13.3 Innovation through business models  (Page 2/3)

Next, the record label delivers the recorded music to manufactures who reproduce and package the music. The supply chain members are in charge of distribution, including an effort to gain cooperation from key retail outlets. Finally, the retailers market and sell the packaged goods to the final consumers (Slater, Smith, Bambauer, Gasser, and Palfrey 2005; see [link] ).

Exhibit

Six-step model

Digital music stores

This model suggests that the retailers move online and offer content directly to consumers through websites. This approach is similar to the traditional model, but there is an emphasis on the online delivery of content (Slater et al., 2005). Amazon was one of the first companies to implement this model in the 1990s. Since the debut of this model, two major modifications have been made. First, consumers can now purchase digital downloads of the music, rather than receiving a physical product, such as CDs. This offers an intangible and instantaneous approach to buying music. The second large modification is also related to digital downloading, as users no longer have to buy an entire CD. Many digital music stores offer free sampling of each song which allows customers to preview tracks that they want to purchase. The Apple’s iTune store successfully implements this model in the twenty-first century.

Open content

This model is derived from the “Ancillary Products and Services” model that the Berkman center formulated in 2005 (Slater et al. 2005). One main assumption here is that nothing can be done to stop the illegal sharing of music. In order for the model to be successful, the content creator, record companies, and consumers must encourage the use of peer-to-peer networking. Thus, every music download from this business model is free of charge. This model is different in that free file sharing is encouraged. However, there is a concerted effort to find other sources of revenue (Berkman Center 2003). Other sources of income may include touring, selling band paraphernalia, endorsements, and fan clubs. This model is illegal under current laws in the US and many other countries as it violates existing copyrights. Note that, in most contexts, open-content sharing is legal as long the owner signs a contract that allows such distribution.

There are conflicting viewpoints on the open content model. On one extreme, there people like Lars Ulrich, the Drummer for Metallica, who is outraged that this could even be an option. According to Ulrich, “The argument I hear a lot, that music should be free, must then mean the musicians should work for free. Nobody else works for free, why should musicians (Ulrich and McGuinn 2000)?” On the other extreme are people who argue that copyrights are irrational since they deny consumers the right to use creative works and suffocate the creativity of Internet users (Lessig 2004).

At first glance, the open-content model appears to be very radical, as it differs so much from other models. Nonetheless, it has gained considerable attention in the last few years. This approach is very satisfying for customers, but is a major threat for record labels and channel members.