In this case, a number of different record companies came together to sue Napster. Their claim was that Napster’s peer-to-peer file sharing service was liable for “contributory and vicarious” copyright infringement. The district court ruled in favor of the recording studios and issued a preliminary injunction against Napster. Napster had to police its servers and remove all copyright infringing material. The district court monitored Napster’s progress and after three months, determined that Napster was not satisfactorily complying with the injunction. Then, the district court required Napster to shut off its peer-to-peer servers until it met certain conditions.

The recording companies argued that Napster should have to search for and block all files that infringed on copyrighted material. They transferred responsibility for locating infringing files to Napster. However, Napster argued that this modification to the injunction was vague with respect to how Napster should monitor its servers.

The court ruled with the district court and affirmed the decision to shut Napster down unless it could abide by the modified injunction.

Importance to Thesis:

This case is important to my thesis because it helps develop my second argument, which is that recording companies today are making the same strategic mistakes that movie studios made in response to the VCR.  The first mistake they are repeating is that they are acting as an industry, not as individual companies.  It is evident from the fact that five separate lawsuits were consolidated into this case that all the recording companies decided to deal with the peer-to-peer threat the same way; namely, litigiously.  The second mistake they are repeating is focusing narrow mindedly on the current perceived threat without considering how this new technology may change the competitive landscape.  By modifying the injunction such that Napster must police itself, the recording studios purposefully made it impossible for Napster to comply, which led to its eventual closure.  This indicates that the recording studios strategy was to eradicate peer-to-peer networks entirely.     

Summary of business strategy section:

Apple explains its business strategy in its annual 10-k filing. It seeks to continue to capitalize on the “convergence” of digital consumer electronics and the personal computer. Thus far, Apple has realized success in this area through its iPod and iTunes innovations.

Apple’s larger vision of the digital world is that we are in an age where the personal computer functions as the digital epicenter for cutting edge digital devises such as the “iPod digital music players, personal digital assistants, cellular phones, digital camcorders, DVD players and televisions.” Apple has thus positioned itself to offer both products and solutions for this new era.

Along the lines of offering new products, Apple recently introduced an iPod that can display photos and play video. In terms of solutions, all iPods work with the iTunes software on both Macintoshes and Windows computers. In addition, the iTunes Music Store is fully integrated with the iTunes software. This allows users to “preview, purchase, download, organize, share, and transfer” digital media to an iPod all with one software applet.

Importance to Thesis:

Apple’s business strategy is important for developing my third argument, which must prove that Apple has formed its business model to fit the future of media consumption.  From the summary, it is clear that Apple has a vision of where the digital media age is, and where it is headed.  Thus, Apple’s hardware and software products are the result of a large scope competitive strategy.  In addition, the contrast between Apple’s forward looking business strategy provides a contrast to recording companies’ narrow minded focus on eradicating peer-to-peer networks.  While recording companies have been fighting lawsuits, Apple has positioned itself at the forefront of the digital media revolution.  This contrast can help explain the recent success that Apple has enjoyed.    

This article discusses the Disney-Pixar merger and its implications for Apple and the future of online media delivery. As a result of the merger, Steve Jobs solidified himself as one of the most powerful executives in the continuing convergence of media content and online delivery, especially as movie studios now look to extend their digital reach.

Apple stands to benefit from the ability to distribute Disney’s animation studio’s content as well as its array of broadcast networks, namely ABC and ESPN. However, video media has been available online in the form of Pixar short films and more recently since the merger, Disney animated shorts.

As Jobs has already proved the viability of the online delivery of music, video-on-demand makes sense as the next step in rounding out the iTunes platform. By now gaining access to Disney’s video content, it makes developing the video on demand stage easier. Before, Apple was dependent on apprehensive third parties for content, specifically the record labels who doubted the viability of a legal download market. Apple needed large scale support because iTunes would only be successful if there was a large collection of downloadable music. In contrast, the dynamics of video on demand are different in that Apple can start with Disney and add more networks further down the road.

If Apple pursues the video content road, it will likely replicate its revenue model with online music. The majority of Apple’s money is made on sales of iPods, not on sales of legal downloads. Thus, Apple’s strategy was to drive consumer demand for its iPod devices through the access to digital music media. In this vein, Apple will most likely launch a new device, most probably a home entertainment center, to deliver its online video content.

Importance to Thesis:

This article helps support my third argument, which is that Apple has become the example of how media companies should adapt to technological change. By developing the preferred user interface for access to online media content, Apple has positioned itself not only as a technology company, but now as a major player in the media industry. Where 5 years ago Apple wasn’t even involved in media, it now controls the future of content delivery. Thus, by seeing the peer-to-peer phenomenon as an evolution in consumers demanding online media content (both music and video), Apple has put itself in the position to take advantage of the this technological evolution.

The author of this article uses supply and demand econometrics to quantitatively describe the life cycle of new product introductions and their diffusion into the consumer marketplace. He establishes that there is interdependence between related products, and this is the basis by which one should study how new products are developed and introduced. Thus, color televisions and VCRs are used as the case study example.

In general, there are three steps that take place in consumer goods markets that induce new product introductions. First, once the existing product, in this case television, saturates the market to a certain level, the marginal cost to achieve sales growth exceeds marginal revenue. Second, due to disappointing growth prospects, manufacturers are induced to develop new and innovative products. In fact, with the VCR, Sony had the technology available, but only released the Betamax in 1977 when demand for television started to slow. Finally, once the new product is released, the demand functions for the two interrelated products (the VCR and TV) become intimately correlated. The overarching argument is that new products are more likely to be introduced when the demand for existing products declines due to market saturation.

Importance for thesis:

This paper helps make the conceptual argument, based on both marketing research and econometrics, that the evolution of new technologies is a market force.  Thus, when media companies try to fight this inevitable evolution, they are inherently fighting a lost cause.  This research empowers my thesis that media companies should have seen the VCR as an opportunity to grow profits, not as the end to their existence.  Also, it supports my stance that adapting to new technologies is vital, considering the evidence that new technologies are born from emerging market demands.  Thus, meeting these demands should lead to higher growth and profits than trying to stifle it.  

In this case, Universal City Studios lays out its arguments against the commercialization of Sony’s Betamax. The essence of their reasoning is that owners of video tape recorders had been recording copy-righted material, which had been aired on television. This action, they claimed, infringed their copyrights, and thus Sony was liable for facilitating infringement by marketing the Betamax to consumers. Universal Studios sought relief for these damages through money damages and an injunction against the manufacture and marketing of Betamax recorders.

In its ruling, the court explained its reasoning for supporting the legality of the Betamax. It found that the average Betamax owner uses the device to record programs he cannot view as it is aired. This practice, termed "time-shifting," widens the audience for television media consumption. Thus, the majority of copyright owners didn’t even object to this use of the Betamax. However, there were two respondents in this case who did object to “time shifting” but were unable to prove that there was any material economic harm to their copyrights. The court decided that because there were “substantial non-infringing” uses of the Betamax, Sony was not liable and would be allowed to further manufacture and market the Betamax.

The dissenting opinion gives more detail in regards to the arguments made by Universal. The Studios claimed that video recorders would result in a decrease in revenue by reducing the marketability of their works in movie theaters and through diminished demand for prerecorded videotapes. They also feared that video recorders would decrease their viewing audience, and thus the licensing fees they could charge. While these damages could not be proved, the dissenters extolled the Studios view that as long as there exists a “reasonable possibility” of harm, then the use should be considered an infringement.

Importance for thesis:

This case demonstrates the thought process that media companies went through when considering how to react to the VCR.  The emphasis that the Studios placed on protecting their current sources of revenue, despite the fact that they couldn’t prove the VCR even threatened these income streams, exemplifies their short sighted viewpoint.  Additionally, the case demonstrates how media companies fixate on maintaining their current business models without considering the larger changing competitive landscape.  The results of adopting this stance will allow me to demonstrate the negative consequences of trying to fight technological evolutions.   

This article explains the current dominance that Apple exerts on our digital music experience and how it could potentially become the epicenter of media consumption. Currently, it is impossible to download, organize and listen to music without iTunes. Furthermore, iTunes has created a “network effect” whereby its immense popularity spurs demand for other artists and advertisers to be on iTunes as well. iTunes is thus cemented as the face of our interaction with digital music. This same relationship could soon exist with video media if Apple gets access to Disney’s large library of movies and TV shows. One analyst forecasts that the iPod will become a “Tivo and a music player that you can take anywhere.”

This scenario, however, may be further down the road. Hollywood still opposes distributing copyrighted material over the internet. Additionally, being the epicenter of digital media consumption is not “itself a business right now.” In the future, Apple may find a way to turn this large audience into advertising revenue, and thus a legitimate profitable business.

Importance to Thesis:

This article is relevant to my third argument, which is that Apple represents the way media companies should react and adapt to changing technologies.  Apple, through its iTunes and iPod, took advantage of the changing methods of media consumption.  By anticipating that consumers would need both a device to play their music, and an interface that makes dealing with a large library manageable, Apple made itself the name brand associated with digital music.  The dominant position both iTunes and the iPod enjoy is a testament to this foresight.  Furthermore, the position Apple is putting itself in with regards to video media is a repetition of Apple’s ability to see how peer-to-peer technology has changed the competitive landscape for media consumption.  In contrast to media companies who fight to save the status quo, Apple has placed itself where a business does not even exist, but when it does, Apple stands to benefit enormously. 

This source is a summary of different studies and papers regarding the VCR’s impact on consumers and media consumption. I will focus on the paper by Lin, 1995. Lin views the VCR in terms of the emerging “home entertainment culture.” The VCR has altered the dynamic between consumers and other types of media because VCRs expanded the possible forms of media use and consumption. These new uses have redefined the “home entertainment culture,” meaning video viewing and the VCR’s capabilities have become substitutes for other “leisurely family activities.” As a result of these new forms of use and increased diversity of content, the VCR causes higher levels of user satisfaction. Specifically the argument is made that VCR users are likely to be more satisfied with their television viewing experience because of their ability to time shift. The other important point that Lin makes is that VCR users represent a different socio-economic segment that normal “heavy television” users.

Importance for thesis:

This source helps me in making the claim that media companies were short sighted in initially fighting the VCR.  There were two benefits from the VCR that media companies overlooked.  First, the VCR resulted in higher user satisfaction, which led to increased media consumption by VCR users.  Second, the VCR allowed access to new market segments, which due to demographics, was a desirable result.  However, these benefits were overlooked while media companies instead tried to defend their business models and the status quo.

The thesis of this article is that for the major recording labels to stay atop the music industry, they will have to embrace both technological and creative risks.

They will need to find ways to reach more users via the internet. Until recently, recording companies have viewed the internet as the enemy rather than an opportunity. They have gone with the strategy of litigating the fans that use peer to peer networks instead of finding a sustainable business model that will put their content online. As a result, sales decreased by a fifth between 1999 and 2003.

More recently, however, the recording industry has made inroads to accepting that the internet and digital technology will shape the music industry’s future. Apple’s iTunes service proved to music executives that the legal download market is viable. With this realization, recording companies are trying to figure out how to change their business model to take advantage of the internet.

Another problem which is just as important as piracy is the recording companies’ inability to develop new artists into strong sustainable brand names. The emphasis on one hit wonders is also to blame for the decline in CD sales. In fact, an internal report at one of the major recording studios found that between 2/3 and ¾ of the decline in CD sales was unrelated to online piracy. By embracing the internet, which bypasses more conservative retailers, the recording companies could gain the confidence to support new, innovative music.

Additionally, when an online business model unfolds, higher quality artists will be more profitable. Currently people buy single tracks much more often than whole albums. However, it is in the recording studios interest for users to spend 12$ on a whole album from one artist than to buy 2 songs from 6 different artists.

Importance to Thesis:

This article is important to my thesis in that it helps highlight the strategic mistakes that recording companies are repeating in response to peer-to-peer networks.  Music companies are exaggerating the threat of P2P networks, just as movie studios exaggerated the threat of the VCR.  In fact, the majority of the recent decline in CD sales is due to factors other than online piracy.  In addition, recording companies ignored the new markets that they could reach through online distribution, just as movie studios neglected to see that the VCR would expand their viewer base.  This article thus helps draw two parallels between the VCR and P2P networks, and allows me to apply historical lessons to the current situation facing recording companies.