Processes of enterprise transformationnew business models and disruptive innovation effects in the music industry

Resumen

The music industry has suffered radical innovations from the final of the 90¿s such as broadband internet and MP3 which changed the conditions of the market, opening the possibility to music consumers to store files in their computers and share them with peers. This activity is commonly described as piracy and as a general rule violates the rights of Intellectual Property Rights (IPR) holders. However, it is difficult to regulate and despite of several efforts conducted by European and US governments is still common practice among consumers all over the world. It is worth noticing that the study of this process of digitalization is also instructive for other creative industries like cinema or books. As it is described in this PhD dissertation there is an increasing stream of research in the area of music industry, in which two research questions seem to be predominant. First, how large is the size of the piracy activity all over the world and how it affects the industry? And second which is the reaction of the industry in terms of new digital business models and which is its performance? This PhD dissertation modestly contributes to shed some light on these questions through the exploitation of unique databases and novel methodologies. In particular, this PhD has benefited from extensive surveys conducted early 2010 and provided by one of the major licensing firm containing detailed information from more than 44,000 consumers in ten different countries: Australia, Canada, France, Germany, Italy, Japan, Netherlands, Spain, UK, and US. Moreover, this information was complemented with information on sales at country level provided by the International Federation of the Phonographic Industry (IFPI), and information extracted from secondary sources such as indexes of internet and computer usage from IMD Competitiveness, and information at firm level from SABI and FAME databases. The PhD starts with a theoretical benchmark model which compares the competitive situation of the music industry before and after the appearance of the P2P networks such as Napster in 1999. Whereas the high concentration of the music industry before P2P makes it reasonable to assume that the industry follows monopolistic patterns, this monopolistic structure has been transformed into a duopoly under price competition for non-homogeneous products, presented in the prior literature as the Bertrand duopoly equilibrium. The theoretical model concludes that, after this change in the competitive structure, the music industry begins to suffer from a dramatic decrease in revenues, profits and consumer surplus. These introductory analyses reveal that the music industry is struggling with piracy activity. Therefore, our first objective was to quantify the scale of illegal file sharing activity across the 10 countries for which we have survey data. Results show that non-legitimate file sharing activity is a heterogeneous issue across countries. The scale of activity varies from 14 per cent in Germany to 44 per cent in Spain, with an average of 28 per cent. Moreover, we find a negative correlation between piracy rates and music expenditure at country level, result that at some extent validates the negative effect of piracy, formally described in the literature as a purchase substitution effect ¿consumers substitute legal purchases for illegal downloads. This result is an important call for further regulation in internet. Cultural issues and legal systems also seem to be correlated with piracy, since this first chapter also identifies that a countries¿ legal origin correlates to data on file sharing activity, with countries from a German legal origin illegally file sharing least. A paradigmatic result in the first chapter is that illegal file sharers may also make legal purchases ¿in aggregate terms 46.5 per cent of file sharers purchase music, which begs the question `why do people purchase when they have access to the resource for free?¿ The second chapter builds upon transaction cost theory and the economics of property rights and it identifies two possible explanations as to why illegal file sharers may also make purchases: Sample exposure and respect for property rights. Sample exposure implies that file shares are sampling the market using illegal means before purchasing. Respect for property rights makes reference to those file shares that guilt compels them to make a purchase. On the other hand, those file sharers that believe internet information is free and do not have any feel of guilty, described in this PhD dissertation as Robin Hoods, are not going to make legal purchases. Digital markets are shown to suffer from purchase substitution, which creates transaction costs and a loss in potential revenue for resource owners. As consumers are exposed to resource they may be influenced to purchase, however through sample exposure the consumer captures value from the resource owner through learning and purchases only the resources perceived to be of greatest value. Purchase substitution in digital markets is partially alleviated through increasing a consumer¿s belief in property rights. For file sharers with a likelihood of purchase greater than 60 per cent exposure to resource increases their likelihood of purchase. However, data provides no volume or value for such purchases and data would suggest the value is low. In the physical market consumers behavior is predominantly influenced by their beliefs in property rights. Creative industries are increasingly providing a number of different product-service offerings using the portfolio of resource, which defines Product-Service Systems (PSS). In the third and final essay it is provided a novel empirical framework to evaluate PSS consumer demand at country level, and consequently give an indication of the business model problem that the industry is suffering in each country. The results demonstrate that in all the countries analyzed the relative consumer demand for digital format was greater than that which was offered by the industry at the time of data collection. The results identify the different market opportunities which exist, in this case the opportunity to expand the digital offering. The US is identified as the market with a PSS which most closely matches consumer demand. Moreover, we report significant correlations between the level of PSS challenge and legal origin or technological infrastructure. This provides important implications for managers.