The itunes business model and its widespread effects

January 28th, 2011 Posted in Culture and Society. Opinion Write comment
ITunes, love it or hate it, you can’t ignore it.
This is actually a research paper I wrote for a class some time back (pardon the occasionally dry tone), and I feel it’s worth sharing. It is indeed a long read, but give it a shot and hopefully you may learn something new!


On April 28th 2003, the entire world of music – the business, the industry as a whole, our perceptions of it and interactions with it – would begin its most rapid change in history. Apple had just released iTunes, a proprietary digital media player application, along with the iTunes Music Store, a software-based online digital media store.

Within five years of its release, the iTunes Music Store became the number-one music vendor in the United States. In less than seven years, over 10 billion songs had been purchased from it.

While the immediate success of the iTunes Music Store is indisputable, its effects on every aspect of the music industry are at many times unclear. Has it revitalized a once rapidly failing industry? Has it allowed for more equal distribution among artists? Has it helped independent records labels’ reach? Has it given more freedom to artists? While there are an infinite number of questions that could be asked about iTunes’ effects, I would like to attempt to tackle some of the most important – and at many times disputed – issues.

The Failing Music Industry: Background in Brief

1998 marked the initial stage of the digital music revolution. With the emergence of Peer-to-Peer (P2P) networks such as Kazaa and Napster, music files could be copied and distributed freely over the internet. This technology allowed for users to bypass the established market for the music, eventually leading to accusations of copyright violations. Along with increasing hard drive sizes in computers, digital music was

rapidly becoming an appealing, and not to mention “free”, alternative to CDs, the predominant form of music sales at the time.

In the year 2000, retail values of record sales in the US measured $14 billion. By the time the iTunes Music Store had been released in 2003, sales fell to $11.8 billion – a 14 percent decrease. By 2007, the industry fell to $10.4 billion – a 37.7 percent decrease from 2000 (with adjusted inflation[i] – further details can be found in Table 1 in the appendix). In Steve Knopper’s book, Appetite for Self-Destruction: the Spectacular Crash of the Record Industry in the Digital Age (2009), he discusses how the “major records labels consistently failed to heed warnings or to support any measures that embraced the change in technology.”

In their reluctance to adapt and embrace emerging technologies, the music industry chose to fight illegal P2P file sharing. In 2001, Napster was successfully shutdown and thousands of users were threatened with legal action. However as Knopper later mentions, this “failed to slow the decline in revenue and was a public relations disaster.”

The Failing Music Industry: Other Factors?

While nearly all would agree with the direct correlation between illegal downloading and the decline in music sales (much research has studied it), there was a study[i] published in 2004 that suggested otherwise. Performed by Harvard Business School associate professor Felix Overholzer and University of North Carolina, Chapel Hill associate professor Koleman Strumpf, the study observed 1.75 million downloads over a 17 week sample period.

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The itunes business model and its widespread effects