MP3

MP3 The Rebel - MP3

This "fear" rapper Chuck D spoke of centered around Moving Picture Expert Group Layer 3 (MP3), an audio compression technology that allowed digital quality songs to be downloaded for free from the Internet. In November of 1998, Chuck D was ordered by his record label, Def Jam, to remove MP3 formatted clips from Public Enemy’s unreleased album Bring the Noise 2000. To Def Jam and its parent company Polygram, Chuck D was undercutting their profits from the potential sales of the album by posting Public Enemy’s music for free. To the Recording Industry Association of America (RIAA), the dozens of MP3 download sites popping-up weekly on the Internet represented an epidemic of piracy. To musicians such as Chuck D, MP3 represented a means to "fight the powers that be." If a musician could record her/his own music, and distribute it directly to the public via the Internet, what value would the $40 billion music industry add?

With the increased popularity of this technology, record company management found itself having to ask such questions, and more. What would this new technology mean for the industry? What countermoves could they take? What other factors would determine the degree of penetration of MP3 and similar technology? How could MP3 technology impact the recording industry’s value chain? What value did a record company add for an artist? What value did a record company add for a consumer?

Check out the MP3 site and some of the other neat links dealing with this new wave!.

Artist Companies

MP3 Background

At the end of 1998, the power of the MP3 had yet to be determined. Many touted MP3 as the next wave of music distribution technology, disrupting the flow of music through the recording industry. For others, MP3 would only be as powerful a disintermediator as, for example, the VCR had become to the movie industry. MP3 had already caused the RIAA to file lawsuits, launch security initiatives, and spend hundreds of hours combing the Internet for pirate sites.

Creating and listening to MP3s was fairly simple, and technology for doing both was available as shareware on several Internet sites. All an artist needed to produce and distribute her/his music was a computer, a ripper, an encoder, a digital format of the music that could be created on a master CD (which could be burned by a studio for less than one hundred dollars), and access to the Internet. Rippers such as Audiograbber, CD Copy, or Easy CD-DA Extractor, essentially copied, or "ripped," music from an existing digital recording, while encoders, such as Ultimate Encoder, configured this ripped music into MP3 format. An artist could either post an MP3 file on a server for direct distribution on the Internet, or upload it onto an existing MP3 website such as MP3.com which boasted over 24,000 free downloads. Several MP3 sites offered free downloads from an artist’s album, but also sold Digital Automatic Music (DAM) CD’s, which were compact disks containing a full albums of songs in both MP3 and standard audio CD formats. These DAM CDs were sold to listeners for between $5 to $10, with 50% of the proceeds going to the artist.

Without a DAM CD, playing MP3’s required software programs such as WinAmp, MusicMatch Jukebox (which could also rip), or Sonique. These programs allowed end users to play CD quality MP3’s over their home computers. Companies such as Diamond took the means of playing MP3s even further by introducing Rio, a palm-sized portable MP3 player. Several other companies were planning to introduce stand-alone MP3 stereo components such as OSCAR (see Exhibit 4), or car stereo adapters capable of playing up to two hundred MP3 songs on one CD.