PREFACE

For several years the authors of this White Paper have been closely observing how the In-ternet is changing the music industry. What began as the harmless and little-noticed ex-change of MP3 files over email between students, was dramatically altered by Napster's sur-prise victory in the first half of 2000.

"The great cultural war has broken out at last. Long awaited by some and a nasty surprise to others, the conflict between the industrial age and the virtual age is now being fought in ear-nest, thanks to that modestly conceived but paradigm-shifting thing called Napster." John Perry Barlow, Wired, October 2000, P. 240

The unexpected triumph of a 19 year-old student's software, whose web page - without any significant marketing ploys - had attracted over 35 million users within a few months, caught the music industry off guard - to put it mildly. The Internet activities of the recording industry, which until now merely attempted to integrate the Internet as an additional marketing channel into their overall business strategy, appeared all of a sudden antiquated and out of touch. P2P (peer to peer) file sharing, so simple in principle and yet revolutionary in its conse-quences, called all previous efforts of the music industry into question almost overnight. What is more, the principle of copyright, recognized as sacrosanct not only by record labels but by all businesses in the media industry, appears to be losing its central significance at the beginning of the 21st century. As a result new business models, differing fundamentally from the previous agreement on intellectual property, will need to be developed and implemented.

The surprise announcement that Bertelsmann is to enter into an alliance with Napster, news which reached us shortly before this White Paper went to press, demonstrates what a signifi-cant role music deals based on file-sharing will play in future.

Starting with a look at the current (non-Internet related) problem areas of the recording in-dustry (Chapter 1), the Internet strategies of the 'Big Five' are put under the spotlight (Chap-ter 2) and evaluated (Chapter 3). This is followed by a description of the altered competitive environment (Chapter 4) and hypotheses derived from this (Chapter 5). The authors are of the opinion that only by refocusing strategy and business models does the music industry have a chance of winning back lost territory on the Internet (Chapter 6). This is followed by examples of such new initiatives (Chapter 7). The White Paper concludes with a look at the consequences that P2P file sharing could have on the music and related media industries (Chapter 8).
'Wanted: A Survival Plan for the Music Industry - Napster and the Consequences' is directed at top level managers of the music industry, portals and the telecomms industry, and not least at decision makers working in the copyright domain. It is our aim to take a critical look at existing positions in the recording industry, and to present alternative strategies and mod-els. This White Paper is intended as both food for thought and a basis for discussion. Due to its limited scope, it can only give initial indications of a fundamental strategic readjustment of the music industry. We would welcome the opportunity to discuss this is in more depth with you.

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