Social and ethical implications of virtualization of the business environment in the music sector

Janusz Wielki


Despite the significant drop of the popularity of the term “the new economy”, no one can say that nothing has changed in the contemporary economy at the end of the twentieth century and that the Internet revolution was just a business fad which faded in the year 2000 with the dot-com crash. In reality just the opposite is true. Although the basic rules of the “old” economy have regained their currency, and the issues as business cycle, cost, quality, inventory, productivity or traditional measures of profitability and economic value are valid, the Internet is fundamentally reshaping businesses and the industries in which they compete. So in fact one can talk about virtualization of the contemporary economy and in this new business reality a set of driving forces has appeared in the last decade and probably the most significant of them are the customers.

In fact the economy at the beginning of twenty first century is the economy ruled by customers, who aggressively seek alternatives, compare offers, and demand the best options. And it is nothing strange or new because it is the nature of customers to permanently demand more value for less cost, more innovation, or more service. Such opportunities are offered by internet technologies so in this virtualized economy they are provided with easier access to information about products and suppliers, reinforcing their bargaining power.

Consequently internet technologies undermine the profitability of industries, so in many sectors influenced by the Internet, average profitability is under pressure. Such a situation is being faced by the recording industry. In this sector quite clear is the impact of two factors: consumers and technology. Their combination leads to the complete redefinition of the foundations of this sector’s functioning and numerous implications result from this fact. The basic goal of this paper is presentation of the complexity of the current situation in the music sector as well as analysis of social and ethical implications of changes which take place in this industry.

The paper is composed of three parts. In the first part of this paper an overview of the situation in the music sector has been given and the most important trends, which can be observed there, have been presented and discussed. Some statistics concerning sales and piracy are provided as well.

Second part of this paper is focused on analysis of issues which have the most significant impact on the new situation in the recorded music sector. Namely the following elements are discussed:

  • the separation of an intangible “base” product (i.e. music) from a tangible data carrier, which became a fact with the emergence of the MP3 format,
  • rapid growth of the number of consumers with access to a broadband Internet connection,
  • easy access of consumers to cheap CD burners,
  • large supply of low-priced blank CDs.

The following section of the paper is its core one. In this part of the article the situation in the music sector has been analyzed from social and ethical challenges perspective. Despite the attitude of the representatives of the music industry (mainly the Recording Industry Association of America), for whom everything what currently takes place in this sector is a black-and-white situation (i.e. “music for free” mentality is the reason of the current situation of this sector), the reality is not so simple. In fact the all circumstances are very complex and multidimensional. In this part of the paper the overall situation is analyzed from the perspective of three most important stakeholders:

  • the music industry,
  • customers
  • musicians.

First the position of the music industry on changes taking place in the sector is presented and the methods used by them in order to block dissemination of digital music files (any changes) are analyzed. Also in this part of the paper the conflicting interests within big international corporations and their possible impact on the situation in the music sector is examined (e.g. while Sony Music fights with on-line distribution of MP3 files, Sony is interested in increasing sales of MP3-capable electronics).

Next the perspective of customers is presented. The most important aspect is their stance on sharing MP3 files on-line, including their attitude towards copyrighted material on-line. Social and ethical aspects of downloading digital music files within the corporate IT environment are analyzed as well.

Finally, the perspective of musicians has been analyzed. Although there should be a convergence of opinions between the representatives of the music industry and musicians, in reality very often they are quite different. So various attitudes of musicians towards MP3 files sharing and downloading are presented and analyzed.

In the final part of the paper, the most important conclusions and suggestions are provided.