The Old Economy and New Economy

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Scenarios

The future is impossible to predict accurately, for instance development in technology, changing of regimes, and economic recession or growth. This doesn’t mean that businesses still don’t have to make decisions. Because of the unpredictable nature of forecasting the future business still have to have tools to make the decisions. These tools are scenarios.6 There are two distinguishable types of scenarios, (1) Framework scenarios, which cover a wide array of factors such as the economic situation for the entire world; and (2) Project scenarios, which cover a well-defined area of interest. Framework scenarios need to be edited down to a condensed form in order to use it while Project scenarios are edited by nature.7
Scenarios give the readers a context in which they can think, talk, and act about complex line of factors. In this context Scenarios mean; A set of organized ways to speculate about the future.8 According to Peter Schwartz scenarios most often seem to fall into three categories, namely: more of the same but better, more of the same but worse or a dramatic shift in some way. It is on the other hand extremely rare that one of the scenarios are the way which society develops, instead, most often the reality will be a combination of the three scenarios.9 The number three, or four maximum, is decided so that different scenarios don’t conflict with one another10.
When constructing scenarios the first step is to isolate a question that one wants to make. When the question has been asked, several factors come into play that affect the outcome of the question posed. Some of these factors are predetermined, others are much more uncertain.11 Every company and activity is driven by particular key factors. Some of them are within the enterprise like workforce and goals. Others come from the outside, such as government regulations. But many of these forces, are not obvious.12 One must see driving forces to start thinking about a scenario in order to know which factors will be significant and which will not?13 Driving forces are often obvious to one person and not to another. That is why it is good to construct scenarios in teams, brainstorming.14 To answer the questions one must ask one’s self several questions, and what repercussions they may have on the factors.15 What are the ramifications of any given event?16 Decision-making is a constant shift between narrow and wide questions.17 But all this is preparation in order to do the real work: constructing the scenarios.18 The scenario process involves research, hunting and gathering information, to educate your self.19 Being a scenario-planner means becoming aware of one’s filter and always adjusting it.
Scenarios are tools for preparing a company or other organisation for future events that might affect the organization in one way or another.20 Different scenarios derive from giving some factors more room or importance than others.21 It is important to note that constructing scenarios are not, in any way, an attempt to see into the future. Rather, scenarios are organized ways to fantasize about the future and ways to show us what might happen in the future and then prepare us.22
When altering the impact of potential important factors we get different scenarios.23 Schläffer and Arnold write in their paper Media and network innovation – technological paths, customer needs and business logic that no one really knows the consumer needs when a product is released. Therefore, when developing a new product, assumptions have to be made in order to do so. For this reason, the scenario technique can help when looking at technological development and future customer needs.24 When constructing scenarios one should always look for some key aspects that usually affect the results. This is the technological and scientific development; perception-altering events such as the fairly new craze over global warming or a pandemic. Often affecting aspects can be found in the fringes of two disciplines such as the connection between law and technology.25 Scenarios can be used to identify and evaluate options. The value of the scenario approach is that it enables users to identify predictable and un-predictable factors in a situation.26

Social theory

Theory of planned behaviour

The first and most important questions when it comes to music and the Internet are the social aspects, how do people regard downloading both legal and illegal? What do they expect of music over the Internet? The view the consumers have of themselves is important when looking back at how the downloading started. When downloading started, with Napster and Kazaa, everyone was aware that it was illegal. That was also the case with Pirate Bay who’s name tells us that these actions are not acceptable. Even Pirate Bay’s logo (a ship with two bones and a tape) is a logo stolen from the 1980s British campaign to stop home taping of music “Home taping is killing music” .27 So, even though people know that file sharing is illegal they do it anyway. This is partly contributed to how people negotiate with themselves in a various array of social contexts. An example of this can be: driving faster than allowed on the highway. In her dissertation, Sonja Forward writes about people’s different attitudes when it comes to speeding in an urban area and in a more rural area. Even if the respondents consider both scenarios wrong, the level of seriousness and the reasons for doing it shifted.28 I will not try to describe the psychological reasons for why people speed or download music illegally, only describe it as: I know that it’s wrong, but…. So, when people download illegally or break the law in other ways, they tend to construct arguments to show that they are not doing anything wrong. This is central in Theory of Planned behaviour. This is important when we try to understand the underlying reasons for the increasing popularity of illegal downloading as well as the probable future of the connection between law and society. It may be easier for consumers to create reasons for illegal activity when they connote a company or an industry with something bad. When the entertainment industries sue file sharers the general public, who doesn’t have any ties to the industry, turns on the companies, which helps them construct new arguments for not buying music.
But not all file sharers construct arguments to legitimise themselves. Instead, the Swedish Pirate community has very elaborate and sophisticated arguments about file sharing and freedom of the sharing of information. The basic point in the piracy community is: File sharing isn’t wrong, the copyright laws are wrong. What they mean is that the copyright laws are a product of a society that we no longer live in. As far as buying digital music online apparently it is quite popular in some social groups. Itunes has sold more than 4 billion songs since it’s opening in 2003.29

Technical Theory

Technological determinism

In the paradigm shift in the regulation of digital content, mentioned above in section 3.4.2, there is an assumption closely connected called technological determinism. Technological determinism includes the causal relationship between technological developments and the social impact of this.30 For social evolution, technical innovations are considered to be one of the most important factors. The basic idea of Technological determinism is that technological advances follows a predictable and linear pattern and can be traced backwards in time as well as tracing the social impact it has made.31 It may be said that the advances of technology and society has been one of co evolution. Therefore, technological advances such as the possibility to share files over the Internet also affects peoples views of accessing content and the structure of capitalizing on the new technology.32 The connection between technological and social advances in the context of the Internet follows in the next section, 2.5.2.

Three laws

The assumption of content and network abundance, mentioned above, is based on three laws: Moore’s law, Metcalfe’s law and Gilder’s law. Moore’s law and Gilder’s law are of a technical nature. Moore concludes that computer power will increase dramatically and the price of computer power will decrease at the same rate. Gilder bases say that bandwidth will rise at three times the rate of which processing power increases. The third and final law, Metcalfe’s, explains the growth of the Internet. He concludes that as a network grows, the value of being connected to it grows even more. Or in other words, the value of a network is correspondent to the square number of nodes it has.33 Therefore, it is considered valued that a network is global. The global networks imply that networks don’t take consideration to national borders. Governments have to realize that the technological advances will not respect the judiciary that accompanies national borders.
Even democracy on the Internet is biased. All technology has a tendency towards, either centralization or decentralization. The Internet is biased towards decentralization.34 When talking about technological bias gender bias is usually brought to attention. Not least in dealing with the Internet, which is very much a male-dominated arena, especially transparent in file sharing.35 The decentralized nature of the Internet of course affects the way in which its users approach its possibilities, and why national borders have no effect on its use.

Distribution

The traditional or analogue means of distribution relied on scarcity of ways to distribute content. This gave the perception that the content of media needed to be controlled. The digital evolution during the last ten years has made this perception, abundantly clearly, very much out of date.36 Verhulst argues that, in the debate of digital content, it is assumed that there is an abundance of content, as opposed to the scarcity of the analogue model. As a part of this new environment for content traditional mediators are obsolete. Because of the increase in information and the number of channels in which to access this information as well as the reduced price of production and distribution some players are no longer as needed as in the analogue model.37
The increase of available content on the Internet has been addressed in the book The Long Tail written by former Wired magazine writer Chris Anderson. Anderson shows that the traditional ways to sell music only comply with the most popular and demanded music. The remaining music is not available for consumption. Anderson juxtaposes Wal-mart, Americas biggest CD- tailor with the e-tailor Rhapsody. Wal-mart had approximately 60.000 songs in any given store, where as Rhapsody had 1,5 million, which all were downloaded at least once a month. 38 So even the songs which didn’t make it into Wal-marts top 60.000, they still generated profit. The 100.000 to 800.0000 most popular songs on rhapsody represented 15 % of Rhapsody’s turnover or 16 million downloads. 39 99 % of all Music is un-available at Wall-mart. 40 This coincides with Anders Edström-Frejmans research concluding that most Music searched after on the web would be characterized as old or obscure. 41
In the essay Media and network innovation, Schläffer & Arnold, discuss that classical TV broadcasting will loose its importance to interactive and mobile IPTV service.42 If looking at Peer 2 peer networks as part of a distribution value chain it’s very different from that of the traditional distribution chains. As Schläffer & Arnold puts it, its business ecosystem is obviously quite different.43 In a P2P network every user can act as a server, since a file is chopped up in several smaller pieces and then distributed to the downloaders. This technology is also the reason the music that would be described as obscure or as long-tail content can be found over the Internet.44 Peer 2 Peer-systems have been developed to supply the growing demand of user-generated and, person or group-specific content.45 Schläffer & Arnold writes that P2P TV makes it possible to distribute niche content at a very low cost. This is TV 2.0.46 This new TV has two major functionalities: Personalized and customized content, like regional news and weather, and the distribution of user-generated content.47 This widening of TV’s uses and function seriously changes the value of the product and the value chain it self. All the new functions of the TV can be seen in the spectrum of active and passive, depending on the extent of which the functions are used. Most users of today’s media are somewhat passive users.
The possibility of distributing user-generated content also means that the quantity of content increases, which makes distribution long-tail content very easy. These new functions on the IPTV shows great promise, although they require a behavioural change from the users.48
business logic, pp. 3.

Political Theory

The Surveillance society

One of the most known parts of George Orwell’s famous book, 1984, is that Big Brother is watching. In David Kusek and Gerd Leonhard’s book, the Future of music, today’s surveillance society is described. Kusek and Leonhard claims that the surveillance started with the U.S government’s claims of national security with resulted in new laws concerning the surveillance of the citizens.49 Once the national security laws are in place the door is open for big business to impose similar laws but concerning piracy. Lobbyists continuously try to persuade legislators to legalize searches of home computers and to sabotage the computers if illegal files were found.50
Kusek and Leonhard continue by pointing towards the increasing amount of video surveillance cameras in public places installed in many countries. Not least is the ease in which companies can create a watertight profile of a person just by looking at a person’s credit card bill. People also use major corporations as e-mail account suppliers and telephone providers, also good ways to track consumers.51
The authors claim that all this surveillance can be a powerful weapon if used by corporations and an even scarier weapon if it falls in the wrong hands. According to Kusek and Leonhard people are, well within their right, very concerned about their privacy on the web. For content to be bought and delivered to a large part of the population over the web, a solution to these privacy problems must be found. Creating a service of this type is a tremendous opportunity for new enterprises.52
While surveillance can be described as eave dropping it is in this context more a question of state and corporations monitoring the population.53
In the wake of 9/11 many businesses in the U.S approached the government with offers to help fight terrorism. They had been refining their products for a long time and could now implement them all over the country together with the government.54. TiVo announced that the 2004 Super bowl faux pas starring Justin Timberlake and Janet Jackson was the ‘most replayed moment’ ever. In 2000 it was revealed that previous customers at Amazon were charged higher prices for the same book than a fist time customer.55 The public became aware of the surveillance society that they where in the midst of.

International Law and digital content

In 1886 a convention was entered into forming todays laws on intellectual property. Originally ten states joined, and Sweden joined 1904. First of all the convention proclaims that a person has the same rights in the country in which he/she seeks protections in as its citizens. The Bern convention, which it has become known as, has a high degree of protection and is the foundation of all European countries copyright law. The American copyright laws are not the same because of the American reluctance to ratify the convention.56 In 1998, the EU Data Protection Directive was implemented in the European Union. The main features of this are, (1) an organization must inform the individuals about the purpose of collecting information about them, how to contact the organization and if third parties will take part of the information. (2) The organization must offer the individuals to ‘opt out’. If the information is, what is called, sensitive information, the individuals must be offered to ‘opt in’. (3) Each organization handling personal data, must take appropriate measures to guarantee security and integrity. (4) Individuals must have access to the information in order to change and correct it. (5) Corporations and governments are explicitly forbidden to use the information in another way than the original one, without the permission of the individual. (6) The directive requires that governmental data protection agencies are created. And finally (7) Personal data, concerning EU citizens may only be transferred to countries outside the EU that adopt these rules.57 These seven points concludes that the European Union is hesitant to the notion of data security on the web.
But the hesitation has changed during the last years. In Sweden two new laws exemplify the surveillance society as well as Europe’s less strict data security laws. The first law is the FRA law, which mean that the Swedish government agency FRA, or the defence radio institution, can run intelligence surveillance of Swedish citizens even without a probable cause.58 The second law is the IPRED law, which is formed after a directive form the European Union. IPRED, or Intellectual Property Rights Enforcement Directive, involves that a court can rule in favour of a content provider to demand personal information about an IP-number if there is probable cause that he or she has downloaded copyright protected material.59
Stefan G. Verhulst writes in the article ”The Regulation of Digital Content” about the ongoing paradigm shift in content regulation. The framework that make up the control of content are coming under more and more scrutiny. This revising has been going on for more than ten years, with all big players on the international arena very much involved such as the EU, the OECD, the U.K, the U.S and so forth.60 It has been shown that the shift is one more of re-regulation than deregulation. However, it does not mean that the shift will not take place, it merely means that the shift will be ‘evolutionary rather that revolutionary’.61 Verhulst means that doing nothing may retard the developments of the market, and shifting too soon may force a decision with not enough information to base it on. The geographical differences between the U.S and the EU, for instance, are very big and may cause problems if the content regulation moves too fast.62 To illustrate the difficulty of regulating across borders, especially with Europe and the U.S., the French-American hate speech laws of 2000 might serve as a good example. The French government attempted to block certain Yahoo! sites where Nazi items where sold which didn’t agree with American free-speech laws of the first amendment.63

Economical theory

The Old Economy and New Economy

In the article “Creative economy” By Terry Flew the old economy before the Internet, is put side by side to the new economy, which is focused around the Internet, in a comparison.64 In this comparison he concludes that the Market for the new economy is Dynamic, Global and organized by networks. There are no hierarchy per se, this can be seen all over the Pirate community. The business is circled around innovation and knowledge over the old economy’s mass production and cost efficiency. Because of the new economy’s high demands for innovation and adaptation the changes within the economy are swift and rapid.65
Flew continues to explain his comparison. The old economy is based on buyers and seller consciously exchanging currency where as the new economy is based on the relationship between suppliers and users. This also means that the old economy is based on material assets but based on intangible assets in the new economy. These intangible assets include ideas, brand identities, patents, copyrights, or to use one word, intellectual property. Since the products that are sold are non-material there is really no aspiration for consumers to own the products, instead it is the access of the products that are interesting.66 These aspects are even more interesting when connected to culture. The new economy might be said to be a cultural capitalism, which uses the new means of communication and the commerce of culture.67 This requires a change in the way we see culture. As we look at culture, ‘the way of life’, the aesthetic tradition and the industrial part of it, we find that culture can add value to the economy and therefore be used in a much wider sense. Preserving culture, like in museums, is an old way of looking at culture, instead, the realms of culture should be expanded into all areas of the economy and society.68 Martin Lister points out that new media has greatly increased the possibility to take part in the media, this what Lister describes as interactivity.69 This is also a great part of the new economy.
There is apparently really no reason for consumers to own content in the New Economy. Scholars Schläffer & Arnold suggests that in order for companies and products to succeed in the new Economy is to make consumers like and place value in their products, if this is achieved consumers might still purchase a product in order to own it.70 Anders Edström-Frejman has suggested a model for how consumers argue when purchasing musical content. Three cornerstones are of importance: price, diversification and control.
Price is of course an important factor, but we will in this paper not detain our selves on price or pricing strategies. Diversification involves the amount of content available. Control includes a discussion whether or not content owners and distributors should aspire to control the content. In other words, should the content be imposed with some sort of limits on how to use it, like DRM-protection.71 The model works, not entirely different from that of Planned behaviour. The consumer constructs arguments, pro or con, about buying a certain product.

Value chains?

Value chains where first introduced by Harvard Professor Michael Porter in 1980 as a way to describe how products increase in value by each link of the value chain it passes through. Value chains can be divided into internal and external value chains where external comprise the work a company does together with other parties. 72
Traditionally, within the record industry, the external value chains are fairly simple. They usually only comprise a few actors such as the content provider, which usually owns the distributor, the marketer and the record store. The Internet has made it possible to assure value increase by aggregating, organizing, distributing and making a selection of the information without necessarily extending the value chain.73 Instead there are in some digital content value chains only two players making up the value chain but with as many different steps as a value chain for physical products.74 The players in the traditional record industry have had a very hierarchical role with very organized division of tasks. Today these players have gotten new assignments and places in the value chain involving the actual supply of musical content, which they previously not were involved with.75 When discussion value chains for the digital music distribution the value increase of the products is actually considered from a consumer point of way.
Since Michael Porter’s creation of the value chains there have been many models of it. For the music industry mainly three have been of interest, namely the Scandinavian Info-company F&L’s, Berndt Wirtz and Anders Edström-Frejman.
In 1998 F&L constructed following connection between the players of the digital music industry:
The first link, Creation, can be matched together with the link: Development. These two links are the factual making of the music, from writing it to recording it. Once the product is ready it is delivered to the link Aggregation, which is the part which collects content and makes it available trough e-tailers. Marketing is the same as in a traditional record industry value chain. The last link, Distribution, is the e-tailer from which content is bought.
Berndt Wirtz publicized his value chain the year after F&L. Wirtz chain was more distribution-oriented than the F&L chain.
For the first two links, Creation and Aggregation, the same relationship applies as in F&L’s value chain. The link Added value describes the service, which originally includes sales over the Internet (micro payments with credit cards), but now rather describes the ability to share playlists, or make the service more interactive. But Wirtz model also mentions the infrastructure in Access/Connection which includes high-speed Internet and the ISP’s. Navigation is the browser, a link that in many ways is fundamental for using the Internet as we do today. Wirtz mean that intellectual value chains, such as digital music sales, doesn’t mean that the players become fewer but that the players themselves are replaced.78
Edström-Frejmans value chain doesn’t take Access/Connection and navigation under consideration. Instead, the chain is more focused towards, what Wirtz call Edström-Frejman mentions White lables as a link in the chain but not the infrastructural prerequisites needed for digital Music sales. This shows that Edström-Frejman is more interested in the business aspect of the value chain and not the infrastructural part. Keep in mind that the value chains above describe how a record company delivers music to a consumer through One e-tailer because they sell music in different file formats.80
The value chains shown above can be seen as two different value chains, one for the creation to the distribution and one form the distribution to the end customer. Media economist Robert G Picard makes just that dichotomy.81
If one were to compile Picard’s value chain and Wirtz part with the added value a chain divided in three parts would emerge: The Producer chain, the distribution chain and the added value chain.

Table of contents :

1 INTRODUCTION
1.1 PURPOSE / AIM
1.1.1 Problem
1.2 DELIMITATION
1.3 DISPOSITION
2. THEORY
2.1 SCENARIOS
2.2 SOCIAL THEORY
2.2.1 Theory of planned behaviour
2.3 TECHNICAL THEORY
2.3.1 Technological determinism
2.3.2 Three laws
2.3.3 Distribution
2.4 POLITICAL THEORY
2.4.1 The Surveillance society
2.4.2 International Law and digital content
2.5 ECONOMICAL THEORY
2.5.1 The Old Economy and New Economy
2.5.2 Value chains?
3 FACTORS
3.1 SOCIAL FACTORS
3.1.1 The Ubiquity of Water
3.1.2 The Pirate community
The Pirate Bay
Piratpartiet
3.1.3 Conclusion of Social factors
3.2 TECHNOLOGICAL FACTORS
3.2.1 History of technology
3.2.2 Wireless society or Mobile society
3.2.3 Distribution of content
3.2.4 Antipiracy
3.3 POLITICAL FACTORS
3.3.1 Swedish politics in the 1990’s
3.3.2 International law and IPRED
3.3.3 The Pirate Bay lawsuit / Lawsuits
3.4 ECONOMICAL FACTORS
3.4.1 Value of music
3.4.2 Advertisements
3.5 ENVIRONMENTAL FACTORS
3.5.1 The Global world
3.5.2 Internet and Globalizing
4 METHOD
4.1 SELECTION
4.2 COLLECTION OF DATA
4.2.1 Validity
4.2.2 Reliability
4.2.3 Critique
4.3 SCENARIOS
5 RESULTS
GENERAL RESULTS
5.1 SCENARIO 1 (THE FREE SOCIETY)
5.1.1 Social
5.1.2 Technical
5.1.3 Politics
5.1.4 Economy
5.1.5 Environment
Summary
5.2.1 Social
5.2.2 Technical
5.2.3 Politics
5.2.4 Economy
Summary
5.3.1 Social
5.3.2 Technical
5.3.3 Politics
5.3.4 Economy
5.3.5 Environment
Summary
6 CONCLUSION
7 DISCUSSION
8. LITTERATURE AND SOURCES
8.1 BOOKS AND ARTICLES
8.2 PRESS
8.3 MAGAZINES
8.4 OTHER
8.5 INTERNET
8.6 INTERVIEW
ENCLOSURES
ENCLOSURE 1 – WORD LIST

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