The Digital Music Distribution Revolution\' Fraunhofer and MP3 In 1991, Fraunhof

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The Digital Music Distribution Revolution' Fraunhofer and MP3 In 1991, Fraunhofer IIS of Germany developed an algorithm that would set in motion a revolution in how music was distributed, stored, and consumed. The algorithm (commonly referred to as a codec) allowed compression of digital audio to approximately one-tenth of its original size with minimal compromise in audible quality. The format also enabled song information such as the song title and artist to be embedded within the file. This format for compressed audio files was later dubbed MPEG-1 layer 3-a k.a. MP3. By 1995, software programs were available that enabled consumers to convert tracks from compact discs to MP3 files. This technology transformed how music could be manipulated-a song was now a file that could be kept on a hard drive, and the file was small enough to be shared over the Internet. The MP3 format became wildly popular by users sharing their music online, and software companies began releasing many variants of MP3 encoders (utilities that compress files into MP3s) and decoders (utilities that play back MP3s). Hardware manufacturers decided to cap- italize on this new trend and several hardware MP3 players began appearing on the market With the growing popularity of the file format, Fraunhofer was faced with a dilemma- should it enforce its patent on the use of the MP3 algorithm and attempt to collect royalties for its use, or should it allow users and software/hard- ware manufacturers to make free use of the algorithm, allowing the momentum of the format to build? If it was to limit the use of the algorithm, it faced the risk of established rivals such as Microsoft and Sony developing competing formats, yet if it allowed free use of the algorithm, it would be difficult to profit on its invention. Fraunhofer decided to pursue a partially open licensing approach, partnering with Thomson Multimedia as the exclusive licensing representative of MP3 patents in 1995.2 Thomson, in turn, negotiated agreements with several compa- nies including Apple, Adobe, Creative Labs, Microsoft, and many others. Such a broad base of MP3 licensees (100 by April 2001) provided consumers with easy

Explanation / Answer

The industry conditions that led to the revolution in an audio distribution described above included the development of MP3 that enabled consumers to convert tracks from computers, the sharing of music online, and the development of variants of the MP3 format. The popularity of the MP3 format was important for the revolution. The other industry conditions were the increasing access of the consumers to the internet, the ease the users had of downloading copyright material, and technological advance formed the industry conditions that led to a revolution in audio distribution.

The other industry conditions that led to the revolution were that music fans were forced to buy albums for prices that were very high and the consumers did not have the choice to buy individual songs. There was a demand from consumers for online downloads of songs. So, even when Napster lost the case, several other services emerged that allowed customers to download songs. The industry development that Warner Music, BMG, EMI, and RealNetworks tied up to introduce MusicNet and the later introduction of Pressplay enabled legal download of music. Along, with the increasing use of internet the popularity of peer-to-peer music swapping continued to grow and provided conditions for the revolution. The launch of Apple iTunes further gave a fillip to the revolution. In addition, the non-restrictive policy of the FairPlay DRM enabled the industry to expand. Moreover, the availability of hardware such as iPods increased the popularity of online music. Also, there was a change in laws that supported the revolution. The French National Assembly approved a bill requiring Apple to open its FairPlay DRM technology to its industry rivals in France. This enabled downloading of songs to be played on non-iPod MP3 players. This opened up interoperability. The fact that music can be downloaded without the risk of infringement suits is an important factor for the revolution in the industry.

The stakeholders that benefit the most from this revolution are the consumers. They are able to download songs legally for a price that is far lower than what the “album” format allowed them to purchase.

The large music companies such as Sony, Universal, BMG, Warner Music, and EMI also benefitted from the revolution. They got access to a channel of distribution which has a global reach that is as wide as the reach of the internet. This is far greater than what they achieved before the revolution.

The other stakeholders are the electronics companies such as Apple that provided the platform for distribution and developed the hardware.

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