Questions:

1. Will the streaming audio approach change the music industry once more? How?

2. How can the streaming audio business model be successful?

3. What other ways could companies use to leverage digital music?

The iPod and the Music Industry

Who would have thought that a small device like an iPod could dramatically change a well-established major industry? Yet that is what happened when Apple Inc. launched the iPod and electronic music downloads. Because of this new way of selling songs and albums, the music industry has been one the most affected by e-business.

In the "old" music industry, artists recorded songs and albums through record companies, which were the major players in the industry. Companies could sell CDS (and before the 1980s, LPs) and make significant profits on each album customers bought, with some fees (rights) going to the artists and some commissions going to distributors and retailers.

Eventually, the record companies decided not to release singles, only albums. That was not to the liking of music listeners. Then came the iPod, announced on October 23, 2001. It allowed users to download only the songs they wanted to a very portable device. The industry was never the same. The music industry faced two significant problems with the growing use of the Internet for access to digital music.

The first is that digital music is easy to steal, and users started to download music illegally and share it with one another. In this scenario, everyone in the industry lost money. Even though illegal downloads has started years before, with Napster allowing illegal downloads for free between 1999 and 2001, the iPod made it easy to copy songs. At the same time, however, many users are happy to spend small amounts of money for legal downloads of the songs they really want. That is why Apple is said to have sold more than six billion songs on iTunes by the end of 2009.

A second phenomenon that occurred with the ability to download songs through the Internet was that some artists decided to sell their own music online. They were able to charge less to consumers because they only had to pay the e-business website for selling their music; they also made more profits this way.

Apple keeps 30% of the profits from each song sold, with the rest going to the artist. So on a song that sells for $1.29, Apple receives about $0.39, and the label and artist receive about $0.90. When artists produce their own music, they get the full $0.90 that normally goes to the artist and label.

Record companies changed their licensing approaches to embrace new online services in response to this major threat to the industry. However, they did not envision online streaming: the new online threat to the music industry. Online music streaming services allow listeners to play music on their computers or Internet-enabled devices instead of buying CDs or downloading music to their MP3 players (one of which is the iPod). These services, like Pandora or Spotify, are free or relatively inexpensive.

As users listen online instead of purchasing music, sales of music keep going down every year. The total music industry sales in 2000 were approximately US$14 billion but were down to US$10 billion by 2008. In 2014, revenue from streaming sources of music outpaced the revenue from CDs for the first time.