RelativeResourceManager2 - Digital Music Hollywood vs...

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Digital Music: Hollywood vs. Silicon Valley October 24, 2002 The case was written by Joel West, College of Business, San José State University, with research assistance from Parthiv Rawal. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation The case was compiled from published sources. © 2002 Joel West
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Revised October 2002 © 2002 Joel West, Ph.D. The music industry enjoyed a tremendous boom in the last half of the 20th century, with popularity helping this new form of Anglo-American popular culture become a pervasive global culture. At the same time, the popularity and distribution of the new music form transformed the industry to allow it to reach a multibillion dollar global market. During this same period, the ongoing increase of computing power and the 1972 invention of the microprocessor fueled a shift in the electronics industry from analog to digital technologies. Eventually digital technologies, too, improved the quality, availability and popularity of prerecorded music, beginning in the 1980s with the Compact Disc and fueled during the 1990s by the rise of what became the pervasive Internet. But the rise of digital technologies posed a threat to the business models that the recording industry had developed in the previous decades, with Napster, MP3 players and Internet radio stations. In the recording capitals of Los Angeles, New York and Nashville, many industry performers and marketers attacked the new technologies. In response, computer and other technology companies fought back, defending the new possibilities and the consumer rights to buy them At the dawn of a new century, the industry and its customers debated how these new digital technologies would transform the delivery of music, much as the phonograph and radio had done a century earlier. Some players embraced the opportunities created by the new technologies; others saw the change as serious threat and sought to forestall their impact indefinitely. But digital technologies had undeniably changed the relationships both within the industry and between producers and consumers. Prerecorded Music Industry Sales of prerecorded music is a $40 billion industry. Approximately one-third of those sales ($14 billion in 2000) are made in the United States, with the bulk of those in the compact disc format. (See Exhibit A). Yet in 2001 music sales were down markedly: year-on-year unit CD sales dropped 6.5 percent, with revenues off 3.3 percent. 1 The exact explanation for the drop is unknown. The U.S. economy began slowing down when the Internet stock bubble bust in April 2000, officially entered a recession in March 2001, and was further hurt by the 9/11 attacks in New York and elsewhere. At the same time, the rise of digital approaches to distributing music — MP3 websites,
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RelativeResourceManager2 - Digital Music Hollywood vs...

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