1. Consider the traditional channels of distribution for music albums. Which channel elements are most affected by the presence of services like KaZaA and Morpheus? Explain how those elements are affected. Physical distribution of music in the form of COs is rapidly declining, and d igital distribution of music is rapidly increasing. A report by PriceWaterhouseCoopers LLP

(PWC) predicts that by 2011 physical music sales in Canada will decline to just $275 million. That's down from

$572 million as recently as 2007. The increase in digital music delivery has been dramatic. In 2007, digital music sales were just $122 million in Canada (that was only onefourth of the volume of physical music sales). The PWC study predicts that by 2011 digital sales from sites such as iTunes will increase to $366 million (that w ill be more than physic al music sales).

Music piracy Is getting worse as consumers share music on the Internet, and this is hastening the decline of traditional mu sic sales. During the period 1999-2009, for example, CD sales declined 50 percent in Canada In contrast, worldwide digital music sales have increased more than tenfold since 2004. In response to the decline in traditional music formats, record stores have shifted their emphasis iNlay from COs and toward DVDs and video games.