266 6879.300 Max 27.000 27.000 27.000 27.000 27.000 2004
Confidence(99.5%) 6.957 6.540 3864.342 9.414 841.559 Sample Mean 27.667 60.567 2382.005 7.798 399.500 Standard Error 2.587 2.048 1059.970 3.859 208.038 Median 24.000 62.000 277.064 1.061 23.954
Mode 21.000 62.000 - - -
Kurtie 13.350 15.041 7.735 15.677 10.783 Skewness 3.431 -3.606 2.909 3.830 3.294 Min 59.000 50.000 19475.045 88.489 4330.677
Max 21.000 18.000 8.955 0.027 0.323
2005
Confidence(99.5%) 80.000 68.000 19484.000 88.516 4331.000
Excel-Solver function, refer to Zhu (2003), is applied to construct DEA models in this research. Therefore Malmquist productivity indices (MPI), which represent the productivity changes between two years, and two decomposed components, the technical efficiency change (TEC) and the frontier shift (FS), of the music firms can be calculated from 1997 to 2005. MPI measures the productivity change between two years. MPI>1 indicates productivity gain, MPIk
<1 indicates productivity loss, and MPI=1 means no change in productivity from year t to t+1. TEC is a measure of how much closer to the boundary the company is in year t+1 compared to year t. If TEC=1, the particular company has the same distance in years t+1 and t from the respective efficient boundaries. If TEC>1, the company has moved closer to the year t+1 boundary than it was to the year t boundary and the converse is the care if the TEC<1. FS measures the technology frontier shift between year t and t+1. If a value of FS >1 indicates a positive shift
or technical progress, FS<1 indicates a negative shift or technical regress, and FS=1 indicates no shift in technology frontier. The empirical results of Malmquist indices of each music company from 1997 to 2005 list on Table 6, Table 7, and Table 8 respectively. Furthermore Table 9 summarizes the average scores of Malmquist indices, which represent the technical efficiency changes, frontier shifts, and productivity changes of whole music industry from 1997 to 2005, and it’s sub-industries as well.
Table 6 Technical Efficiency Change of Music Firms from 1997 to 2005
TEC 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 Music Retailing & Distribution
ARTISTDIRECT INC - 0.115 1.329 2.097 0.549 3.410 1.441 0.416
AUDIOHIGHWAY.COM - 4.746 - - -
BARNESANDNOBLE.COM 4.605 1.252 1.124 2.086 1.176 0.949 - -
CDNOW INC 2.066 0.615 - - -
CDWAREHOUSE INC 1.054 0.653 2.330 0.701 - - - -
CINRAM INTERNATIONAL INC 1.822 0.698 0.908 1.271 1.014 1.418 2.281 0.648
HANDLEMAN COMPANY 2.203 0.568 0.901 1.224 1.093 0.875 1.460 0.986
HASTINGS ENTERTAINMENT
INC 1.971 0.638 1.162 0.752 0.917 0.957 1.807 1.726
HMV GROUP PLC - - - - 1.092 1.066 1.681 0.992
INTEGRITY MEDIA
INCORPORATED 1.339 0.881 1.023 1.561 0.772 0.993 - -
INTERMIX MEDIA INC - 0.161 1.917 0.893 0.918 1.070 1.546 1.160
K-TEL INTERNATIONAL INC 1.883 0.811 1.233 0.847 0.392 1.337 - -
MP3.COM - 0.180 3.232 - - -
MTS INC - - - 1.204 1.220 - - -
MUSICLAND STORES CORP 1.782 0.553 - - -
NATIONAL RECORD MART INC 1.880 0.648 1.015 - - -
SHINSEIDO CO LTD 1.694 1.178 0.999 0.962 0.975 1.067 1.188 0.417
TRANS WORLD ENTMT CORP 1.887 0.690 1.020 1.009 0.980 1.025 1.838 1.286
VALLEY MEDIA INC 4.514 0.552 0.844 - - -
WHEREHOUSE ENTMT INC 1.435 0.844 1.144 0.880 - 1.598 - -
Average 2.153 0.877 1.345 1.191 0.925 1.314 1.655 0.954
Table 6 Technical Efficiency Change of Music Firms from 1997 to 2005 (continue) TEC 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 Music Publishing
4 KIDS ENTERTAINMENT INC 2.325 1.843 1.000 0.352 0.772 1.574 1.121 0.437
AUDIBLE INC - 1.065 2.142 3.171 1.279 2.113 1.451 0.482
AVEX GROUP HOLDINGS INC 1.000 1.000 1.000 0.572 0.926 0.928 1.007 0.154
BERTELSMANN AG 1.416 1.000 0.862 1.138 0.937 1.139 1.409 0.676
BEYOND INTERNATIONAL
GROUP 1.167 0.847 1.337 1.039 0.982 1.165 1.946 0.287
CHRYSALIS GROUP PLC 1.507 1.020 1.093 1.038 1.168 1.070 1.300 0.634
EMI GROUP PLC 1.307 1.000 1.033 1.145 1.049 1.030 1.489 0.605
FOX ENTERTAINmeNT GROUP 1.440 0.872 0.985 0.984 0.998 1.110 2.945 -
GMM GRAMMY PCL 1.491 1.000 1.486 0.471 0.555 0.890 2.330 2.821
ISRAEL LAND DEVELOPMENT 1.361 2.673 - - -
JACK WHITE PRODUCTIONS - - 0.205 1.009 0.937 1.653 1.539 -
MEDIA BAY INC 0.451 1.464 0.795 1.557 1.000 1.000 1.000 0.202
NEWSTAR MEDIA INC 1.232 0.767 - - -
ROJAM ENTERTAINMENT HLD - - - - 2.512 2.087 2.749 1.000
SANCTUARY GROUP PLC - 1.376 1.509 1.268 1.021 1.077 1.991 0.704
SONY MUSIC ENTMT(JAPAN)
INC 1.050 1.495 0.800 0.756 0.956 0.468 3.187 -
VIVENDI UNIVERSAL SA 1.224 1.000 1.073 0.915 6.516 0.654 1.043 0.270
WARNER MUSIC GROUP CORP 1.310 0.881 1.004 0.606 1.156 1.598 0.965 1.068 Average 1.306 1.206 1.088 1.068 1.423 1.222 1.717 0.719 Music Production
GENER8XION ENTERTAINMENT 6.544 0.196 - - -
MAKEMUSIC INC 3.611 0.722 0.033 - 1.092 1.420 3.562 1.724
METATEC INTL INC 0.995 1.060 0.943 1.891 0.745 - - -
PARADISE MUSIC &
ENTERTAINMENT INC 1.637 0.693 1.682 1.522 - - - -
PLANET ENTERTAINMENT
CORP - - 0.572 - - -
PLATINM ENTERTAINMENT INC - 0.529 - - -
STEINWAY MUSICAL
INSTRUMENTS INC 1.531 0.586 0.719 1.382 1.002 1.071 1.395 0.759
ZOMAX INC/MN 1.200 1.660 0.900 1.228 0.921 0.884 1.469 1.153
Average 2.586 0.778 0.808 1.506 0.940 1.125 2.142 1.212
Table 7 Frontier shift of Music Firms from 1997 to 2005
FS 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 Music Retailing & Distribution
ARTISTDIRECT INC - 1.043 1.076 0.937 1.048 1.054 0.585 0.863
AUDIOHIGHWAY.COM - 0.147 - - -
BARNESANDNOBLE.COM 0.705 0.458 0.992 0.924 1.049 1.046 - -
CDNOW INC 0.643 0.940 - - -
CDWAREHOUSE INC 0.334 0.498 0.996 1.434 - - - -
CINRAM INTERNATIONAL INC 0.626 1.127 1.084 0.914 1.050 1.056 0.869 1.834
HANDLEMAN COMPANY 0.642 1.296 1.074 0.914 1.050 1.069 0.686 1.014
HASTINGS ENTERTAINMENT
INC 0.574 0.488 0.987 1.371 1.050 1.079 0.577 0.579
HMV GROUP PLC - - - - 1.050 1.073 0.655 0.773
INTEGRITY MEDIA
INCORPORATED 0.834 0.757 0.992 0.853 1.049 1.045 - -
INTERMIX MEDIA INC - 1.190 0.987 1.146 1.050 1.079 0.604 0.862
K-TEL INTERNATIONAL INC 0.546 1.111 1.005 1.301 1.376 1.262 - -
MP3.COM - 0.885 1.018 - - -
MTS INC - - - 0.878 1.050 - - -
MUSICLAND STORES CORP 0.594 0.682 - - -
NATIONAL RECORD MART INC 0.445 0.569 1.041 - - -
SHINSEIDO CO LTD 0.819 0.633 0.992 0.922 1.049 1.043 0.877 0.899
TRANS WORLD ENTMT CORP 0.571 0.645 1.019 0.992 1.050 1.075 - 0.778
VALLEY MEDIA INC 0.253 1.217 1.009 - - - 0.611 -
WHEREHOUSE ENTMT INC 0.355 0.544 0.983 1.392 - 1.026 - -
Average 0.567 0.791 1.017 1.075 1.077 1.076 0.683 0.950
Table 7 Frontier shift of Music Firms from 1997 to 2005 (continue)
FS 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 Music Publishing
4 KIDS ENTERTAINMENT INC 0.774 0.737 1.000 0.929 1.049 1.052 0.814 1.780
AUDIBLE INC - 0.200 1.113 0.840 1.050 1.168 0.519 0.952
AVEX GROUP HOLDINGS INC 0.913 1.000 1.000 1.152 1.043 1.003 1.008 2.349
BERTELSMANN AG 0.662 0.590 1.106 0.876 1.042 1.049 0.761 1.280
BEYOND INTERNATIONAL
GROUP 0.834 0.910 0.992 0.908 0.761 1.032 0.990 2.738
CHRYSALIS GROUP PLC 0.754 0.578 1.094 0.831 1.050 1.065 0.739 1.207
EMI GROUP PLC 0.731 0.638 1.049 0.835 1.049 1.052 0.791 1.307
FOX ENTERTAINmeNT GROUP 0.834 1.071 0.992 1.031 1.047 1.012 0.618 -
GMM GRAMMY PCL 0.261 1.000 1.009 1.434 1.427 1.181 0.484 1.130
ISRAEL LAND DEVELOPMENT 0.834 0.233 - - -
JACK WHITE PRODUCTIONS - - 1.025 0.996 1.050 1.077 0.585 -
MEDIA BAY INC 0.813 0.827 1.095 0.948 1.025 1.040 0.737 1.381
NEWSTAR MEDIA INC 0.834 0.757 - - -
ROJAM ENTERTAINMENT HLD - - - - 1.049 1.058 0.726 1.033
SANCTUARY GROUP PLC - 0.403 0.992 0.915 1.049 1.048 0.746 0.933
SONY MUSIC ENTMT(JAPAN)
INC 0.725 0.413 1.035 0.851 1.049 1.054 0.790 -
VIVENDI UNIVERSAL SA 0.756 0.827 0.908 0.947 1.040 1.002 1.008 3.494
WARNER MUSIC GROUP CORP 0.834 0.842 0.992 1.564 1.047 1.026 0.817 1.321 Average 0.754 0.689 1.027 1.004 1.052 1.057 0.758 1.608 Music Production
GENER8XION ENTERTAINMENT 0.283 1.159 - - -
MAKEMUSIC INC 0.387 0.920 1.009 - 1.224 1.194 0.480 0.523
METATEC INTL INC 0.822 0.477 0.992 0.931 1.048 - - -
PARADISE MUSIC &
ENTERTAINMENT INC 0.482 1.071 1.072 0.908 - - - -
PLANET ENTERTAINMENT
CORP - - 1.028 - - -
PLATINM ENTERTAINMENT INC - 1.006 - - -
STEINWAY MUSICAL
INSTRUMENTS INC 0.671 0.668 1.126 0.821 1.050 1.059 0.763 1.399
ZOMAX INC/MN 0.638 0.432 1.116 0.852 1.050 1.066 0.694 1.006
Average 0.547 0.819 1.057 0.878 1.093 1.106 0.646 0.976
Table 8 Productivity Change (MPI) of Music Firms from 1997 to 2005
MPI 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 Music Retailing & Distribution
ARTISTDIRECT INC - 0.120 1.430 1.965 0.575 3.592 0.842 0.359
AUDIOHIGHWAY.COM - 0.699 - - -
BARNESANDNOBLE.COM 3.246 0.574 1.116 1.927 1.233 0.993 - -
CDNOW INC 1.328 0.578 - - -
CDWAREHOUSE INC 0.352 0.325 2.321 1.006 - - - -
CINRAM INTERNATIONAL INC 1.140 0.787 0.984 1.161 1.065 1.498 1.983 1.188
HANDLEMAN COMPANY 1.415 0.737 0.967 1.118 1.148 0.935 1.002 1.000
HASTINGS ENTERTAINMENT
INC 1.132 0.311 1.147 1.032 0.963 1.033 1.042 1.000
HMV GROUP PLC - - - - 1.147 1.144 1.101 0.767
INTEGRITY MEDIA
INCORPORATED 1.118 0.667 1.015 1.331 0.811 1.037 - -
INTERMIX MEDIA INC - 0.192 1.893 1.024 0.964 1.155 0.934 1.000
K-TEL INTERNATIONAL INC 1.028 0.900 1.239 1.102 0.540 1.688 - -
MP3.COM - 0.159 3.289 - - -
MTS INC - - - 1.057 1.281 - - -
MUSICLAND STORES CORP 1.058 0.377 - - -
NATIONAL RECORD MART INC 0.836 0.369 1.057 - - -
SHINSEIDO CO LTD 1.388 0.745 0.991 0.887 1.023 1.114 1.042 0.375
TRANS WORLD ENTMT CORP 1.078 0.445 1.040 1.000 1.030 1.102 - 1.000
VALLEY MEDIA INC 1.143 0.671 0.852 - - - 1.122 -
WHEREHOUSE ENTMT INC 0.509 0.460 1.124 1.225 - 1.640 - -
Average 1.198 0.506 1.364 1.218 0.982 1.411 1.133 0.836
Table 8 Productivity Change (MPI) of Music Firms from 1997 to 2005 (continue) MPI 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 Music Publishing
4 KIDS ENTERTAINMENT INC 1.801 1.358 1.000 0.327 0.810 1.655 0.912 0.778
AUDIBLE INC - 0.213 2.385 2.665 1.343 2.467 0.754 0.459
AVEX GROUP HOLDINGS INC 0.913 1.000 1.000 0.659 0.966 0.931 1.015 0.363
BERTELSMANN AG 0.938 0.590 0.954 0.997 0.976 1.195 1.072 0.865
BEYOND INTERNATIONAL
GROUP 0.974 0.770 1.327 0.943 0.747 1.203 1.927 0.786
CHRYSALIS GROUP PLC 1.136 0.590 1.196 0.863 1.226 1.140 0.961 0.765
EMI GROUP PLC 0.956 0.638 1.083 0.957 1.101 1.083 1.177 0.790
FOX ENTERTAINmeNT GROUP 1.201 0.934 0.977 1.014 1.045 1.124 1.820 -
GMM GRAMMY PCL 0.390 1.000 1.499 0.676 0.792 1.052 1.128 3.187
ISRAEL LAND DEVELOPMENT 1.135 0.623 - - -
JACK WHITE PRODUCTIONS - - 0.211 1.004 0.984 1.781 0.901 -
MEDIA BAY INC 0.367 1.210 0.871 1.476 1.025 1.040 0.737 0.279
NEWSTAR MEDIA INC 1.028 0.581 - - -
ROJAM ENTERTAINMENT HLD - - - - 2.636 2.208 1.996 1.033
SANCTUARY GROUP PLC - 0.555 1.498 1.160 1.071 1.129 1.486 0.657
SONY MUSIC ENTMT(JAPAN)
INC 0.761 0.616 0.828 0.644 1.003 0.494 2.518 -
VIVENDI UNIVERSAL SA 0.925 0.827 0.974 0.867 6.774 0.655 1.051 0.943
WARNER MUSIC GROUP CORP 1.093 0.742 0.996 0.949 1.210 1.640 0.788 1.411 Average 0.973 0.765 1.120 1.013 1.482 1.300 1.265 0.947 Music Production
GENER8XION ENTERTAINMENT 1.849 0.227 - - -
MAKEMUSIC INC 1.399 0.664 0.033 - 1.337 1.696 1.711 0.902
METATEC INTL INC 0.818 0.505 0.936 1.761 0.781 - - -
PARADISE MUSIC &
ENTERTAINMENT INC 0.789 0.742 1.804 1.382 - - - -
PLANET ENTERTAINMENT
CORP - - 0.588 - - -
PLATINM ENTERTAINMENT INC - 0.532 - - -
STEINWAY MUSICAL
INSTRUMENTS INC 1.027 0.391 0.810 1.134 1.051 1.133 1.065 1.062
ZOMAX INC/MN 0.766 0.718 1.005 1.047 0.967 0.943 1.020 1.159
Average 1.108 0.540 0.863 1.331 1.034 1.257 1.265 1.041
Table 9 Mean Malmquist Indices of Music Industries from 1997 to 2005 Whole Music Industry
97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 TEC 1.880 0.989 1.149 1.173 1.176 1.237 1.746 0.859 FS 0.641 0.756 1.028 1.017 1.066 1.071 0.723 1.310 MPI 1.089 0.613 1.179 1.136 1.238 1.329 1.226 0.922 Music Retailing & Distribution
97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 TEC 2.153 0.877 1.345 1.191 0.925 1.314 1.655 0.954 FS 0.567 0.791 1.017 1.075 1.077 1.076 0.683 0.950 MPI 1.198 0.506 1.364 1.218 0.982 1.411 1.133 0.836 Music Publishing
97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 TEC 1.306 1.206 1.088 1.068 1.423 1.222 1.717 0.719 FS 0.754 0.689 1.027 1.004 1.052 1.057 0.758 1.608 MPI 0.973 0.765 1.120 1.013 1.482 1.300 1.265 0.947 Music Production
97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 TEC 2.586 0.778 0.808 1.506 0.940 1.125 2.142 1.212 FS 0.547 0.819 1.057 0.878 1.093 1.106 0.646 0.976 MPI 1.108 0.540 0.863 1.331 1.034 1.257 1.265 1.041 Annotation:
Period 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05
Events MP3 P2P Lawsuit Napster
Lose
iTunes Sell on
Net
Period D1 D2 D3
Events Digital Music Technologies without Copyright Protection
RIAA Filing Lawsuits on Napster Innovation of iTunes Online Music Store Business Model
According the empirical results of DEA Malmquist analysis summarized on Table 9, several phenomena can be discovered. First, the MP3 format provided a
downloaded for free before 1998. As a result, the whole music industry faced an impact of enormous scale of music piracy. The frontier shift indices had significant decline on music retailing & distribution, music publishing, music production and whole music industry before 1998, and represented the exogenous factors shifted in a negative way, music piracy rate increase. The backward frontier shift on music publishing industry, 0.754, simultaneously declined the productivity, 0.973, hence.
By observing the DEA Malmquist indices from 1998 to 1999, the productivity indices of the music industry, and it’s sub-industries as well, performed very serious declines at the same time. The MPI indices, which portray the productivity change between two years, of music retailing & distribution, music publishing, music production, and whole music industry are 0.506, 0.765, 0.540, and 0.613 respectively, and reveal deteriorations of music industry productivity in that period.
Moreover, data show that this huge decline was caused by backward shifts of frontiers, frontier shift indices equal to 0.791, 0.689, 0.819, and 0.756 respectively, in the music industry, and demonstrate that the P2P technology, first launched by Napster, indeed accelerated the diffusion of music copyright violation, and fell music industry into decay as a result. In addition, the technical efficiency change indices, which represent the operation performance of individual firms, of music retailing, music production, and whole music industry also performed worse, TEC equal to 0.877, 0.778, and 0.989 respectively.
In December 1999, RIAA filed a federal lawsuit against Napster for copyright infringement. Based on the DEA Malmquist indices from year 1999 to 2000, the negative trend of frontier shift stopped, frontier shift index of whole music industry equal to 1.028, and this result can be interpreted as a slightly restraint of illegal music transmission by means of filling a lawsuit. However, the technical efficiency change index of music production industry still performed worse, 0.808, likewise the productivity deteriorated, 0.863, in that period. After approximately two years of legal battles, Napster was eventually ordered to shut down in February 2001. In order to settle a lawsuit, moreover, 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 (CBSNews.com, 2001). The great amount of settlement fee reflected on the technical efficiency progress, TEC equal to 1.423, of music publishing industry directly. Furthermore, the piracy problem had eased since the frontier shift indices acted in a positive way, 1.077, 1.052, 1.093, and 1.066, in the period of 2001 to 2002.
After the Apple Computer making an alliance with big five music giants the Apple’s iTunes Online Music Store was opened in April 2003. Hence, consumers can purchase authorized music only cost 99 cents per song via the iTunes Online Music Store, and download the digital music files into their iPods. This iPods plus iTunes business model created a new opportunity for legal online music trading, because every part of music industry, including label, artist, producer, and songwriter/publisher, can receive a share of income from online music selling.
Therefore, the technical efficiencies, which may influence productivity change further, in every part of the music industry became better in period 2003 to 2004.
The TEC indices of music retailing & distribution, music publishing, music production and whole music industry were 1.655, 1.717, 2.142, and 1.746; the MPI indices were 1.133, 1.265, 1.265, and 1.226, respectively.
Apple's purchase model for music was vastly outgrowing competing subscription services. And lest anyone question the business value of the iTunes Music Store, it was making profit for Apple as well as revenue. Until July 2005, 0.5 billion songs were sold via Apple’s iTunes Music Store, and share of legally purchased and downloaded music in the United States had actually increased to above 80% as measured by Nielsen SoundScan (2005). The iTunes Music Store became the world's leading online music service, operating in 19 countries, which represent about 70% of the global music business. Since the emergence of successful music download services like iTunes was proving not only made consumers paying for quality content, but the intentions to download illegal music files were diminishing. Table 9 shows that the frontier shifted positively in the whole music industry and the music publishing industry as well, 1.310 and 1.608 respectively, from 2004 to 2005. However critics in the music industry, in turn, had complained privately that Apple Computer was hoarding cash by holding down song prices to protect sales of Apple's more lucrative iPod music player, and compressed the profit margin of music firms. Consequently, the technical efficiency change indices of music industry, the music publishing industry especially, acted negatively, 0.859 and 0.719, in this period. Moreover, the iTunes Music Store also made a recession on the inherent music retailing industry, and the Malmquist indices of music retailing industry performed backward, 0.954, 0.950, and 0.836, in the period of 2004 to 2005.