The theory of access replacing ownership on the example of spotify

TABLE OF CONTENTS

Table of Figures

1. INTRODUCTION
1.1. Introduction
1.2. Significance of the research issue
1.3. Structure of the thesis

2. “HOW IT USED TO BE”
2.1. The relevance of ownership and property
2.2. The recording industry and its devices

3. “HOW IT IS”
3.1. Effects of digitalisation on the recording industry
3.1.1. Background of digital music
3.1.2. Music distribution on the Internet
3.2. The digital natives
3.2.1. Digital natives and digital immigrants
3.2.2. Demands and values of the Net Generation
3.2.3. The importance of networking and communities
3.2.4. Consuming habits
3.3. Spotify
3.3.1. Business model
3.3.2. Technology & Mobile
3.3.3. Features & Community
3.3.4. Finance
3.3.5. Competitors on the international market
3.4. Spotify and its users
3.4.1. Depiction of the survey and the samples
3.4.2. General usage of the programme
3.4.3. Music consumption and ownership

4. “HOW IT WILL BE”
4.1. Access replaces ownership
4.1.1. The new era of access
4.1.2. Shared ownership
4.1.3. The rules of the new economy
4.2. Spotify and the age of access
4.2.1. Music as a public good
4.2.2. Spotify as a model of access
4.2.3 Music and identity

5. PROSPECTS & CONCLUSION
5.1. Discussion
5.1.1. The Swedish model
5.1.2. Aspects of the age of access
5.2. Conclusion

APPENDIX
A) Survey on Spotify

BIBLIOGRAPHY
A) Literature
B) Internet Sources

TABLE OF FIGURES

Figure 1: Worldwide Record Sales

Figure 2: Contributors to Social Media

Figure 3: Main advantage of Spotify

Figure 4: Percentage radio function and own playlist

Figure 5: Day-Pass and premium option

Figure 6: Advertising on Spotify

Figure 7: Other online music shops

Figure 8: Buying music

Figure 9: Ownership of music

Figure 10: Illegal File-Sharing

Figure 11: Material possessions as symbols of identity

1. INTRODUCTION

1.1. Introduction

“This could well be the year when the wider public decides that online streaming is the best way to consume music. After all, why spend time and money on CDs or downloads, when you can instantly stream that same music for free via your computer or, increasingly, your mobile phone? And if one service is going to provide that tipping point, it's Spotify.com. "^[1]

This is how the Guardian journalist Chris Salmon describes the service Spotify - an online music service which started in Sweden in October 2008. Spotify has been considered as a new business model for the distribution of music via Internet - but also as a new model for the economy as a whole. Before streaming services like Spotify came up, music on the Internet was sold piece by piece. It was like sitting in a restaurant and ordering your meal a la carte - you pay for every single part of the dinner. Talking about access, the whole economic model changes from paying for one single dish to paying for access to a buffet. Eat whatever you like, whenever and as often as you want to.

But why was a new model needed? The decline in record sales is self-explanatory: physical singles plummeted 43.5% in 2008 compared to the previous year, with digital downloading rapidly increasing its market share, although thus far legal downloads have not quite made up the gap in sales.^[2] The music streaming service Spotify is seeking to offer an alternative to piracy and educated guessing when buying music, whilst avoiding the pitfalls of similar ventures that essentially allow people to listen to music without owning it. Users can listen to as much music as they like without paying a penny. In this scenario, the key activity is not downloading, but rather streaming.^[3] The main drawback is that users cannot copy the tracks to disc, unless they purchase them from Spotify's download partner 7digital.^[4] In Sweden Spotify has become more popular than iTunes. But what are the critical factors that make the service as successful as it seems? This streaming service does not sell anything - it offers the opportunity to join a network to gain access to every kind of music, for just the cost of listening to some advertisements, which leads to the following questions: Is the business model of selling for owning overaged? Is property an antiquated value in the age of unlimited change and speed? Are the means of organising economy in the digital world changing to renting, subscription and advertising?

When talking about business models and the change of e conomy, we shouldn’t forget to talk about the customers, the digital natives - those parts of the society which grew up with digitalisation. What are their demands and values? What are their consuming habits? How does Spotify work and what is the relation between Spotify and its users? And changing the point of view: How does this model work for the struggling music industry? Can advertising earn enough revenues for an artist? The main preliminary thought for the thesis is: Spotify has conceived how a business model for music distribution on the Internet must be like: free access to valuable content with community features.

The thesis also wants to take a closer look at the development of ownership and possessions, which are important factors of the society and economy we live in. The next step is to depict the changes that were made by the digitalisation and which effects digitalisation had on the recording industry. How do the consumers see their relationship to the programme and what does the use of Spotify look like? Can the business model of Spotify be considered as a role model or archetype for an upcoming change of the economy (of music)?

The thesis is of an interdisciplinary nature, containing theories of philosophy and psychology, but focuses on economic aspects. Therefore and because of the complexity of certain fields, the thesis can only touch some issues but certainly will leave some questions open. The thesis makes use of several sources and quotes literature which is mainly from one perspective when it comes to the development of our society and the economic progress. It is the goal of this work to prove the validity of the theory of access replacing ownership. These sources have been chosen to underline and support this theory - but of course there is various literature which has another view of the development. Due to the limited extent of this thesis, different or other perspectives on the topic can only be depicted in a minor proportion.

1.2. Significance of the research issue

The music industry has been struggling with its business models for a couple of years - it has lost about one third of its former sales. Illegal file sharing, but more importantly the notion of ownership have radically changed in the last past years. The thesis points out one business model which has developed a different approach to the consuming matters of music - one that seems to fit in with everyday consuming habits of the digital natives: Spotify. The research issue concentrates on one model in the music industry - but is probably a groundbreaking model of access for all the entertainment industries which are just starting to have issues with filesharing and digital business models. The findings of the thesis can be applied to any industry and to economy as a whole - the topic touches all fields of economic trade and is therefore explaining a holistic change in our society. The development in the music industry on the example of Spotify can be considered a pioneer in this field. Therefore, the findings of the thesis are not only interesting and inspiring for the record industry, but for any business, especially for those with “public” characteristics (e.g. film production). Access instead of ownership is a paradigm which changes the structures of capitalism as a whole - not only in the music industry but in every business, where access is considered more convenient than owning and where digital content can be easily exchanged on the Internet.

1.3. Structure of the thesis

The structure of the thesis follows a time flow in the development of ownership and digitalisation. This structure has been chosen to illustrate and underline the changes which came to the ideas of possession and ownership throughout especially newer technical developments and to follow the argumentation in a constitutional way. The topic of this article is more current than ever and still in a fast ongoing process. For this reason it is the objective of the author to give a short and practice-oriented overview over the issue. In order to convey a first basic understanding of the topic, the article starts with a description of the historic development of ownership, the structure in the recording industry how it used to be as a first step. This is followed by a description of the current status quo and recent trends of the recording economy as well as of the instantaneous developments in digitalisation. The main part deals with certain characteristics of the digital natives - young adults which grew up with digitalisation and who shift the rules of economy and social behaviour. Understanding these personalities is quite useful when evaluating the outcomes of a survey that deals with the usage of Spotify and the relationship between the programme and its users. The survey has been conducted with 120 students at the University of Kalmar in autumn 2009. The sample can be divided into two different groups: One group is set with students of the programmes Marketing & Tourism and the other group are students in the programme Music Management. The findings of the survey point out several insights regarding the digital natives. After that, a forecast with different prospects about what will possibly happen in the topic of access follows. One of the main questions, whether Spotify can be considered a model of access will be discussed in the future-oriented part. Some special matters and prospects of the topic will be pointed out in an upfollowing discussion. A related question is in how far the theory of access replaces ownership is a sustainable and survivable business model that can be established within the record and entertainment industry in the future. The so-called “Swedish model” and some other aspects of an economy of access will be depicted. Due to rapid developments and the limited scope this thesis can only put forward a few exposures of access and try to make a forecast. To underline and depict the main findings, a conclusion of the results will be made in the last chapter.

2. “HOW IT WAS”

2.1. The relevance of ownership and property

For the whole modem age, property and markets have been synonymous. Indeed, the capitalistic economy is founded on the very idea of exchanging property in markets. The word market first appeared in the English language in the twelfth century and referred to the physical space set aside for sellers and buyers to exchange goods and livestock.^[5] By the late eighteenth century, the term had become separated from any geographic reference and was used to describe the abstract process of selling and buying things.^[6] Some of a small child’s first encounters are likely to be in the marketplace. Which youngster hasn’t peered into a shop window and asked “How much is that?” From an early age we learn that everything has its price and everything is for sale.^[7] The marketplace is one of the most influencing forces in our lives. We all are deeply affected by its moods and swings - the marketplace is our guide and counselor. We are taught that acquiring and accumulating property are integral parts of our earthly sojourn and that who we are is, at least to some degree, a reflection of what we own.^[8] But how has this attitude and the worship towards ownership developed?

Still, property is an elusive concept. Philosophers and kings, theologians and politicians have tried to define the notion of property during ages - our ideas of property have changed over the course of history, which suggests that the term, like other social inventions, is not an idea cast in stone but rather a fluid concept concerning subjects, topics and habits of the particular time and place in which it is being applied. The notion of property, for example, meant something very different in the Medieval Age from what it does now in the modern world.^[9] The English jurist Sir William Blackstone defined property as “that sole and despotic dominion which one man claims and exercises over the external things of the world, in total exclusion of the right of any other individual in the universe”.^[10] Property, then, is a social convention for negotiating individual spheres of influence in the modern world. The concept of “mine and thine” allows us to make distinctions and establish relationships with one another in a social context.

The philosophical rationale for the modem notion of ownership was taken up first in the seventeenth century by the political philosopher John Locke. His theory of property was published in 1690. ‘Of Civil Government’ quickly became the secular bible for a middle class that was beginning to take part on the English political stage. Locke’s wri tings served as a background for parliamentary reforms in England and later provided the philosophical foundation for the French and American revolutions.^[11]

Locke believed that private property is a natural right and not something that church or state authority grants as a privilege as it was believed in the feudal society. He argued that each man creates his own property by adding his labour to the raw stuff of nature, transforming it into things of value. While Locke acknowledged that the earth and all of its creatures are common to all human beings in the state of nature, he was quick to add that each man, in turn has a property in his own person.^[12] Locke’s natural-rights theory of property was widely popular with the new generation of independent farmers, merchants and shop-keepers who were transforming English life and ridding the country of the last vestiges of feudal privilege. But his work offered more than a mere explanation of the natural-rights theory of property: he elevated human labour and acquisition as the crowning achievement of human existence. Property, in turn, became a visible sign of each man’s personal triumph in the world. The shift from proprietary to property relations changed the very nature of human relationships and gave rise to modern sensibilities, including the new sense of self and new institutions like the nation-state and the constitutional form of government.^[13]

While Locke was concerned with how human beings create property, the Scottish economist Adam Smith was more interested in how property comes to be exchanged in the marketplace. Smith divided history into a progression of stages - hunting, pasturage, agriculture and commerce - and traced the evolution of property that accompanied each era. Smith argued that in the hunting stage simple possession existed and was ritualised, but the idea of property did not yet exist. The pasturage age introduced the idea of animals as property and established, for the first time, settled laws or agreements concerning property.^[14] In the agricultural era land was slowly transformed into property relations. It was in that era when land and other forms of fixed or mobile property became transferable after death by the enactment of wills - signalling a significant turning point in the nature of property relations.

The fourth stage of property, the commercial stage, is characterised by trade and the widespread exchange and diffusion of property in the marketplace.^[15]

Smith focused most of his attention on the economics of exchanging property. He argued that an invisible hand ruled over the marketplace, overseeing the details of economic life. The invisible hand was linked to the mechanical pendulum of a clock, regulating supply and demand, labour, energy and capital, automatically assuring the proper balance between production and consumption of any resource. If left unattached by government interference, the invisible hand would provide an efficient mechanism for the continuous exchange of property between sellers and buyers.^[16]

“Every individual is continually exerting himself to find out the most advantageous employment for whatever capital can command. It is his own advantage, indeed, and not that of society which he has in view. But the study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to the society"^[17]

In modern times, then, property has come to mean the exclusive right to possess, use, and dispose of things in the marketplace. Something is said to be qualified as property if one can occupy or hold it and exclude others from having it, if one can use it in any way one chooses as long as the use does not harm anyone else; and if one can dispose it by transferring or selling it to another party. Of the three criteria, the last is the most important for the perspective of the market. The ability to alienate - to make property fungible in the marketplace - is the heart of capitalist economy.

In the first stage of industrial capitalism, goods, which had been made at home and only occasionally for market exchange, were produced en masse in factories. All different kinds of items were now made cheaper, in a constant quality and in greater volume in the commercial sphere. Mass-produced material goods dominated the capitalist economy in the United States from the beginning of batch-and-flow production into the middle decades of the twentieth century. In this era the amassing of physical capital defined the terms of commerce, and consumer goods determined the status and wellbeing of millions of consumers. The 1950s and 1960s were the high-water mark of the era of property relationships, a time when to have, to hold and to exclude was the centre of human existence in the non-Communist world.^[18] Property as private, exclusive and exchangeable in the marketplace is the core institution of the Industrial Age.^[19]

Georg Friedrich Hegel, the German philosopher, was among the first to recognise the power of property to act as an appendage of our being. Hegel believed that each individual expresses his or her sense of personality by imprinting it onto possessions. It is by way of fixing one’s will onto objects in the external world that each person projects his or her being creates a presence among fellow human beings. As one’s personality is always present in the owned object, property becomes an extension of one’s personality through the objects one owns. Hegel viewed property as more than just a way to satisfy needs. On a more profound level, property is an expression of personal freedom. By surrounding oneself with properties, a person inflates his or her personality in time and space, creating a sphere of personal influence. In short, he or she creates an expanded presence in the world.^[20] No wonder “pride of ownership” is such a defining feature and core value of a propertied era.

The increasing complexity of large-scale business operations and the entrance of large numbers of women into the workforce led to the introduction of business services and later consumer services into the capitalist mix. Entertainment and leisure activities, which had been, for the most part, family affairs, also began to migrate to the marketplace where they were made into commercial services of various sorts. In the mid-70s the performance of services had eclipsed the production of goods and became the driving engine of capitalism in America and Europe. Services are defined as economic activities that are no products or construction, are transitory, are consumed at the same time they are produced and provide an intangible value.^[21] With these characteristics, services do not qualify as property and they cannot be held, accumulated or inherited. In service economy it is human time that is being commodified, not places or things. The shift in primary commerce from goods to services makes property far less important in both businesses and personal life. Daniel Bell, author of the book ‘The Coming of post-industrial Society’ mentions that

“If an industrial society is defined by the quantity of goods as marking a standard of living, the post­industrial society is defined by the quality of life as measured by the services and amenities - health, education, recreation, and the arts - which are now deemed desirable. ”^[22]

The metamorphosis in the organisation of human relations from the production and commercial exchange of propertied goods to access to commodified service relationships is transforming in nature. Yet our society continues to act as if property relations are fundamental when, in reality, economic forces are making physical property, at least, less relevant.^[23] Basically, the global economy before the Internet was centered around information goods and industrial reproduction: after a creative work was produced it could then be captured and stored on a physical medium.^[24]

2.2. The recording industry and its devices

To understand the changes in the music industry and how the means of property and ownership are attached to the recording industry, the general structure and distribution of music is depicted in the following chapter. The two primary responsibilities of the recording industry (which should not be mixed up with the music industry) are the production and distribution of recorded music. Record labels used to make the majority of their profit from album sales. Similar to other industries that produce symbolic goods, to make and market the initial product costs a lot of money in advance, while it is relatively cheap to distribute copies of the final product. It is a high-risk strategy where the labels are anticipating that album revenue will exceed the initial investment. This equation is made even more precarious considering the fact that nine out of ten records fail to recoup expenses. Therefore, the label relies on 10% of its releases to cover all their artists’ expenses and hopefully to do well enough that the company can also make a profit.^[25]

A standard feature of almost all major label contracts is the transfer of copyright from the artist to the label, which essentially takes away the musician’s right to reproduce or sell copies of material outside of the label. The ownership of exclusive publishing rights and the enforcement of copyright law protect a label’s investment. This degree of control has been necessary for the recording industry’s financial strategy since, as Geoffrey Hull explains, “the recording industry runs on its copyrights”.^[26]

The recording industry has always had a hierarchical power structure. Most major and independent labels are owned by one of the following four international conglomerates: Universal Music Group, Warner Music Group, Sony Music Entertainment and EMI (commonly referred to as “The Big Four”). Entering 2000, “The Big Four” accounted for roughly 75% of the total market for recorded music in the United States.^[27] The firms are parts of larger, or parent companies with a wide range of commercial interests. The music industry is therefore concentrated and dominated by conglomerates that deal with a huge amount of every kind of entertainment, for example movie production. Most records are made by major record companies. An artist signs a recording contract with a major label and hands in his or her recording. The company then turns these into records. It ships the records to a distributor, who is the wholesaler that sells the record to the stores and also distributes the record digitally. The company then gears up its advertising, promotion, marketing and product management divisions to enhance the sales. The major record companies are all distributed by major distributors, which are gigantic distribution networks. There are also major-distributed independent labels and true independents, which distribute their records through independent distributors, which are set up to deal with the special needs of independent companies.^[28]

The most important device in this industry is of course the record. The term record means any kind of device like a CD, vinyl-disc or cassette. In almost every record agreement, the contractual definition says a record is both an audio-only and an audiovisual device, such as videocassettes and DVDs. The definition of records also included any other device now or hereafter known that is capable of transmitting sound alone or sound with visual images. Even more important, the current deals define record to mean any kind of music for consumer use. This is designed to pick up the Internet and other electronic transmissions.^[29] The first device which is known as a record is the 78 r.p.m. (revolutions per minute) record, which became popular in the 1950s - in these times, making a record was still a slow and difficult process. Recordings had to be cut in the studio directly on wax disc and a recording, once made, could not be corrected or edited. The records still evolved at 78 r.p.m. and every piece of music had to be divided into three- to five minute sections. But soon the records were pressed on durable vinyl plastic instead of shellac and the 33 r.p.m. record and the small 7 inch disc with 45 r.p.m. was invented and implemented in the market.^[30] In the 1960s and 1970s strong economic growth was the prevailing trend in the business. At the same time important technical developments were taking place in the record industry which came to have a great influence, over the years, on the music we hear on record. Stereo, two channel sound, was soon to be heard in every music lover’s living room.^[31] In addition to that, recording tape had, by the 1960s, established itself as an indispensable adjunct in record production. Cassette players were cheap and easy to use and happened to appear at a time when European broadcasters were starting to increase the proportion of music in their programming. Record companies soon adopted the practice of releasing new popular recordings simultaneously in LP and cassette formats. In many cases the cassettes were purchased by people who previously had not owned a record player. But for the international recording market the arrival of the cassette had much more dramatic consequences. The copying of cassettes without permissions and, of course, without paying any royalties to the composer, the artist or the record company, is relatively simple. Soon the “piracy” of cassettes reached such proportions in many countries that the record companies were in crisis. Portable Walkman cassette players have enabled people to take recorded music with them anywhere. Before the introduction of the compact disc, more half of all legitimate sound recordings sold in the world were cassettes.^[32]

As a background to the business merry-go-round of the 1980s, a profound technical transition was going on. The gramophone records, pressed on vinyl, and the cassette, using magnetic recording tape, represented two different methods of preserving sound. At the deeper level of principle they were of the same generation. On a gramophone record the sound is captured mechanically, while on tape it is done magnetically, but both the modulations in the grooves of a record and the variations in the magnetic field are analogous, corresponding to the original sound. Both record and tape are examples of analogue technology. The record industry’s response to the challenge of digital technology was the compact disc (CD), on which an audio signal, converted into binary digits, is stored using a laser beam and engraved in microscopically small pits in the disc’s surface. In 1979 Philips presented the prototype of the CD it had developed with Sony in Japan. This was followed by a few year’s intensive campaigning, during which Sony and Philips tried to convince the record industry that their disc hold the key for the future. By 1986 the breakthrough of the CD was being regarded in the United States as an unshakeable fact. About 130 million compact discs were being made each year worldwide. In 1988 more compact discs were sold than LPs and since the CD costs considerably more than the LP, the income was correspondingly higher. The following year many record companies started phasing out LP record production. Although the technology was still unknown in developing countries, the trend was clear. The death throes of vinyl had begun. It had taken ten years for the LP to displace the 78 r.p.m. record and it took the same amount of time for the CD to replace the LP.^[33] Ownership of music in the times of the LP was self-evident - the music was captured to the device. The over-40 generation was only able to own records in their youth. Then, the next generation—the generation that grew up in the ‘90s - after the introduction of the CD in the market were flush with ownership. They could not own enough - 2,000,000 CDs were sold during NSync’s first week of release. Summing up the history and the development of the recording industry and its devices, it can be said that the changes in this industry are deeply influenced by technical advancement such as the implementation of new devices.

3. “HOW IT IS”

3.1. Effects of the digitalisation on the recording industry

3.1.1. Background of digital music

There is no doubt that the Internet has changed and will change the recording industry. It has opened new ways to promote, distribute and sell recordings and songs - as well as to copy them illegally. Although the Internet began as a defence network (ARPANET) in the late 1960s, and started to reach significant numbers of ordinary people in the 1980s, it was not until the development of the World Wide Web in 1991 that it became capable of being a mass medium. The web languages of HTTP and HTML enabled the creation of programs that allowed any user to easily access and transmit information. The development of the first graphical browser in 1993 meant that everyone with a personal computer could easily locate information on the Internet.^[34]

Internet distribution of recordings was not really practical until the Moving Picture Experts Group developed the MPEG-3 (MP3) protocol for compressing audio files into small-enough packets that could be more easily transmitted via Internet. For example, a normal length CD single is a digital audio file of about 40 megabytes - an MP3 version of the same file is about one-tenth the size, so that it can be downloaded within a few minutes. The program to convert CD audio to MP3 became available to the public in the mid-1990s and consumers began to rip CD audio files and convert them into MP3 files. They could then send the MP3 files to friends or share them with anyone who happened to be on a particular network. Coupled with that was the increased access of consumers, particularly college students, to high-speed Internet connections that could transfer files anywhere. Soon file swapping of recordings was rampant. In August 1999 a file swapping service was launched that helped users locate files, particularly music files, available for uploading from other users. The Napster software sorted files by type, artist, title, and speed of user connection. Users selected the file they wanted and the software would tell the two computers to connect to each other and begin the transfers of the designated file. Within months transfers of music files using Napster reached into the millions per day.^[35] The record labels and artists were most irate and sued to shut down Napster in December of 1999. By July 2001, BMG Music had bought shares of Napster to turn the service into a licensed digital music distribution company. That did not work and Napster was ultimately dissolved in a bankruptcy proceeding, only to be purchased by Roxio with a relaunch as a legitimate service in late 2003.

But the battle over peer-to-peer (P2P) file sharing continued. As soon as Napster was shut down other networks developed variations of the same idea. Napster was the first series of P2P systems through which people could share and swap their files by remotely accessing each other’s hard drives, rather than accessing a central server. The decentralised nature of peer-to-peer applications enabled massive numbers of files to be accessed simultaneously by literally millions of users at a time.^[36] Just before Napster was closed, Bertelsmann CEO Thomas Middelhoff said to an audience at the PopKomm conference in Cologne, Germany a forward-looking statement that made some noises towards a resolution with at least the idea of Napster: “Let’s be honest. Despite all the dangers, Napster is pretty cool,” he said, adding that the system had “an excellent music brand transporting the following characteristics: High quality, free delivery of music directly into your home, simple use, global selection from the repertory of all labels, prompt service and uncoupled program selection.”^[37] These qualities have in the following been considered as the Swiss Army knife of music distribution on the Internet and are still valid. Middelhoff called “file-sharing as a system... a great idea,” but he said Fanning’s^[38] mistake was “not having developed a complementary system for the protection of intellectual property rights and combining the two.”^[39] Meanwhile, the majors finally decided that they should launch some digital distribution services on their own. Unfortunately neither system would license its songs to the other. So, as in the old days of the record clubs, if you wanted a Warner product it could for example only be found on Music Net; if you wanted a Universal product it could only be found on Press Play. By mid-2002 the majors had dropped an estimate $2 billion into various digital media initiatives. By mid-2003, the estimates were that their own services had only the neighbourhood of 250.000 customers - a far cry from the millions of music lovers who were illegally downloading recordings.^[40]

The whole complexion of the legitimate download market changed in 2003 when Apple started its iTunes service. Apple impresario Steve Jobs negotiated licences from all of the major labels to allow his service to send unlimited 99-cent single downloads to customers who had Apple iPod players. For those who wanted albums, the rates were simply multiplied by the number of songs on the album. The downloads were not limited, did not time out and could be burned on a CD. During the first two months of existence, iTunes sold five million downloads. A version for Windows computers was launched in late 2003.^[41]

3.1.2. Music distribution on the Internet

The industry itself struggled to develop a workable business model for the download market, especially because the margin wasn’t expected to be very high. The apparent success of iTunes led to the assumption that the amount of profit per download was expected to be very small, less than 50 cents for the label. Most experts believed that the number of downloads would have to be quite large in order for it to be a profitable market. Besides the industry watched with concerns the decreasing sales of records which can be observed in the figure below. The record industry, which is mostly embodied through associations like the IFPI^[42], claimed this decline is due to file sharing and prosecuted illegal downloads for the infringement of copyright.

illustration not visible in this excerpt

Figure 1: Worldwide record sales

Source: IFPI. 7.12. 2009 under http://www.musikindustrie.de/internationales0/

But whereas the whole record sales, especially physical CDs decline, the sales of digital music continued growing at a rapid pace in 2008, and now constitute 32 percent of the total market by value.^[43] Today’s online music market can be divided into three different business models such as a la carte Services, subscription services and advertising supported services even though most of these services are a mixture of these business models.^[44]

A la carte Download means to sell every piece of record on its own for a special price and remains the dominant digital business model, with iTunes leading in the online sector. Other big brand names also entered the download market in 2007, notably Amazon, with its online music download store in partnership with all majors and many independent labels.

Subscription services (mostly on a monthly base) give free access to a library of music. At the end of 2007 a new subscription model based on the concept of ‘bundling’ music with other services or devices emerged - be it an ISP subscription, a mobile phone or a portable player. A good example is the programme “Nokia comes with music” where music downloads are bundled with multimedia mobile phones. While the music comes virtually ‘free’ to consumers under this model, record companies and artists get paid from of the sale of services or devices. These partnerships also create opportunities for more marketing and promotion of music services in the bundled offer.^[45]

Ad-supported services offer consumers free access to streamed or downloaded music while artists and record companies are compensated by revenues generated by advertising. Examples of this are deals between some record companies and social networks such as MySpace or LastFM. These deals are mostly based on licensing agreements for streaming music and music videos for a share of advertising revenues.

The drop in album sales and rise in the purchase of individual tracks highlights the popularity of a la carte music selection, whereby music fans can choose to purchase just two or three songs from an entire album rather than buying every track. From the perspective of the music industry, however, these track-by-track purchases create a significant revenue shortfall: where in the past those consumers would have generated revenue equivalent to an entire album's worth of sales, now they only offer a small percentage of that revenue. The trend may signal a fundamental shift for the music industry, away from album-based marketing and sales and into a system driven by the sales of individual tracks, promoted aggressively in online communities and services.

Another shift can be observed in the growth of the variety of online music. The ‘Long Tail’, a term coined by Chris Anderson, Wired Magazine editor-in-chief, argues that products with a low sales volume can collectively make up a market share that rivals or exceeds that of the bestsellers and blockbusters - if the store or distribution channel is large enough. The ‘Long Tail’ illustrates the opportunities the Internet has created in distribution and sales. While the future may not bring as many Madonnas or Michael Jacksons, we will witness the rise of a middle-class musician. “We are turning from a mass market back into a niche nation.”^[46]

The Internet has opened up new ways to market music on an instantaneous worldwide basis. It has made it easier for fans to connect with artists and each other. Major changes in technology have always had effects on this technologically grounded industry. It will bring and has already brought significant changes in the ways the recording industry does its business and it will change the way we and especially the new generation of music lovers consume and listen to music - a topic that will be dealt with in the next chapter.

3.2. The digital natives

3.2.1 Digital natives and digital immigrants

When talking about the transfers and effects of the digitalisation it is important to know how these changes were brought about. A huge contribution to all the changes, not only in the music industry but in the web culture as a whole, were and are educed by the so-called digital natives. A digital native is a person for whom digital technologies already existed when they were born, and hence has grown up with digital technology such as computers, the Internet, mobile phones and MP3s. They were born after 1980, when social digital technologies, such as Usenet and bulletin board systems, came online. They all have access to networked digital technologies and the skills to use those technologies.^[47] Marc Prensky is acknowledged to have coined the term digital native in his work ‘digital natives, Digital Immigrants’ published in 2001. In his seminal article he assigns it to a new breed of students entering educational establishments.^[48] The term draws an analogy to a country's natives, for whom the local religion, language, and folkways are natural and indigenous, in contrast to immigrants to a country who often are expected to adapt and assimilate to their newly adopted home. Prensky refers to accents employed by digital immigrants. As digital immigrants learn - like all immigrants, some better than others - to adapt to their environment, they always retain, to some degree, their "accent," which is their foot in the past. The “digital immigrant accent” can be seen in such things as turning to the Internet for information second rather than first, or in reading the manual for a program rather than assuming that the program itself will teach us to use it. Today’s older folk were socialized and educated differently from their kids and are now in the process of learning a new language. And a language learned later in life, scientists tell us, goes into a different part of the brain.^[49]

Prensky has also highlighted some of the issues the digital natives are dealing with. One important point is that digital natives are used to receiving information really fast. They like to parallel process and multi-task. They prefer random access (like hypertext) and they function best when networked.^[50] They are used to the immediacy of downloaded music, phones in their pockets, a library on their laptops, beamed messages and instant messaging.^[51] Digital natives are, as the term says, very familiar with being online, which is pointed out by Gasser and Palfrey in their publication ‘Born digital’:

”Unlike most Digital Immigrants, Digital natives live much of their lives online, without distinguishing between the online and the offline. Instead of thinking of their digital identity and their real-space identity as separate things, they just have an identity (with representations in two, or three, or more different spaces). [...] They feel as comfortable in online spaces as they do in offline ones. They don’t think of their hybrid lives as anything remarkable. Digital natives haven’t known anything but a life connected to one another, and to the world of bits, in this manner. ”^[52]

3.2.2. Demands and values of the Net Generation

Don Tapscott, author of the book ‘Grown up digital’, has stated eight norms that are characteristic of the net generation, which is another term that is used for the generation that grew up with the Internet. Each norm is a cluster of attitudes and behaviours that define the generation.

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^[1] Salmon, C. (2009).

^[2] Cf. MacLean, A. (2009).

^[3] Streaming, also called data streaming, is a technique for transferring a compressed file, usually an audio or video file, to a computer over the Internet in a continuous flow so that a user can begin using it before the entire file has been received. This contrasts with downloading, in which the entire file must be received before it can be used. In the case of streaming, typically no file remains on the computer for reuse at a later date. The advantage to streaming is that the user can begin to listen to or view the file often within just a few seconds, whereas downloading can take much longer, depending on the speed of the connection and the size of the file. 14.02.2010 under http://www.linfo.org/streaming.html

^[4] Cf. MacLean, A. (2009).

^[5] Cf. Rifkin, J. (2000), p. 3.

^[6] Cf. Agnew, J.-C. (1986), pp. 41-42, 52-53, 56.

^[7] Cf. Rifkin, J. (2000), p. 3.

^[8] Cf. Rifkin, J. (2000), p. 4.

^[9] Cf. Rifkin, J. (2000), p. 77.

^[10] Blackstone, W. (1825), p. 1.

^[11] Cf. Rifkin, J. (2000), p. 79.

^[12] Cf. Rifkin, J. (2000), p. 79.

^[13] Cf. Rifkin, J. (2000), p. 80.

^[14] Cf. Felstead, A. (1993), p. 203.

^[15] Cf. Rifkin, J. (2000), p. 80.

^[16] Cf. Rifkin, J. (2000), p. 80f.

^[17] Smith, A. (1961), p. 475.

^[18] Cf. Rifkin, J. (2000), p. 81f.

^[19] Cf. Rifkin, J. (2000), p. 14.

^[20] Cf. Hegel, G. W. F. (1942), p. 38.

^[21] Cf. Rifkin, J. (2000), p. 83.

^[22] Bell, D. (1973), p. 127.

^[23] Cf. Rifkin, J. (2000), p. 85.

^[24] Cf. Benkler, Y. (2006), p. 31.

^[25] Cf. Hull, G. P. (2004), p. 135.

^[26] Hull, G. P. (2004), p. 27.

^[27] Cf. Hull, G. P. (2004), p. 124.

^[28] Cf. Passman, D. S. (2008), p. 74 f.

^[29] Cf. Passman, D. S. (2008), p. 78.

^[30] Cf. Gronow, P. /Saunio, I. (1998), p. 97ff.

^[31] Cf. Gronow, P./Saunio, I. (1998), p. 144.

^[32] Cf. Gronow, P./Saunio, I. (1998), p. 182f.

Cf. Gronow, P./Saunio, I. (1998), p. 190ff.

^[34] Cf. Hull, G. P. (2004), p. 255.

^[35] Cf. Hull, G. P. (2004), p. 263.

^[36] Cf. Kusek. D./Leonhard, G. (2005), p. 5.

^[37] Cf. Alderman, J. (2001), p. 116.

^[38] Shawn Fanning, Founder of Napster.

^[39] Cf. Alderman, J. (2001), p. 116.

^[40] Cf. Hull, G. P. (2004), p. 258.

^[41] Cf. Hull, G. P. (2004), p. 258.

^[42] IFPI represents the recording industry worldwide, with a membership comprising some 1400 record companies in 72 countries and affiliated industry associations in 44 countries. IFPI's mission is to promote the value of recorded music, safeguard the rights of record producers and expand the commercial uses of recorded music in all markets where its members operate. 10.12.2009 under http://www.ifpi.org/

^[43] Cf. RIAA, (2009), p. 2.

^[44] Cf. IFPI (2008), p. 14.

^[45] Cf. IFPI (2008), p. 15.

^[46] Anderson, C. (2006), p.40.

^[47] Cf. Gasser, U./ Palfrey, J. (2008), p. 1.

^[48] Cf. Prensky, M. (2001), p. 1.

^[49] Cf. Prensky. M. (2001), p. 2.

^[50] Cf. Prensky, M. (2001), p. 2.

^[51] Cf. Prensky, M. (2001), p. 3.

^[52] Gasser, U./ Palfrey, J. (2008), p. 2.