“I think we do a monthly fee for downloading our music,” Devon Torg said to his coowner and spouse, Yoshiko Torg. “How much would you charge?” Yoshiko asked, standing in her business office early in the morning.

“I’d say, \($9.95\).”

“Too high.”

“Well, the customer gets unlimited access to our 42,000 songs and tracks, and that has value.”

“What if they download all of our music files? If so, we lose lots of money by the time we pay 42,000 royalties. I did the breakeven analysis, and that’s what would happen.” After thinking about the decision and taking a drink of coffee, Yoshiko said, “Let’s stick with our current pricing of \($0.69\) per song and \($4.99\) for an album.”

“Okay, I think you are right. We’ll keep benchmarking what our competitors Amazon Music and eMusic charge,”

Devon replied.

Yoshiko stared at her husband and said, “Maybe we start a WDMS membership club?”

“Yeah, we have to do something. The big competitors can run us out of the business. We had a market niche for a while, but we’re losing it.”

The global music industry continues to experience much turbulence with lawsuits and controversy over Walker Digital Music Services downloading, file sharing, pricing, and streaming digital music. A disruptive technology called the Internet redefined the worldwide music industry’s value chains, how they were managed, and how customers participate in buying the music directly from websites. The great disruptor, the Internet, has caused many industries to restructure or abandon obsolete value chain designs and practices. Many call this technology-driven phenomena “creative destruction.” A few service industries whose value chains have been restructured include travel, insurance, banking, translation, book and movie seller, job search and recruiting, logistic, hotel, tax and taxi, real estate, and education services. For music’s value chain, it all began when a music sharing website named Napster in 1999 began its online service. Many musicians, singers, and other institutions tried to stop renegade sites like Napster and LimeWire from sharing their copyrighted work for free. Billions of songs and albums were illegally downloaded during these unsettled times. They charged some college students with downloading and sharing tens of thousands of songs among friends, family, and even their paying customers. Most composers, recording artists, producers, and copyright- holders argued that their music creations and work were stolen and undervalued. The Recording Industry Association of America (RIAA), and many artists, filed lawsuits against Napsterlike firms, and eventually, they shut down. The artists argued that digital file sharing for free and low pricing skewed supply and demand dynamics for the world’s music marketplace. In 2003, Apple’s iTunes Store started and a new business model was introduced. It paid artists a royalty and became one of many successful online platforms, along with other firms such as DatPiff, Pandora, and Spotify. Musicians found the best way to make up for lost revenue was by doing live concerts and shows. But even today, the torturous transition from bricks and mortarbased value chains selling physical products like CDs, tapes, and vinyl records to pure digital-based value chains is ongoing.

Case Questions for Discussion:

1. What do you buy when you purchase a song on the Internet? A good? A service? Explain your answer in a couple of sentences.

2. What creates “value” when you download or stream digital music?

3. Draw the “bricks and mortar” major process stages of the value chain by which traditional records, tapes, and CDs are created, distributed, and sold in retail stores. How does each player make money? (start the value chain with suppliers and end with customers).

4. Draw the major process stages of the value chain for downloading and streaming digital music today. How does each player make money? 

5. Compare and contrast the approaches in questions 3 and 4. What are the big differences?