The Impact of Online Music Services on the Music Recording Industry

Table of Contents

List of Tables

List of Figures

Acknowledgements

Chapter 1: Introduction
Music Industry Development
Purpose and Research Question
Research Objectives
Outline

Chapter 2: Related Literature
Technological Development
Music Industry
Parallel Industries
Copyright and Piracy
Online Revenue Strategies
Music Consumption and Buying Behaviour
Contribution of this study

Chapter 3: Research Methodology
Case Study Design
Consumer Survey
Expert Interviews
Secondary Data
Limitations
Research Ethics

Chapter 4: Findings
The Impact of Online Music Service Usage
Descriptive Statistics
Online Music Consumption
Music Purchasing Behaviour
Music Service User Preferences: ownership versus streaming
Opportunities and Challenges for Recording Companies
Development and Reaction of the Music Recording Industry
Opportunities
Challenges
Online Music Services’ Revenue Model
Industry Outlook
Summary

Chapter 5: Conclusion
Implications
Discussion

Bibliography

Appendix A Interview List

Appendix B Interview Guide

Appendix C Interview Excerpts

Appendix D Questionnaire

Appendix E Participation World Map

Appendix F Survey Results

List of Tables Page

Table 1 Profile of the Sample

Table 2 Itemised Spending Patterns

Table 3 Answers to Music Ownership

List of Figures

Figure 1.1 Music Industry’s Traditional Value Chain

Figure 1.2 Recorded Music Sales

Figure 1.3 Digital Music Sales

Figure 1.4 Global Active Reach December 2008

Figure 2.1 Context of Online Music Services

Figure 2.2 Value Chain Disintermediation

Figure 2.3 The Long Tail Theory

Figure 3.1 Research Design

Figure 4.1 Hours per Day on Last.fm

Figure 4.2 Effects of Music Streaming

Figure 4.3 Last.fm Profiles’ Average Annual Spending

Figure 4.4 Consumer Spending on Music Products

Acknowledgements

I would like to thank my adviser, Gillian, for her guidance during the time I have been at Glasgow. Your valuable comments and suggestions during the review process were very helpful.

I would also like to thank my parents, Bodo and Angelika, for their unconditional support and encouragement to pursue my interests. You make everything possible.

Special thanks go to my girlfriend, Stella, who gave me the energy to accomplish the Media Management programme. Your encouragement and unwavering love has inspired and pushed me throughout the dark Scottish winter.

Chapter 1: Introduction

The introduction of this dissertation details the purpose of the study, the research problem, and defines the research objectives.

Music Industry Development

The music business is one of the few industries that has trouble growing profits in its transition to digital. The emergence of the Internet and new communication technologies has had an impact on consumers of music and the way in which music is consumed, but the industry is yet lacking the cultural capital to make a successful transition to a new business model in the information age (Freedman, 2003). The advent of digital technologies radically interrupts the nature of the traditional business model [Figure 1.1], which particularly affects the music recording industry.

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Figure 1.1 Music Industry’s Traditional Value Chain (Graham et al., 2004: 1092)

Digital media, downloads, mobile music streams, music flat rates, peer-to-peer^[1] networks and the rise of ‘ freeconomics ’ on the Internet all foster disintermediation of the traditional value chain [activities] and are partly responsible for the reduction in CD sales in recent years (Anderson, 2008). The question that is most important for the industry is how the widespread of freely available content and illegal downloading can be monetised (IFPI^[2], 2009).

The latest development of sales shows that global recorded music sales went down 15.4 % in 2008 [Figure 1.2]. The US market was seriously affected - with a decline of 31.2 % (IFPI, 2009).

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Figure 1.2 Recorded Music Sales (IFPI, 2009)

Potential causes of current decline in CD sales are the negative economic environment, substitution between music formats, substitution with other forms of entertainment and Internet piracy (Peitz & Waelbroeck, 2004: 18). IFPI estimates that over 40 billion files were illegally shared in 2008 (IFPI, 2009). Besides the discussion about file sharing and if it is responsible for dropping CD sales, new technologies can also be seen as an opportunity for the industry. It can be used to address digital theft, when governments and Internet service provider cooperate closely (IFPI, 2009).

In an environment dominated by the availability of free and unpaid content, the music industry is at the forefront of dealing with problems facing ownership and control of music. The business was the first sector to experience the shift to digital technologies [Vinyl to CD]. Legal regulations are already altered: The Millennium Copyright Act (1998), the EU Copyright Directive (2001) and the Copyright and Related Regulations Act (2003); all of them extended protection for intellectual property to digital materials (Peitz & Waelbroeck, 2005). But copyright problems still persist and attempts, such as CD Copy Protection Systems or Digital Rights Management, still have not solved the issues. Other initiatives, such as fair-usage policies are prospering. This is reflected in the growth of digital music sales and the development of new strategies over the last few years. Despite the strong rise in digital sales, they are not compensating the losses of the industry. Digital sales still are a minor revenue stream [Figure 1.3], but the growing importance year after year is not to be underestimated. Digital music sales account for around 20 % of the global revenue, with a strong US market (RIAA, 2009).

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Figure 1.3 Digital Music Sales (RIAA, 2009)

The course of digitalisation and web 2.0 technology triggered the growth of participative media platforms, in particular online networks. Social networks such as Facebook, Bebo or Myspace became incredibly popular and even have surpassed e-mail in Internet popularity [Figure 1.4], despite falling user bases in some of the networks (Clark, 2009; Nielsen Online, 2009).

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Figure 1.4 Global^[3] Active Reach December 2008 (Nielsen Online, 2007 – 2008)

They are specialised on social connectivity and people communicating with each other online. Those platforms generate income by attracting both people to participating actively in the networks and advertisers to having access to a large user base. Many of the platforms are thus funded by advertising. Social networks have also become important partners for the music industry. With an estimated 230 million social network users in 2007, social networking sites are a growing source of music discovery (Datamonitor, 2008).

As a result, online music services emerge on the web in these days. The range of platforms is tremendous: We7, Pandora, MySpace Music, Last.fm, Imeem or Spotify, just to mention a few. All of them are supported by advertising and subscription based income. They also have affiliate deals with companies such as iTunes and Amazon to further increase revenue (Apple, 2009). But most important for the platforms’ profitability, they should have business relations with the four major music and many independent labels (Imeem, 2009). For operating the platforms, the services have to pay royalties to the copyright holders in order to obtain a streaming license. These royalty deals yield a fraction of a cent per played song for the labels and artists as profit. Nevertheless, the rate has been lowered in the UK recently [taking effect 1st July 2009] to enable digital market growth (PRS for Music, 2009). Many labels get a cut of advertising revenue on top of the royalties, determined by their licensing agreements (Arrington, 2008).

The arrival of online music services is an approach to model around the main threat for the music industry – piracy. The difference to file sharing is that users are allowed to access music freely, but they do not own the music-files; ownership and copyright remains to the music industry. The latest research by Music Ally (2009) revealed that the approach prospers: many teenagers in the UK are streaming music regularly and are more likely to buy single track downloads than sharing them illegally. Arising from their findings, streaming has a positive impact on digital music piracy. Illegal downloading has gone down, particularly amongst the younger demographics (Music Ally, 2009). These findings represent an encouraging outlook for the industry.

Purpose and Research Question

The need of diversifying their revenue streams displays a challenge for recording companies. Having mentioned the problems in the digital age, it is important to find new strategies for the music industry in order to maximise revenues. This process is related to many adjacent issues, such as debates about new technologies, copyright protection and the illusion of music for free. In fact the prosperous phenomenon of online music services is worth being looked at. Geoff Taylor, CEO of British Phonographic Industry, says that ‘ the industry has worked hard to licence new services, they are great music discovery tools and a new way for artists to get paid and drive new sales ’ (Topping, 2009). On that note, the dissertation is focused on the prospects for the music recording industry. This dissertation is an attempt to address the issue of

‘ What are the opportunities and challenges posed by online music services for the music recording industry? ’

By music recording industry, which includes the four major labels that dominate recorded music – Sony Music Entertainment, Electric and Musical Industries [EMI], Universal Music Group and Warner Music Group – as well as independent labels, primarily the sales of music CD’s and DVD’s and digital downloads are meant.

Research Objectives

The main objective of the research is to investigate opportunities and challenges surrounding the development of online music services from the angle of the music recording industry. The objective can be broken down into two sub-questions.

First, how are consumer attitudes and purchasing behaviours of online music service users changing? This implies the question whether or not ownership still matters?

Second, what are the perceived opportunities and challenges surrounding the development of online music services?

In order to answer the questions stated above and achieve the objective, the research will be done by doing a case study. The phenomenon and adjacent issues are going to be explained in the literature review. After that, the background of these services and the trends in attitudes and purchasing behaviours of service users will be established by doing an online questionnaire on the music community Last.fm. Last.fm has more than 37.3 million monthly unique users and seven million tracks in its music catalogue, and combines the advantages of an online service with social community features (Jones, 2009; Miller, 2009). Even more interesting is its artist royalty programme and its extensive affiliate list, which makes the community distinct from other services. Finally, interviews with experts from within the industry are going to yield perceived opportunities and challenges surrounding online music services from an industry’s point of view. The results are not only of interest to music recording companies, but can equally be extended to the entertainment industry on a global scale, at least to some extend. The research could contribute significant knowledge to the changes happening in the digital era and therefore is of interest to the area of Media Management. Nevertheless, the dissertation is not set up to solve the challenges facing the music recording industry. It is set up to give an insight into the issues outlined above.

Outline

Hereinafter in chapter 2, the literature surrounding online music services is discussed. Chapter 3 outlines the research methods and gives a justification of why having chosen Last.fm and expert interviews as a case study. In chapter 4 of the dissertation, the survey and interview results are presented and analysed. Finally, chapter 5 draws upon a conclusion and gives an outlook for further research in this area.

Chapter 2: Related Literature

In recent years, a growing literature on music copyright, piracy and the search for new effective business models has emerged [Figure 2.1]; yet little has been done to examine and understand the opportunities and challenges posed by online music services for music recording companies. Ted Mico from the label Interscope Records suggests: ‘ As far as ad-supported [music], it is a very, very new business. It’s got to mature ’ (Weisenthal, 2008). It is in this spirit that I build upon the existing research.

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Figure 2.1 Context of Online Music Services (Author)

Technological Development

To understand the current changes the music industry is undergoing, it is necessary to take a brief look at the technological background. Online music services are generally surrounded by digitalisation, convergence and web 2.0. Scholars such as Jenkins (2004) have defined media convergence as an altered relationship between existing technologies, industries, markets, genres and audience. Digital media convergence is driven by web 2.0, which is a key technology in web development. It facilitates participation, communication, as well as discloses social and economic opportunities to businesses to capitalise on electronic communities (O’Reilly, 2005). The advances in digital technology make artists and consumers less dependent on the recording industry to create, distribute and consume music (Kusek & Leonhard, 2005).

In this context, file sharing services using participatory architecture [ Napster ] and web distribution platforms such as iTunes emerged. The company behind iTunes, Apple Inc., has taken advantage of the early stages of the digital age. Their business model is around a legal online store where you can buy songs or albums in a digital format (Kirkpatrick, 2006). iTunes has further proven to be a success both for the retailer and record labels. These shifts in the media landscape impose opportunities and threats to recording companies and likewise to the music culture.

Music Industry

Key subjects in the music industry range from music production to music policy and consumption of popular music. A key publication in the field of cultural aspects of the industry is the book published by Frith (2004), who examines popular music in the age of technological change and who brings up the question of music ownership determination. Complementary to the cultural dimensions, Vogel (2004) and Hull (2004) explore the structure of the entire music industry. They both elaborate the framework by looking at the economic and financial perspectives. Important for the reader are the three main income streams in the economic model: music publishing, live appearances, and the sale of recordings. Giving a brief overview, the music recording industry is dominated by the ‘big four’ major record labels – Sony Music Entertainment, Universal Music Group, EMI and Warner Music Group. Their combined market share is 74.2 % of global recorded music sales (Informa Telecoms & Media, 2008). Independent labels comprise the rest of the pre-recorded music market, with global retail sales of recorded music totalling nearly $ 30bn in 2007 (IFPI, 2008).

Moving on to the impact on the industry, the Internet has drastically altered the production, distribution, and consumption of music (Molteni & Ordanini, 2003). This is in confirmation with Shuker (2001), who takes an early view onto the impact of technologies including online delivery and debates about mp3^[4] and file sharing platforms. Recommendations made by the Department for Culture, Media & Society (2000) in the UK about a legislative framework for online copyright protection and Trustmark development have not been implemented, respectively not improved the situation of the music industry. Thus the industry is in a state of flux ever since. As a result, companies are moving towards more diversified business strategies and seeking new revenue streams such as ring tones and merchandising to deal with the industry’s expanded ecology (Leyshon et al., 2005). This development is rounded up by Passman (2006), who gives information on the industry’s major changes in response to today’s rapid technological advances and uncertain economy. Evidence from a recent report by Pfeiffer (2007) suggests that music companies should forget about digital rights management in the short term as it is not going to last. The trends of the market further point towards the problem of declining physical sales, which is connected to illegal downloading, as well as to substitution effects through music available on popular websites such as MySpace and YouTube (Pfeiffer, 2007). These facts are complemented by the conclusion that a new generation of music subscription services, social networking sites and new licensing channels is emerging. Despite the fact that the sector is still overshadowed by a huge amount of unlicensed music distributed online, music companies embrace new revenue models, offering consumers more choice, based on first-hand industry figures presented by the IFPI (2009), which is acting as an umbrella organisation for the music industry.

Parallel Industries

The shift occurring in the music industry can also be found in parallel industries. In his book, Papathanassopoulos (2002) provides a clear, concise account of the dynamics and realities of the changing face of television in Europe. Conventional broadcasting sustains a shift towards narrowcasting, whereby video on demand reinforces the trend of digitalisation and disintermediation. This progression may well result in displacement of traditional video and DVD’s (Zhu, 2001). Usage-based pricing [pay-TV, Video on Demand] can thus be used to exploit the consumer surplus and subscription-based services will further personalise television (Papathanassopoulos, 2002; Buonanno, 2008). The future of press, radio, cinema, and television, and those of the Internet to come, is going to merge into a large online cloud, which seizes upon the statement from Zhu (Buonanno, 2008). These studies are confirmed by CEO Robin Kent, who feels certain about the changeover to more targetable, narrowcast media: ‘ Mass is still mass, but we're nearing the tipping point ’ (Bianco, 2004: 2).

Copyright and Piracy

Illegal music services like Napster or Kazaa had been around long before a choice of music catalogue was legally provided. As a result, the well-known anomaly of the digital music world was reinforced - legal services constantly play catch-up with illegal services, and the enforcement of copyright persistently lags advances in technology (PRS for Music, 2009).

Facing these problems, the recording industry is trying to protect their intellectual property rights by lobbying legislators and law enforcers to make individuals liable for any copying they do (Marshall, 2004: 200). The current issues and perspectives on copyright law are comprised by Towse (2002), who is a key author in the field of economics and copyright. Towse (2004) further suggests the music industry must look to market-based incentives, rather than relying on the strength of copyright protection to survive in the digital era. Supplementary, Frith and Marshall (2004) draw attention to the relation between music’s ubiquity and the economics of remuneration of musicians. Despite the increasing strength of copyright protection, unauthorised use of music is growing. It is fostered by the emergence of new technologies, but charging for every individual use under consideration of the fair use policy of music is not a solution (Frith & Marshall, 2004).

According to an estimate by the IFPI (2009: 22), unauthorised file sharing accounts for over 40 billion files in 2008. A comprehensive literature review of music piracy is provided by Peitz and Waelbroeck (2003). They introduce several key issues facing both consumers and copyright holders with respect to how copyrights are to be protected and how violations of copyrights should be treated. Other research has focused on the economic and social impacts of peer-to-peer networks and the shift in power from record labels to independent artists and consumers (Hughes & Lang, 2003). One of the first academic reviews of the effects of online piracy on the music industry is given by Liebowitz in 2003. He describes and empirically assesses most of the possible factors leading to a drop in sales. He concludes, without using direct information on music downloads, that most factors have some influence but that the sharp fall in sales has to have another catalyst – mp3 downloading (Liebowitz, 2003). This is followed by an analysis of the role of music downloading on the downturn in CD sales (Peitz & Waelbroeck, 2004). They conduct a cross-section analysis for 16 countries over the period 1998 – 2002, where they found a rather large decline in sales. But the growth in illegal downloading could not have been responsible for more than a quarter of the decline that occurred in 2002. The study merely covers a short time period, where it appears very difficult to generalise findings about piracy. Oberholzer-Gee and Strumpf (2007) provide further analysis by using actual download and sales data. They found that the effect of downloads on sales is ‘ statistically indistinguishable from zero ’ (2007: 25) in the US. They were only monitoring the Open Source Napster Platform, thus it is questionable whether the collected data is representative of the entire peer-to-peer network.

However, other studies argue that the extent of file sharing remains substantial (Liebowitz, 2006). One underlying reason is the uninhibited supply of music in file sharing networks, which ‘ seems to be virtually limitless ’ (PRS for Music, 2009: 3). Yet, another study by Bhattarchajee et al. (2003) found the existence of piracy across all music categories according to a questionnaire related to students’ attitudes towards online music. The price of music is found to have significant effects on piracy too. Their forecast predicts an increasing influence in subscription-based and a-la-carte models such as iTunes. Complementing these studies, Zentner (2005) found that countries with greater Internet capacities have higher losses in music sales. In subsequent empirical studies, Stevans and Sessions (2005) and Zentner (2006) found that people, who regularly download music over the Internet, buy more CD’s than others. It strengthens the idea that other causes than substitution are underlying the drop in music sales.

The diversity of data collected and methodologies used by the [empirical] studies make it difficult to compare the presented literature results. One important aspect is specified by Dejean (2009), who argues that some studies seem to have overestimated, whereas others might have underestimated the impact of digital piracy due to the problem of endogeneity between illegal downloads and purchased music.

Online Revenue Strategies

Although record companies paint a dark picture, the music industry is still very much alive and prosperous; in recent years music consumption continues to be on a high level thanks to the opportunities presented by the Internet. Graham et al. (2004: 1087) note that in former times the traditional business model of the industry remained relatively stable: ‘ artists create music, record labels promote and distribute it and the fans consume it ’. However over the years, the Internet and the growing popularity of file sharing are challenging the traditional distribution model that has relied on physical products such as CD’s. A major impact on the recording industry is caused by supply chain disintermediation. The disintermediation triggered by the Internet is well described by Graham et al. (2004) [Figure 2.2].

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Figure 2.2 Value Chain Disintermediation (Graham et al., 2004: 1092)

As a consequence of disintermediation, there is potential for the music industry in reversing the effects of online music piracy and revenue chain disintermediation by providing more legal music to customers online (Gopal et al., 2006; Leyshon et al., 2005). Yet another dimension is put forward by Kusek and Leonard (2005), that the Internet is presenting new ways of allowing customers to have a once in a lifetime musical experience. These changes provide new opportunities for unsigned artists and labels, in particular taking advantage of peer-to-peer networks and legitimate online downloading services (Gordon, 2005; Vaccaro & Cohn, 2003). Likewise, Barrett (2003: 10) emphasises the need to find a way to close the ‘ music gap ’ between legal and illegal sources. His recommendations advise fighting digital piracy through a free, on-demand music service paid for by advertising revenue, rather than pursuing legal actions that ignore the realities of today's entertainment market. This development highlights the importance for record companies to realign their supply chain activities to come up with innovative ways of satisfying customers (Kusek & Leonard, 2005; Graham et al., 2004). According to Anderson (2006), who coined the phrase ‘ the long tail ’, the Internet has broken the established equilibrium. It allows the production and spreading of specific and rare content. The so called niche strategy raises the profitability of products, which were not available in traditional distribution channels [Figure 2.3].

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Figure 2.3 The Long Tail Theory (adapted from Elberse, 2008: 90)

It is criticised by some scholars, who are referring to sales data showing the importance of blockbuster hits (Elberse 2008). A recent analysis uncovered the ' hit-heavy, skinny-tail ' distribution for legal online music consumption, which concurs with the critiques (PRS for Music, 2009: 2).

Music Consumption and Buying Behaviour

Regarding music consumption and consumers’ purchasing behaviours, file trading has become a part of global culture (Vaccaro & Cohn, 2003). Music downloading is not a unique phenomenon and consumers are approaching the digital environment in different ways. The different consumption profiles are classified by Molteni and Ordanini in their empirical analysis in 2003. They also develop motivations for music downloading, which are described by the attributes ‘ free of charge, convenience, ease of use and only listening ’ (Molteni & Ordanini, 2003: 395). However, their research showed contradictory results in the relationship between online music consumption and the behaviour linked to consumption of conventional recorded music. Despite the popularity of illegal downloads and the growing rate of digital music sales, respondents were twice as likely to buy recorded music in form of CD’s as they were to purchase digital music online (Soundcrank, 2007). In apparent confirmation, Latonero (2000) found that 63 % of his sample of 275 University students still bought CD’s and according to another survey of 773 young people in the UK, 52 % would still continue to buy CD’s even if they used a legal file sharing or music streaming service (British Music Rights, 2008). Linking these results to the long tail theory mentioned earlier, the purchasing behaviour offline as well as online is dominated by the ‘pin-sized head’ across the markets for singles, albums, as well as streams (PRS for Music, 2009). In fact, Peitz and Waelbroeck (2005) see a positive effect in digital music due to sampling. They argue that consumers are willing to pay more, because the match between product characteristics and buyers’ tastes is improved. These studies have been complemented by the implications of a significant gap between music consumptions patterns of young and old. A study with 2,600 respondents about consumer profiles indicates that the rate of purchased CD’s of total music acquired shifts from 19 % [18-24 year olds] to 81 % [55+ year olds] (NPD Group, 2006). Nevertheless, in the transition from physical to digital only formats, consumers loose content and information that is favoured, for example the booklet (Soundcrank, 2007). In contrast to the present literature, a recently conducted survey shows that the internet helps consumers to engage with music, but has little to no impact on them in their buying decisions (PEW Internet & American Life Project, 2008).

Apart from that, the internet and especially social network sites have potential to be both content discovery tools and retail environment. This has been confirmed by the latest digital entertainment survey about the development of music purchasing behaviours (Entertainment Media Research, 2008). According to their research in 2007, 30 % do regularly or occasionally buy CD’s or downloads of music they discovered on a social network site. Following evidence from their research in 2008, 44 % of the respondents listen to music online [streaming] at least occasionally. This transformation of music consumption involves the primacy of listening. According to PRS for Music (2009: 5), the ‘ shift toward streaming presages an ultimate move into the cloud and a de-emphasis on music collection building ’. As a result, channel owners need to make the process of discovery and actually purchasing the music as easy, intuitive and ‘ social network-friendly ’ as possible to encourage sales and develop this new market (Entertainment Media Research, 2008: 13).

Contribution of this study

It has been recommended that artists and labels should take advantage of the opportunities provided by legitimate online music services (Gordon, 2005). This study is the first to address the trends and developments of online music services and thus adds knowledge to the online music studies that are already known. Streaming music might be a huge success as customers can access all the music they want at anytime and anywhere on all sorts of devices. Nevertheless it is interesting, whether consumers are actually willing to pay for such services and if they prefer it over CD’s.

My research seizes upon the existing results with the purpose of fostering and establishing the trends of online music service users’ behaviours. It extends previous research by providing a detailed analysis of user’s consumption and buying patterns. This is also the first study to provide in-depth information about opportunities and challenges surrounding the development of online music services in connection to the music recording industry. Taking advantage of these new online business models in distributing music could help to close the music gap as stated by Barrett (2003).

Chapter 3: Research Methodology

Case Study Design

The research approach of this dissertation is probably best described as a descriptive case study. According to Yin (2003: 13), a case study is an ‘ inquiry that investigates a contemporary phenomenon within its real-life context ’. In this dissertation’s context, it is appropriate to use a case study in order to find an answer to the question ‘ What are the opportunities and challenges posed by online music services for the music recording industry? ’

There are many different angles to look at online music services. In effect, the study is focusing on the recording industry’s perspective. A case study is beneficial, because it allows the combination of different research methods and the use of multiple sources of evidence, with the aim of supplementing findings and dovetailing different aspects of an investigation. This approach embraces empirical and qualitative primary data and assembles it with secondary material [Figure 3.1]. Findings, based on complementarity of data and triangulation, are likely to be much more convincing and accurate, and also address the potential problem of constructed validity (Yin, 2003: 99; Collis & Hussey, 2009).

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Figure 3.1 Research Design (Author)

More in detail, the phenomenon is being addressed by contextualising the background surrounding online music services in the first two chapters. It is followed by an online questionnaire, which is intended to establish the background and capture trends of the phenomenon, respectively of music consumption and purchasing behaviours. The case of Last.fm has been selected for the consumer study, because it is a popular service [see introduction] and thus offers a diverse demographic structure. Also their social network character facilitates participation in the online questionnaire, and the advanced user search function is helpful for a random sampling method. These features, as well as easy access to users, are advantageous compared to other services and ensure to obtain reliable results that are representative of a large proportion of Last.fm users. This is complemented by expert interviews, which are specifically directed towards the perspective of the recording industry and by secondary interview material, which presents an additional angle from the online music service sector.

Consumer Survey

‘ How are consumer attitudes and purchasing behaviours of online music service users changing? ’

As described above, this question is analysed by doing a consumer survey on Last.fm. ‘ Surveying is a method that is used to get information about certain groups of people who are representative of some larger group of people of interest to us ’ (Berger, 2000: 189). Taking into account that the self-completion online questionnaire should only take five minutes to complete and include questions about user’s attitudes towards online music and their purchasing behaviours, it is categorized into four sections: demographic, online music consumption, buying behaviour, piracy and ownership. For the questionnaire, see Appendix D.

Probability sampling has been used to select participants – it is perfectly suited for making inferences from a questionnaire’s sample to answer part of a research question (Wimmer & Dominick, 2000: 82). The sampling frame was limited to users of Last.fm, who are at least eighteen years of age. By having used stratified random sampling as a technique, the frame was divided into a number of subsets, whereby a random sample was drawn from each of the strata (Saunders et al., 2007: 221). The stratification variable was age, dividing the sample into six discrete strata: 18-24, 25-29, 30-34, 35-39, 40-45, 45+. Having applied systematic random sampling on each stratum, every third user has been invited to participate in the survey (Wimmer & Dominick, 2000). The questionnaire has been tested before going live. After two revisions it was hosted online and Last.fm users were invited via private message to participate. Expected problems were a low overall or single cluster response rate (Collis & Hussey, 2009).

Expert Interviews

‘ What are the perceived opportunities and challenges surrounding the development of online music services? ’

This question is analysed by conducting interviews with appropriate expert witnesses. Interviews are one of the most widely used techniques and usually results in a wealth of information (Mason, 2006; Seidmann, 1998). The primary goal is to get the interviewees to give an account of the values of online music services for the music recording industry. The interviews also address the interviewee’s perceptions about the pros and cons of the prevailing revenue model and about the future of online music services. To gain relevant information about the novel services, it is favourable to interview the voices behind current discussions. Selection criteria are working in the industry, either in the recording business, being a representative of the industry or the online music service sector. Due to availability issues I am only able to get access to two out of ten of my inquired interviewees – Alexander Wolf, CEO of CELAS^[5] and Will Lines, Communications Officer of Music Publishers Association^[6].

The information has been acquired by having conducted telephone interviews of approximately 30 minutes each. Upon completion, the interviews were transcribed and sent to the informants for approval. The structure of the interviews corresponds to what Bryman and Bell (2007) identify as semi structured, allowing the interviewees to freely frame and explain issues and events. For an interview guide, see Appendix B. As the interview with Mr Wolf was conducted in German, it had to be translated to English and therefore subject to my interpretation.

Secondary Data

The fact that only two interviewees have time being interviewed, I include secondary interviews with Paul Brown, Managing Director of Spotify and Daniel Ek, CEO of Spotify as well as Felix Miller and Martin Stiksel, CEOs of Last.fm to get an additional view onto perceived opportunities and challenges posed by online music services for recording companies.

Limitations

The nature of the case study is limited (Yin, 2003; Wimmer & Dominick, 2000). The sample is limited to the online music service Last.fm and is not representative of other major services such as Imeem, MySpace Music or Spotify. A further limitation within the sample is an expected low response rate in the questionnaire and the exclusion of users, who have not included their age in their profile and are thus not detectable by the chosen sampling method. Another issue is restricted access to insider information, for example the IFPI Recording Industry in Numbers Report or professional research from Nielsen Media or the NPD Group. Further, the access to interviewees is limited. Nonetheless the statements are strongly important and complemented by other sources; thus this research provides a comprehensive picture of the values of online music services for recording companies.

Research Ethics

According to Saunders et al. (2007: 178) research ethics refers to ‘ the appropriateness of your behaviour in relation to the rights of those who become the subject of your work, or are affected by it ’. When gathering and analysing data for this dissertation, I have strived to ensure that the quality of information has not been compromised by poor judgement or neglectful behaviour. I have made every effort to get an as complete picture as possible by doing extensive research and gathering data from several independent sources. Furthermore, the interviewees of this study have both agreed to participate and given their consent to have their opinions published.

[...]

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^[1] Peer-to-peer networks are virtual places, where it becomes possible to freely share everything that can be digitalised.

^[2] International Federation of the Phonographic Industry.

^[3] ‘Global’ refers to AU, BR, CH, DE, ES, FR, IT, UK & USA only.

^[4] MPEG-1 Audio Layer 3 - a patented digital audio encoding format.

^[5] www.celas.eu

^[6] www.mpaonline.org.uk