Final Project
Music Distribution via New Media: Satisfaction with the Ad-Supported Model
Joe Heathcock
Whit Alexander
New Media and Society
Professor Goh
11 Dec 2009
Abstract
There are three basic models of digital music distribution: fee-based, ad-supported, and peer-to-peer. Our research was intended to find out if the free, ad-supported services available today are successful at dissuading people from illegal downloads. As consumers have been found accepting of 10-30 second advertising, ad-supported digital music distribution has been touted as a way to legitimize the free music market. Our project has two parts, including content analysis for the websites of ad-supported music, and a survey of college students.
Research Question
For consumers unwilling to pay for music, is the advertisement-supported model of digital music distribution satisfying enough to stop illegal file-sharing?
Introduction
Online music distribution quickly surpassed traditional physical sales, and many music companies were left defending outdated business models. One of the problems with online music distribution has been the fact that illegal practices have become so commonplace. The RIAA (Recording Industry Association of America) has used changing tactics to protect catalogue sales. Today, there are abundant source of free streaming music online, but are they having the intended effect of reducing illegal downloads?
We see ad-supported services as mediating the expectations of consumers and catalog managers. Advertising bridges the gap between freedom of access and payment for creative work.
Market Background
According an extensive study of consumer behavior, the online music business has been defined as a mature market (Ipsos, 2009). This means that almost all consumers who might get music online have been doing so already. A certain percentage of the population is dedicated to the so-called free-culture. These people are totally unwilling to pay for music. In the Ipsos market breakdown, and in our own survey, we found that about one third of all people fall into this group.
The data from Ipsos indicates that almost 60% of music consumers are “outside the legitimate market.” This means that they either do not get music online, on share music from peer-to-peer free of charge. In this case, the legitimate market is essentially the legal market, where the owner of the song is paid for the right to use it. But understanding what the online marketplace for music looks like today would be incomplete without considering how the system came to be.
Napster was the first paradigm case for online music distribution. Starting in 1999, the RIAA learned that essentially every product it was selling was available online for free. This marked the beginning of a steep decline in physical sales, especially entire albums. Despite the fact that it was determined to be illegal and shut down, the precedent it set could not be undone. Napster proved two things; first, that the free culture model was viable and second, that consumer behavior was evolving faster than the laws that sought to protect traditional forms of distribution.
The legal dispute surrounding Napster was not as easy to close down as the service itself. The RIAA saw file sharing as a threat to its very existence and despite aggressive tactics, if one service was shut down, users quickly shifted to a different program that was functionally equivalent; consider Kazaa, LimeWire, Morpheus, and now torrents. In 2004, MGM Studios, Inc. v. Grokster, Ltd. went to the United States Supreme Court, and shut down two popular file sharing services. While the case was ongoing, starting in 2003, the RIAA generally shifted tactics, suing individuals who illegally shared copyrighted material, and publicizing the prosecutions. This tactic has been widely regarded as successful, and the amount of illegally shared music has declined significantly since its peak. But consumers have still demonstrated that the threat of legal action alone is not enough to discourage illegal downloads (Ipsos, 2003).
The digital music market has grown tremendously in the past 1o years. Yet today, the sheer number of market participants may have reached a plateau. Potential for growth is no longer expected to come from new users, but from bringing file-sharers into the legitimate market. In 2006, illegal file swaps outnumbered purchased downloads by approximately ten to one. Although there were over 500 million legal track sales in 2006 globally, more than 5 billion tracks were shared on peer-to-peer networks (IBIS World, 2008).
Ad-supported online music distribution took off during precisely this period. Its rise represents a compromise between what consumers want, and what record companies are willing to give. Napster made people believe that they should have nearly instant access to nearly any song, and for free. But in order for artists to get paid for their work, and consumers to get their music for free, advertisements seem like the best and maybe only way to do both.
We can use a comparison of traditional distribution methods as a standard for evaluating the new media methods. Although the copies are digital, iTunes roughly corresponds to buying a CD, while ad-supported methods roughly correspond to the traditional source of free music, the radio. By continuing to focus on physical sales, the recording industry has limited the ways in which digital sales provide something beyond the traditional sale (i.e. album art, special features, bonus tracks, etc.). However, streaming radio has abundant advantages over traditional radio stations. By this logic, the online ad-supported distribution model is more revolutionary than purchasing individual digital tracks. Even so, we are not yet sure which of these services are capable of generating profits.
Literature Review
The literature we gathered tends to skew more toward popular sources than peer-reviewed. This is for two major reasons. First, many of the distribution networks are relatively new, and are more likely to be discussed in publications that are released frequently, with a focus on novel services. Peer reviewed journals take longer to publish than newspapers and magazines, and therefore do not have as much material about the cutting edge of the market. Academics are less likely to discuss the implications of Myspace music than are popular bloggers; therefore the content itself is skewed toward pop-media. Second, while advertisers and record labels are going through a major shift in tactics, the implications of this shift are still undetermined. People know it is happening, but are slower to understand why. The primary source of peer-reviewed articles comes for legal analysis, which is based on precedents that have already been litigated, rather than the new distribution pathways that have been constructed to comply with the established precedents of copyright law.
The IPSOS Media Study is invaluable for determining consumer decision making. The most recent study was released in June of this year, and is a specific comparison of different distribution models. One of the key conclusions is that online music distribution may have reached a plateau; if someone is going to go online for music, they have probably been doing so already. The potential for growth in the industry comes from tempting file sharers away from peer-to-peer acquisition toward legal means. Although roughly a third of file-sharers may be a “lost cause” to the recording industry, many find short ads palatable.
A significant portion of our research is from the perspective of recording industry companies. The Bhattacharjee et al. article in the Journal of Law and Economics is about the industry’s strategy for combating file-sharing. They rely on well publicized threats against a small number of file-sharers. The Christman article is an interview with an industry CEO, and asks questions like, how is your meeting the challenges of digital distribution while overseeing the decline of physical? And has debuting new artists changed with an increased importance of brand, rather than product development? This suggests that record labels are looking for a long term relationship when signing new bands due to the increased cost of debut.
We also researched web advertising in general. Big advertisers are all anxious to use a larger portion of their ad budgets online. One of the biggest trends is toward “statistical personalization.” The music industry is no exception, and is rapidly adopting new methods of tailoring ads to the demographic data, or known preferences of consumers. The Lohr article from the New York Times describes how one company is employing these techniques with great success.
Methodology
In addition to a digital music market overview, we tried to answer our research question by determining what types of service were available, and what about them made users satisfied or dissatisfied. We distributed a survey among college students, and received responses from 66 people. The survey was ten questions that asked if the respondent had ever paid for digital music, when if ever was the last time they downloaded illegally, how much time they spend listening to streaming music online, and two open ended questions about satisfaction or the lack there of. We made the survey on surveymonkey.com, and distributed it via Facebook. We compared the results with the services that are available to see if consumer expectations are met by free, ad-supported sites, and if illegal downloads are decreasing as a result.
Product Review
In order to determine if free ad-supported services are satisfying enough to stop illegal file sharing, we analyzed what is available today. One half of our research dealt with the content analysis of eight of the most popular ad-supported music sites. We felt that any survey findings would be difficult to put in the correct context without first evaluating the sites being discussed. We kept several criteria in mind that would judge the sites based on both aesthetic and practical qualities. Our criteria were, sound quality, ad invasiveness, interface usability and song selection.
We kept several criteria in mind that would judge the sites based on both aesthetic and practical qualities. Some examples of questions we asked: Is the layout of the site effective? Can users easily find the function they are seeking? Is the site too cluttered? Are there pop-up ads? Is there obtrusive audio or video advertising? Does the site have latency issues? Is the music selection customizable? Can a “station” or playlist be created?
Pandora: This was one of the strongest ad-supported sites we reviewed. Pandora is a customizable web-radio site. The site’s presentation is second to none. It features a very innovative “station” feature that will tailor to users’ preferred songs and artists. It does this by categorizing and matching songs through hundreds of musical “genes” – attributes such as “subtle use of vocal harmony” or “mild rhythmic syncopation.” This system works very well. Sound quality is relatively excellent at 128 kb/s, and there is a large catalog of available music. Somewhat invasive advertising was the only problem we encountered using Pandora.
Musicovery: While Pandora emphasizes the process of playlist personalization (the Music Genome Project), Musicovery takes a different route, where users select a playlist based on genre and mood. The user sets the parameters for type and tempo and then the service functions as an automatic DJ. With this service, the 96 kb/s sound quality is lower than mp3 (128kb/s) and songs cannot be skipped without a premium membership. However, this site scores high because it does not require any user registration and does not interrupt the music for any audio advertising. The only ads are traditional banner posts, occupying a small section of the page kept to the side of the main content. Many services are limited to particular countries because of licensing limitations; however, Musicovery is available in Europe and the U.S.
Myspace: The biggest benefit of MySpace is the interactivity between artist and fan. Myspace often acts as an artist’s hub of information – news, tour dates, blog posts, music videos, as well as music. Sound quality is fairly poor, running at 96 kbps. The player is also clumsy and sometimes unresponsive. However, there is still a large selection of music and the ability to create a playlist.
iLike: This site is similar to MySpace in that it serves as a hub of information. iLike is much more user friendly, though, for accessing the information. The site has a very clean layout. The music portion of the site is not as satisfying. When the user searches for an artist, a playlist is created that contains songs and videos from that artist and other “similar” artists. While this is neat at first, there is a lot of redundancy in the song selection that becomes apparent when trying to listen to similar artists more than once. Specific songs cannot be played, although there are links to purchase individual songs and albums from iTunes and Amazon.
RCDL LBL: This site (pronounced Record Label) is a New York based site that had many features that are appealing to our review criteria. All of the material is distributed under the Creative Commons License and is available for download. Sharing is even encouraged, but they ask that you don’t profit from someone else’s work. The catalogue is limited to artists who give their consent and is decidedly non-mainstream. This site is utilized by up-coming bands, rather than artist who have already achieved commercial success. In this way, the site offers the chance for listeners to find new artists, rather than get the tracks they already know.
Playlist: This site allows the user to create, maintain and share playlists of songs with other users. Specific, full-length songs can played, which is not common among ad-supported sites. However, Playlist is in legal troubles because a lot of its music was found to be pirated. The site has prominent sidebar ads, which are an eyesore although they aren’t physically obtrusive. The interface works well and is very easy to use.
It is important to keep in mind that the number of services is growing rapidly today. While all of the sites we reviewed fall under the banner of free ad-supported digital music, each one has unique advantages and disadvantages. The services that are most pleasing to consumers may not be the best business models for turning profits. Although today is a great time for free music distribution, we predict that eventually the trend toward diversity will shift toward centralization; some of these services will not survive as viable business. As some sites prove their sustainability, and others fold, we will have a better idea about the viability of the model as a whole. Because each service has a slightly different configuration, user preference will be crucial in deciding who survives. Regardless of the success or failure of individual sites, we anticipate that the ad supported model, in general, is here to stay.
Survey Data
Out of 66 student responses, we found that 32% have never paid to download music. This is in line with IPSOS market breakdown of the roughly 30-35% who are totally unwilling to pay for music under any circumstance.
Half of the respondents said they had illegally downloaded music within the past month, and only 12% claimed to have never downloaded music illegally.
Nearly two-thirds of respondents had used Myspace or Pandora to listen to music. 85% said that advertising did not discourage them from using ad-supported sites.
We expected a greater emphasis on personalization and sharing, but less than 10% have listened to a station that was created by another user. 62% say that the ability to share their playlist is not at all important. 78% of respondents choose a playlist based on genre or artist.
We asked the survey takers to give a free response on what were the most and least satisfactory aspects of ad-supported music sites. Not surprisingly, the most popular satisfactory was the fact that the sites were free (36%).Respondents also identified, discovering new artists (9%), accessibility (6%), and legality (5%) as the most satisfying characteristic.
The most common response for identifying the least satisfying aspect was ad invasiveness (39%). Other responses included, lack of selection (9%), bandwidth (6%), and lack of portability/transferability (6%).
Data Analysis
The data tells us a few interesting things. Streaming radio has become extremely wide-spread among the college students. Over 90% of respondents have used one or more of the services we identified and the most satisfying thing is the fact that the service is free.
The way our respondents reacted to advertising was also revealing. Although 85% said that advertising did not discourage them from using free services, ads remain their least favorite part of the experience. This indicates that the service who can advertise in the least invasive way may have a big advantage in retaining users over the sites that try to milk every possible place to insert an ad. Online advertising is still significantly less invasive (at least measured in terms of time allocation) than radio, but if it becomes annoying, users will stop using a particular service.
The complaints about advertisements are based on different justifications like, “the ads are much louder than the music was,” or, “ads can be really obnoxious… especially pop-ups,” or the fact that they slow down the overall internet connection. We predict that the companies who can minimize the invasiveness of their advertisements will be more likely to retain users.
Many respondents valued the ability to find new artists. A frequent sentiment was “It’s…free! Also helps me get my feet wet in genre/artist terrain I might not have discovered on my own.” Record companies are sure to find responses like this pleasing, as it corresponds to the view that fee-based and ad-supported music are complimentary aspects of the market. Keep in mind that nearly one third of consumers are dedicated to free music. Rather than simply writing off the free culture crowd, ad-supported service can generate a revenue stream from consumers who would otherwise be entirely outside the legitimate market.
The spread of Wi-Fi has significantly improved the ad supported business model. One of the major drawbacks is the fact that on most sites, songs cannot be downloaded and transported. An active internet connection needs to be maintained to use almost all aspects of these services. However, being able to play streaming music through a portable device allows for mobile listening, which our respondents identified as one of the current limitations they found dissatisfying.
Although none of our respondents identified registration requirements as a disadvantage, we think that sites that are fully accessible without having to register your e-mail address have an advantage in terms of initial usability. Although each site is different, we can only assume that consumer data gathered by companies like Pandora is valuable and will be compiled and sold in some form. This may help the long-term viability of a service, but slow its initial spread.
Findings
In the first place, we found that a greater percentage of our respondents participate in the legitimate market than Ipsos predicted. Over two thirds of the college students we survey have paid to download music in the past. But Ipsos does not take into account the fact that individuals may use more than one service regularly. We found that digital download sales like iTunes and Rhapsody are not in direct competition with the free ad-supported market. Most users enjoy both because they offer different experiences. If someone wants instant access, portability and high sound quality for popular tracks, they will probably only be satisfied with a paid download. They may use online music to find new artists whose work they could purchase later.
Although we are focused on new media music distribution, we can make the analogy to traditional music distribution. Buying a record, or tape, or CD is the old-media equivalent to buying an mp3, while ad-supported digital music is the old-media equivalent of listening to the radio. The two methods do not undercut each-other’s business, but in fact are two aspects of the same marketplace. As ad-supported music grows, the legitimate market grows.
Second, although illegal downloading has been decreasing, ad-supported music alone is not enough to persuade most users not to do it. Nearly half of our respondents are willing to admit to illegal song sharing within the past month. This makes the definitive answer to our research question, no: ad-supported music is not satisfying enough to stop illegal file sharing.
Third, ad-supported music distribution was a compromise, which has helped to legitimize part of the market. This is not a static event, but an ongoing process. Perhaps years from now file sharing will become much less common, and that will be attributed to free ad-supported services. But today, file sharing continues to be widespread despite the availability of numerous free services.
Implications
We should imagine how the experience of music has changed from 150 years ago. Before any sound recording technology existed, music was inherently shared. But comparing the old experience of music to today’s iPod listeners reveals how it had become a much more individualized experience. Today, the RIAA would have you believe that digital music is viewed as a commodity for passive consumption, with less emphasis placed on artistic creation or participation. The free culture movement would have you believe that copyright is too restrictive, and that intellectual property laws decrease creativity.
There is an ongoing struggle for the rights of distribution, access and ownership of music.
New media technologies have permitted consumers to dramatically change the digital music market, and the music is more accessible today than ever before. It may not stay that way for ever, as the struggle between free culture and paid access continues.
Music companies might be discouraged when they see illegal downloads continuing, despite having made compromises about how their product is distributed. But ad-supported distribution has emerged as an essential part of the online music market. One thing is certain; the fair use guidelines in American copyright law will be continually stretched to apply to novel technologies and practices.
If the ad-supported model continues to develop, it will be an example that competing interpretations of ownership, art, and the role of the internet can be reconciled in a system that satisfies all interested parties. Ad-supported music won’t end illegal downloads, but it will benefit artists, listeners and distributers alike.
PART II
Joe Heathcock and Whit Alexander
New Media and Society
21 October 2009
Research Questions and Hypothesis
Abstract
Our final project will compare models for distributing music via new media. The three basic models are fee-based, ad-supported, and peer-to-peer services. Examples of fee-based services are iTunes, Rhapsody and Tunecore. Ad-supported services are Myspace Music, Pandora, and Musicovery. Peer-to-peer services are file-sharing programs.
The recording industry has claimed to be sorely impacted by people unwilling to pay directly for music, but ad-supported distribution may be emerging as an essential component to online music. Many people are simply unwilling to pay for music. In the recording industry, there has been a marked shift toward ad-supported distribution, as consumers have been found to be generally accepting of 10-30 second advertisements mixed in among tracks.
Research Question:
The project will attempt to answer the question, for consumers unwilling to pay for music, is the advertisement-supported model of digital music distribution satisfying enough to stop illegal file-sharing?
We want to compare the three models of distribution, and determine the advantages and disadvantages of the ad-supported model. What exactly are people getting when they pay for music? And among those unwilling to open their wallets to buy songs or albums, what are the deficiencies of the available services?
In the first stage of the project, we will evaluate popular ad-supported services individually. We want to measure sound quality, the size of the available library, frequency and duration of advertisement, and examine how the product can be personalized.
The evaluation will include an over-all product assessment, which will consider freedom of choice vs. determined play lists, genre diversity/depth, and the quality of artists available. Many free service sell a “premium” version, with additional abilities, this will discussed in the overall product assessment.
The second stage of the project will be a survey of WVU students. The survey will determine which distribution model is preferred, and the respondent’s attitude toward fee-based services. It will establish awareness, opinion and use of individual ad-supported services. The survey will also ask if people are satisfied with the quality and availability of free online music.
Secondary questions:
In addition to the research question that we are focused on, contextual questions will also be relevant to our conclusions. We also want to know, how much ad revenue these companies are generating? What is the cost of a single, individually targeted ad? How many new listeners are trying ad-supported radio, and how many use it regularly? How do ad-supported services obtain licensing, and how do artists get paid? Has the RIAA come to accept the ad-supported model out of acquiescence to consumer behavior, or the potential for real profits?
Literature Review
The literature we gathered tends to skew more toward popular sources than peer-reviewed. This is for two major reasons. First, many of the distribution networks are relatively new, and are more likely to be discussed in publications that are released frequently, with a focus on novel services. Peer reviewed journals take longer to publish than newspapers and magazines, and therefore do not have as much material about the cutting edge of the market. Academics are less likely to discuss the implications of Myspace music than are popular bloggers; therefore the content itself is skewed toward pop-media. Second, while advertisers and record labels are going through a major shift in tactics, the implications of this shift are still undetermined. People know it is happening, but are slower to understand why. The primary source of peer-reviewed articles comes for legal analysis, which is based on precedents that have already been litigated, rather than the new distribution pathways that have been constructed to comply with the established precedents of copyright law.
A significant portion of our research is from the perspective of recording industry companies. The Bhattacharjee et al. article in the Journal of Law and Economics is about the industry’s strategy for combating file-sharing. They rely on well publicized threats against a small number of file-sharers. The Christman article is an interview with an industry CEO, and asks questions like, how is your meeting the challenges of digital distribution while overseeing the decline of physical? And has debuting new artists change d with an increased importance of brand, rather than product development? This suggests that record labels are looking for a long term relationship when signing new bands due to the increased cost of debut.
The Pavlou article from the MMMIS Quarterly focuses on the idea of consumer trust in online markets. This article, despite not being completely relevant to the topic of music, is an essential source for our project because it is imperative that we try to understand why consumers behave the way they do online. In other words, what is motivating them to buy music when they could easily pirate music? How can pay sites win the trust of potential buyers? What is it that convinces consumers to purchase music online rather than in a store?
The IPSOS Media Study is invaluable for determining consumer decision making. The most recent study was released in June of this year, and is a specific comparison of different distribution models. One of the key conclusions is that online music distribution may have reached a plateau; if someone is going to go online for music, they have probably been doing so already. The potential for growth in the industry comes from tempting file sharers away from peer-to-peer acquisition toward legal means. Although roughly a third of file-sharers may be a “lost cause” to the recording industry, many find short ads palatable.
Much of our research has to do with web-advertising in general. Big advertisers are all anxious to use a larger portion of their ad budgets online. One of the biggest trends is toward “statistical personalization.” The music industry is no exception, and is rapidly adopting new methods of tailoring ads to the demographic data, or known preferences of consumers. The Lohr article from the New York Times describes how one company is employing these techniques with great success.
We hope that our sources will allow us to present several perspectives on music in new media. In addition to the peer-reviewed articles that primarily analyze the legal aspects of the recording industry, sites like TuneCore will allow us to show how new media is affecting artists. TuneCore is a music distribution service that allows any artist to pay a one-time fee and publish their music on iTunes or Amazon, while keeping 100% of the rights and profit to their music. This is a perfect example of how new media is putting power in the hands of those who previously did not have the access to major distribution companies. Now the playing field is being leveled. This is addressed in the Gopal et al article. Because of the rapid increase in sharing as well as the growing number of published artists, the ‘superstar’ will become much more of a rarity in the music industry. Media is in a very different state today compared to the days of Elvis and The Beatles, when the options for music were very limited and controlled by powerful record companies.
Hypothesis
Given the fact that many people are unwilling to pay for music, and would drop out of the online market if forced to obey copyright law, we hypothesize that the ad-supported model is here to stay.
As advertising becomes more successfully targeted to individual consumers, the success of this model will only increase. Many of the free services allow users to rate their preferences and provide suggestions about bands which are compatible with known tastes. We hypothesize that this type of service poses a greater threat to traditional radio than to the iTunes store. Because of the personally targeted ads, new media distribution methods permit advertisements to have lower percentage of the overall broadcast than what people are used to hearing on the radio. Ad-supported and fee-based services seem to be essential to different segments of the online consumer population, and therefore are probably more mutually beneficial than directly competitive. The biggest benefit to choosing the fee-based over the ad-supported model is the ability to listen to your song any time, any place, regardless of the ability to connect to the web.
Pandora and Musicovery are essentially customizable streaming radio, but do not allow for the construction of playlists, or users to choose which song comes next. Many of the services offer a premium membership add on, with fees around five dollars a month. If consumers are willing to pay for premium service, they get expanded features such as improved sound quality, freedom from all advertisements, and the ability to choose any available song.
We can use a comparison of traditional distribution methods as a standard for evaluating the new media methods. Although the copies are digital, iTunes roughly corresponds to buying a CD, while ad-supported methods roughly correspond to the traditional source of free music, the radio. By continuing to focus on physical sales, the recording industry has limited the ways in which digital sales provide something beyond the traditional sale (i.e. album art, special features, bonus tracks, etc.). However, streaming radio has abundant advantages over traditional radio stations. By this logic, the online ad-supported distribution model is more revolutionary than purchasing individual digital tracks. Even so, we are not yet sure that the companies are capable of generating profits.
