Economics of Leisure

'The emergence of digital technology and the internet has destroyed the historical business models used by firms in the music and film industries leaving them exposed to possible extinction by new business models operated by Amazon, Netflix and Apple via iTunes. As a result consumers are now guaranteed to be much better off than they were in the old world of over-priced environmentally wasteful physical product such as tapes, vinyl, cds, dvds etc '. Discuss

In recent years, the market for digital content (e.g. music and movie) has experienced dramatic shocks that will ultimately transform its structure. Music usually sold as a physical product (CDs, DVDs, vinyl etc.) has been altered to selling music in digital formats (MP3). The emergence of digital technology has subsequently changed consumer demand, evolving consumers into the “on-demand” generation. Digitalization can give consumers their entertainment freely, quickly, and in a format that enable to copy over and over again. This paper discusses the emergence of digital technology and the Internet and how consumers might be better off with the new business model associated in particular with the music industry.

Historical music business model

The traditional music industry consists of the artist (content originator) and a record label (Fischbeck, 2000). The artist goes through a record label and signs a contractual agreement between the record labels. Record labels acts as links between an artist and the consumer that buy the music. As a result record labels have monopolistic rights over the artists, from which the labels acquire. Thus, the record label finance, publish, record, advertise and guide the artists career, in order to get large amounts of physical products (CDs, DVDs, tapes, vinyl, etc.) sold.

When artists sign a contractual agreement with the record labels with the expectation of making a lot of money. More often than that, the artists end up losing their money to the record labels. Historically, a record label contributes a significant large amount of capital and resources into an artist’s album production. As a result of this, a record label can choose to keep a large amount of percentage of the revenues derived from album sales. Retailers also purchase the albums turned into CDs from the record labels. Consumers acquire the end product album directly from the producers. This gives record labels a lot of leverage against the artists because they vertically integrate the entire process of producing and distributing the music. In this business model, artists receive only a small amount of percentage sales while the record labels keep a large amount of the revenue (Bielas, 2003).

Introduction of digital