Evolution of Digital Music

This is a research paper I worked on while enrolled in a master’s program. Enjoyed the process and was close to the subject and hence this post. Here you go.

Technology has the power to dramatically change how we “experience” an experience. Since the invention of fire by Neanderthals Sandgathe and Dibble (2017), technology has consistently improved the human experience for most parts. Technology plays a pivotal role in how we experience and feel the music. In the early days of audio recording, the mass consumption of music was enabled by sheet music, and recorded music was a side act (Garofalo, 1999). However, slowly the novelty of the new technology of recorded music caught on and established the recording industry. Similarly, advances in encoding technology led to the invention of the compact disc, aka CD, an invention of the ’80s that dramatically altered how we experience music, with innovations like skipping through songs that enabled personalization of music. Such was the impact of CD’s that the declining profits of the recording labels started to soar in the mid-’80s primarily attributed to the invention of CD format Daniel (2019). The digital nature of the compact disc was a significant enabler in the digitization of music.
The invention of MP3 in the ’90s was a game-changer in the distribution of music. The MP3, which is a short form for MPEG layer III, was initially thought of as a protocol for sending music over phone lines (Rose & Ganz, 2011). The MP3 became the de facto standard for storing and sharing music over the Internet. Soon enough came the peer-to-peer file-sharing revolution, which was led by Napster. In just a short span of one year, Napster acquired 20 million users who got instant access to millions of songs with just a click of a mouse. Often referred to as the day music was set free, Napster kickstarted the digital disruption in the music industry that is felt to this day (Lamont, 2013).
As innovative as Napster was, it was still an illegal way to acquire music. The biggest problem facing the music industry in the early 2000s was the declining sales due to the rampant piracy of music Koster (2007). Research Aguiar and Waldfogel (2016) indicates that the phenomena of file sharing led to declining sales. This trend would continue through the early 21st century, until the launch of the iTunes store in 2003. The launch of iPods and iTunes store was critical in changing consumer perception about acquiring digital music legally. The iTunes store provided an economical and easy way to buy music lawfully, and iPods made digital music fashionable (Pham, 2013).
With the superfluous distribution of music, it became easier for users to consume music on the go, iPods, iPhones, and Android phones. However, with the continuous improvements in mobile Internet speeds, the need for instant gratification led to the invention of streaming services like Spotify and Apple music. Music as a streaming service is an innovative way to offset piracy as it allows the consumption of music using two models: monthly subscriptions and content consumption with ads (Jonathan et al., 2013).
It was not too long before users started streaming music instead of downloading legal or illegal, and the consumption of music as a service really took off. The impact of music streaming on the music industry is enormous, with recent numbers attributing 80% of revenues of the entire American music industry on streaming services (Alexander, 2019). The music industry is at a point where it seems that streaming has the potential for mass adoption. But is it? According to a recent report Ingham (2013), the year on year growth in spending on streaming by consumers in the UK dropped in 2019. However, it is essential to note that the same research also reported that listeners in the UK spent a whopping £190m more on streaming in 2019 compared to 2018. The drop in year on year growth for streaming revenue can be attributed to factors like the possibility of the UK market reaching maturity, and similar growth rate is not sustainable.

Problem statement
All new technologies need time before they are truly understood and widely adopted. Nobody in 1998 could have guessed that a simple web-based directory would become a household brand that we all know as Google. It took Google twenty years and a parallel digital revolution enabled by ubiquitous high-speed Internet to reach where it is today. The digital evolution of music is also one such technological transcendence that is progressing since the invention of CDs in the 80s. The technological progression of the music industry has reached a stage where it seems that music streaming has the potential to alleviate the fears of record label executives and enable the industry to post a healthy growth rate. With the global music industry posting revenues of $20 billion in 2019 (IFPI, 2020), an inquiry is critical in understanding how the music industry has changed due to the digitization of music and if music streaming has the potential for mass adoption that will enable sustained growth in the coming decades.
Purpose of the study
This study adds to the literature by sharing an understanding of how the music industry has evolved since the digitization of music via a compact disc and how technological advances paved the way for novel ideas like music streaming services like Spotify and Apple music. The goal of this study is two-pronged: The first goal is to present an interpretation of how the music industry evolved from selling music in compact discs to selling music as a service i.e., music streaming. The secondary goal of this paper is to understand if more music listeners are opting for streaming by conducting user surveys to observe the current adoption rate of users opting for music streaming services and compare it with adoption rates from surveys conducted in 2012.

Research Questions
The questions that this study aims to address are:
• How digital music evolved since its early days of compact discs to its current on-demand streaming form?
• Are more people streaming music? Is the rate of people adopting streaming services increasing as fast as it was in the early days of streaming in 2012?
• Does music streaming have the potential to become global phenomena like Vinyl records and cassette tapes and adopted by the masses?
Research Hypothesis
The hypothesis that this study aims to test:
• Technology is truly instrumental in changing the course of an industry.
• The primary enabler for disruption in the music industry is technology, but a lot of other factors were instrumental in changing the course of the music industry.
• Users will pay for a useful service like music if they are charged a reasonable fee for that service.
Literature Review
With our 5G enabled smartphones and practically an infinite music library, it is hard to imagine that 30 years ago, listening to your favorite music meant digging into your dozen-odd records or cassette tapes and rinse and repeat the same music over and over again. Music has come a long way, a long, long way from the courthouses of kings and churches into the pocket of commoners. For the longest time in humans’ existence, music was mostly experienced live and was never commoditized for the lack of technology that enabled recording. That changed with the invention of movable type in 1450, which led to printing and publishing music (Garofalo, 1999). The design of copyright laws enabled music composers to earn a living by selling music and thus led to the commoditization of music and helped establish the music industry.
Since then, the music industry went through myriad technological and legal changes to reach where it is today. It is important to note that much like the movable type, another invention called the compact disc dramatically changed the course of the music industry. CD was one of the early inventions that allowed the storage and transfer of music in a digital format. Such is the importance of the invention of CD, Phillips the original inventors were awarded the IEEE milestone award in 2009 (Peek, 2010). The technological and cultural significance of CD is well established in the digital disruption of the music industry that followed after the commercial launch of the CD system (Daniel, 2019). The digital nature of the CD offered a mechanism for users to reproduce music without any high additional costs (Bhattacharjee et al., 2003).
With the arrival of the consumer Internet, it is easy for people to access and buy music from the Internet. By the early 2000s, a whopping $500 million was attributed to the sale of music through the interwebs in the form of CDs and downloadable songs (Lam & Tan, 2001). Increased sales would have made the recording executives happy if it weren’t for the dangerous implications of easy sharing of music enabled by the Internet. It was around this time when one of the most infamous web-based service called Napster was launched. Napster was a peer-to-peer web application that enabled a distributed storage of music Bergmann (2004) and enabled free access to millions of songs to its users around the world. In the early 21st century, the music flowed, but no one got paid, and that resulted in a slew of copyright lawsuits by record labels and artists.
The most ingenious thing about the Internet and applications like Napster was how it reimagined the distribution of music. Suddenly the record labels with their shiny and expensive brick and mortar music shops were rendered useless as millions of users migrated to websites like Napster to acquire music for free. This was the time when music piracy and freeloading were rampant around the world and resulted in billions of dollars of loss of sales (Bhattacharjee et al., 2003). Napster was forced to change its business model due to lawsuits from the Recording Industry Association of America. The closure of these P2P based websites pointed out a gaping hole in the distribution mechanism and supply chain of the music industry, especially when it came to understanding preferences of the customer (Premkumar, 2003).
The Internet was a beast of nature that was beyond the control of anyone individual or entity. It was not the MP3 or the compact disk, which were the arch-nemesis of the recording labels. It was the Internet, a freewheeling information highway that took power away from the record labels and put in in the hands of artists and consumers (Lam & Tan, 2001). Initially, the music industry considered the Internet a threat to their operations as it took away their bargaining power as the agents between the artists and the consumers. The Internet provided the record labels an opportunity to innovate and directly interact with their customers and get rid of retailers from the supply chain (Meisel & Sullivan, 2002). But instead of adapting and responding to changing customer needs, record labels were too slow in adapting to the rapid advances due to the digitization of our lives. In fact, record labels were introduced to MP3 technology in the 1990s and took almost a decade to make their catalogs available online (Coleman, 2009). The reason for the record labels’ delayed action is the disruptive nature of digital technology. As history and lot of literature point out, disruptive technology can blindside even the brightest mind. The same happened with the record label executives, who overlooked the genius of digital technology like the MP3 and digital downloading and wasted more than a decade in digitizing their catalogs (Moreau, 2013).
The recording industry failed to innovate or adapt their business models according to the changing needs of the market environment. It is surprising to note that it was the personal computer company Apple whose innovative business model of iTunes store changed the music industry (Lindgardt et al., 2009). It is no surprise that within a decade of its launch, the Apple iTunes store rampaged the music industry and enabled 63% of all digital music sold in the United States (Covert, 2013). Another pivotal moment in the evolution of digital music was the idea of music as a service. Up until the early 21st century, the majority of the music industry was busy fighting lawsuits and had no grasp around the power of digital innovation. One such innovation was taking place in Sweden by a company called Spotify, one of the earliest innovators who successfully executed the music as a service model. For services like Spotify, an individual song has no price, since their users are allowed to consume a piece of music as many times as they like. Spotify cannot sell a song to a customer; instead, they sell a subscription that allows customers unlimited access for the duration of the subscription period (Fleischer, 2017). Music as a service is one of the most game-changing innovations of the music industry. It has given the power right into the hands of the customer by giving them instant access to millions of songs for a nominal monthly fee. Music streaming also has the potential to decrease music piracy by providing a legit and possibly free (in the ad-based model) way to listen to music. Research points out Jonathan et al. (2013), people who illegally download music, think of streaming music as a possible alternative to downloading music. Recent research by Wlömert and Dominik (2016) indicates that streaming music could cannibalize sales through other channels. However, the same study also pointed out that, overall, streaming led to higher revenue for the industry.
With streaming becoming one of the significant sources of revenues for the music industry Alexander (2019) it has the promise to become a household name like the cassette and the CD. However, with the growth rate declining in saturated markets like the UK, it is still to be seen if streaming music will become as ubiquitous as the radio or the cassette tape. According to recent reports Ingham (2020), Amazon who owns the Amazon music streaming service, think that the aggressive pricing in premium streaming plans is one of the reasons for the staggering growth in the segment.

Table 1

Literature Map

Note. Literature map of the literature reviewed for the evolution of digital music.

Research Method

The goal of this paper is to answer two primary research questions. The first question is how digital music evolved from the early days of compact discs to its current streaming format. The answer to this question is available in the literature review, where we carefully evaluated the literature and developed an understanding of the music industry’s progression. To answer the second research question about the adoption of streaming service growth, we will use the 2012 study by Wlömert and Dominik (2016). In the 2012 study, the researchers conducted a panel survey of 2700 participants between Jan 2012 and Feb 2013. They held a total of nine surveys during the observation period to gauge the respondents’ music listening and spending habits. One of their research findings was the music streaming service adoption over time, which is the percentage of people who adopted a music streaming service (paid or free) during the observation interval. The percentage of people adopting streaming service is critical to understanding how streaming service is growing and is the key variable of interest. To find out if adoption is increasing or decreasing as compared to 2012, we will do a correlation analysis between the adoption rate in 2012 and 2020. This analysis will help us understand if the streaming service adoption in 2020-2021 is growing in a similar fashion as it did in 2012 and what is the relationship between these two variables. We will conduct this analysis for the adoption of paid as well as free streaming services.

Data Collection

The data analysis part of this study requires a correlation analysis between data collected in 2012 and the data collected in 2020-2021. To minimize the errors that may arise due to compositional change in the sample data, it is essential to collect data that is structurally equivalent to the original data (Homburg et al., 2015). So to increase the accuracy of the results of this study, it is crucial to keep the research design and setting in 2020-2021 to be as close as possible to the 2012 study. Hence, the data collection design and setting detailed below is heavily influenced by the original Wlömert and Dominik (2016) study.

We will conduct a panel survey over 13 months, which will be administered online, preferably with respondents from Germany or a country that has a population with similar music consumption habits and with similar levels of Internet penetration. A panel survey is a useful instrument in understanding user behaviors Pforr et al. (2016) and is used frequently in longitudinal social science research. Data will be collected over a total of nine surveys where the same respondents will answer questions about their music consumption habits over an observation period of 13 months. To reduce the error that may arise due to incorrect information given by the respondent, which is also known as response error, our survey will include details about different streaming services available in the market (McNabb, 2013). In each survey, respondents will answer questions about their music preferences and if they adopted a streaming service in the past one-month.

To remove systematic bias from our results, our survey will have questions that will remove the spotlight from the critical variable of interest i.e., streaming service adoption and help us collect cleaner data (Wlömert and Dominik, 2016). The main question from our survey will be like this: In the past one-month, did you use a music streaming service? (Music streaming services are apps or websites like Spotify, iTunes Music, Amazon Music, Pandora, Last FM, 8 Tracks, SoundCloud, etc. that provide free and paid access to music). The data sample size also needs to be in the same range as the original study in which a close to 2700 respondents completed all the nine surveys (Wlömert and Dominik, 2016). Since this study requires a panel survey to be conducted over 13 months, it is critical to incentivize the respondents adequately so that they stick around for 13 months observation period and honestly answer the survey questions. With the average response rate for an online survey hovering at 29 percent Lindemann (2019), a total of confirmed 2700 respondents will require us to send the survey to almost 9000 people. Since we are replicating the study conducted in 2012, the sample data size also needs to be closer to the original study.

Typically, the sample data size depends on the population, confidence level, and the margin of error (Hagaman, n.d). Considering Germany’s population, a 95% confidence level, and a 5% margin of error, the sample size of 2700 respondents is adequate to provide statistically significant results. As in the original study the survey respondents for the 2020 study will need to be heavy music listeners i.e., who consume and buy music frequently. The data collection process outlined above is expensive and time-consuming. An alternative way to capture a snapshot of this data sample is to capture music-streaming adoption over three months, with 2 to 3 panel surveys. To execute such online survey tools like Survey Monkey, Amazon Mechanical Turk, Fiverr, etc. can be used to quickly find respondents with valid credentials like source country, music consumption habits, etc.

Data collection for research mandates that researchers adhere to ethical obligations while collecting user information. It is essential to let the respondents know how their answers will be used, and the steps researchers take to protect user information. We will use data anonymization, encryption, and other data protection techniques to ensure that user data collected as part of this survey is not personally identifiable and is protected from physical and digital theft.

Conclusion

One part of this paper’s research questions was if there are more people streaming music than earlier. This is a rhetorical question because it is evident from the exponential growth in streaming services app revenues and registered users that more people are streaming music in 2020 as compared to 2012. According to research Kumar (2020), the global music streaming grew more than 30 percent year on year in 2019 with Spotify recording a 23 percent year on year revenue growth. With such strong growth worldwide, it is evident that streaming music is slowly gaining ground on other traditional ways of accessing and experiencing music.

Music streaming accounted for a whopping 75 percent of music industry revenue in the U.S. Hernandez (2018), which hints that the adoption rate of music streaming service is on the rise. However, this market capture by streaming doesn’t show us if the adoption rate is increasing or decreasing with time and if the market is reaching maturity levels, which is a critical indicator of what is the next step in the evolution of music. Hence, a longitudinal panel study will help gauge the direction where the music industry is heading. A growing adoption rate across geographies will indicate a possibility of mass adoption of streaming as the defacto choice for listening and accessing music.

One of the overarching and the third questions of this study is to figure if music streaming has the potential for mass adoption. To test if music streaming can be as ubiquitous as the cassette tape or compact discs, we will need to conduct a full-blown study that can use the diffusion of innovation theory Rogers (2010) to see if music streaming has the potential to spread globally. Such a study is beyond the scope of this paper but is recommended for researchers interested in identifying the mass adoption potential of music streaming. One of the critical factors for mass adoption of music streaming will be the price of broadband and mobile Internet and which may decide the future of the music industry. The ultimate fate of music streaming is unknown right now. Still, if history is any indication of where the industry will move, the end user’s convenience will be a pivotal factor in deciding how it evolves. After all, we live in a consumerist society and the needs of the consumer drive innovation.

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