P2P Case

Who will win the competitive battle between P2P file sharing networks and iTunes over the long run and why?


The answer to this question is dependent upon the following: legal consequences, cost, and accessibility of illegal downloading. First, in order to make people pay for something (legal downloading) there must be steep enough consequences for downloading illegally. Throughout recent history, the music labels have had limited success in protecting their copyrights through the court system. Despite several attempts at prosecution, file sharing entities have been allowed to exist due to consumers’ “fair rights.” Even attempts at prosecuting individuals proved to be a failure due to the inefficiencies (wasting of time and money) associated with pursuing a resource-poor target. Therefore, without enforceable legal consequences, peer-to-peer file sharing will not only persist, but will be prevalent.

Second, cost has a significant impact on determining whether individuals will choose peer-to-peer file sharing or paid services through iTunes, Rhapsody, etc. The higher the cost associated with the digital media, the greater the likelihood that an individual will resort to peer-to-peer file sharing services to obtain the digital media for free. The premise here is a risk-to-reward philosophy; meaning that if a song, for example, costs a mere $0.05 and the individual perceives a medium level of risk that he/she will be prosecuted if caught downloading illegally, then it is much more likely that the person will purchase the song legally through iTunes than if the purchase price were $0.99 per song.

Thirdly, accessibility, speed, and ease of peer-to-peer file sharing and digital media content has a significant impact upon the adoption and use of paid services such as iTunes. The easier it is for individuals to access and obtain digital media using peer-to-peer file sharing services, the less likely it is that those same people will purchase their digital medial through iTunes. Today, digital media is extremely available due to current advancements in technology and the widespread adoption of such technology due to its low cost; the majority of homes in America have computers with internet connections. Also, along with this technology comes the inability to create a protection that cannot be hacked and undone. This alone, facilitates the sharing of digital media as it cannot be prevented.

Additionally, iTunes has no financial interest in selling music other than to support its iPod and iPhone sales (i.e. Apple doesn’t make a profit on selling digital content on iTunes). In fact, Steve Jobs (CEO of Apple) never believed in the use of DRM; he was forced to use it in order to convince the “big five” record labels to let him sell music through iTunes, which only acted as a digital media source for iPod and iPhone users. Currently, Apple has begun selling DRM-free music through iTunes. For an additional $0.30 per song or $0.60 per video, iTunes users may download music and video that is DRM free, which is free of burn limits and will work on all computers and portable music players.

Therefore, with musicians getting “robbed” by their recording labels, the unprofitability of media content distributors such as iTunes, the lack of legal consequences, and the pervasiveness of peer-to-peer file sharing, it seems doubtful that iTunes-type services will outlast P2P file sharing.