What will happen to
the major record labels when all of the music ever recorded becomes available
on the Internet? Will music listeners—that is, pirates—continue to pay
$15 for a compact disc at the store? Will the industry survive when they
don’t? In reality, record labels may have little to fear in the long run.
Smart ones may eventually turn to a subscription-based delivery model
not unlike that of today’s cable television companies. If this happens,
the global $40 billion retail music industry might well double in size.
The times they are a-changin’
These are what the Chinese might curse as "interesting times"
in the music industry. Some scary economics for its participants lie behind
that understatement.
Most of the money consumers pay for CDs and audiocassettes covers "interaction
costs," such as manufacturing and distribution, which are not directly
associated with the production of the master copies of the music. As a
result, the industry’s value chain—the activities through which music
is recorded and distributed—is ripe for change. Consider the total delivered
cost of a CD (Exhibit 1): nearly two-thirds comes from activities directly
threatened by digital distribution over the Internet.
- Music conveyed over the Net doesn’t require the...