Digital Distribution

1. Introduction

During this report I have tried to understand the impact on the UK high street now that music, film and games are being purchased online and how this has changed their business model, their website and their future. I have also researched digital companies looking how they operate and what is currently making them successful.

2. About Digital Distribution

Digital distribution is the packaging and distribution of a digital product. Songs, films, applications, games, EBooks, audio books and anything that can be stored in digital form are examples of digital products. A clear benefit of digital distribution compared to traditional physical distribution is cost. Digital copies of a product are sold and distributed without any form of packaging or shipping costs. Typically digital products are distributed once an order is placed online, the payment is confirmed and the product is delivered via email or download.

Digital Distribution grew after the unauthorised sharing of MP3s via peer to peer networks setup by Napster in the late 1990s. The scale and speed of users adopting digital distribution forced the introduction of authorised services such as apples device reliant, iTunes music store and a whole host of websites selling Microsoft’s windows media player compatible music.

3. Examples of Digital Distribution Companies

I have researched two examples of successful distribution companies which are available to the consumer as an alternative to the high street shop and a high street shop that has branched into digital distribution.

3.1 Steam

Steam is an online gaming platform that provides the ability to distribute games and other content directly to a community of more than 25 million gamers around the world. It opens up new channels of distribution and allows for non-traditional product offerings while increasing profit margins to content creators. I personally use steam and have done for over 5 years; originally when I first used Steam it didn’t support any commerce. Steam at that point was purely an application for people who enjoyed Valve’s games, Valve being the company who created Steam. When Valve started offering digital products in 2006, they did so with a large retention of users from the old business model, now considered their consumer base, and have continued to grow and succeed to present day. Valve will not release any financial sales information for me to quote but the owner of Steam’s competing platform Impulse estimated that in November 2009 Steam had a 70% share of the digital distribution market for video games. (Steam 2011) (See appendix I for the steam home page.)

3.2 The iTunes Store

 The iTunes Store is a virtual library of over 13 million songs and because it is a virtual library it will always have what you want in stock, a major advantage of a digital product. You can access this store from your computer, iPod touch, iPhone, iPad or Apple TV, previewing any song before you buy it. The iTunes store front can also offer the impossible when compared to the traditional method of shop keeping, it can offer the consumer recommendations based on previous purchases and in effect rearrange the sheaves based on their trends, only displaying music the shop thinks that consumer would like and ultimately buy. Although not unique to the iTunes store, I think it is important to address that what might seem a convenience to the shopper is advertising on a level made possible by data warehousing, mining and digital distribution.

The iTunes Store also offers blockbuster movies to rent or buy, TV shows, audio books and apps for your iPhone, iPod touch, or iPad. The iTunes store has also started a new service called iTunes U where it is possible to download free lectures, discussions, and lessons from universities and cultural institutions from around the globe. (Apple 2011) (See appendix II for the Apple iTunes home page.)

Again I was unable to find accurate sales information regarding the success of iTunes but Eddy Cue the company's vice president of internet services said “...iTunes has become the number one music retailer in the world ...selling 10 billion songs..." in total since the start of iTunes. (Charles Arthur 2011)

3.3 Possible Success Factors

Whilst considering the differences around how successful digital shops differ from traditional shops and how those digital shops differ from one another, I discovered what I think to be an important factor. Successful digital shops offer services that traditional shops cannot, for example an electronic store can always remain open, every product is always in stock and there are no queues, these services and conveniences keep us coming back but I have also learnt something I think to be more pivotal to the success of digital stores.

I personally load up Steam everyday because it loads when my computer starts up but at least once a day I use the services Steam has on offer to play games, chat to friends and download updates for my games. The interesting point is that whilst I’m using Steam they are offering me digital products I can buy with a single mouse click or informing me about future games and sales.

The idea of standing in a shop on the high street all day, every day, although obviously attractive to the shop owner, is a very strange thought indeed, but millions of people must be using these digital distributors the same why I am. To test this I asked 10 of my peers if they had bought products on either Steam or iTunes when initially they were using the services on offer, all of my peers aged between 20 and 25 admitted to buying a product from either Steam or iTunes whilst not intentionally shopping. I questioned if they minded the obtrusive advertising and forceful nature of these distributors and it was apparent that they enjoyed the one click shopping approach and applauded the recommendations the companies had offered them. It is apparent that digital store fronts that offer what appear to be non commercial services such as chatting and free music or lecture samples are able to achieve sales not normally attainable to the company when a previous customer is occupied and not currently thinking of purchasing product. I think this is possible because the user or customer is potentially sat in a shop blissfully unaware the services they are using are an extension to a shop having deals, adverts and recommendations offered to them all the while. (See appendix VI for questionnaire results.

3.4 HMV

HMV was established in July 1921 in London’s Oxford Street and began life selling records, but in 2011 HMV is more than just a record store. It has managed to survive for 90 years because of its adaptability of market trends and staying current utilising and selling new technology. HMV has 280 stores around the UK and Ireland offering a comprehensive selection of music, film, games and also books, technology devices and accessories, artist merchandising and t-shirts, licensed products and fashion clothing ranges; their online UK store offers home delivery and accounts for nearly 10% of HMV UK & Ireland’s total sales and more importantly HMV offer a content delivery system powered by 7 digital, acquired in September 2009. 7 digital is a leading digital media company that offers up to 10 million music tracks, although it is not entirely owned by HMV (they own 50%). (HMV Group 2011)

3.4.1 About 7digital

Established in 2004, 7digital is a leading digital media delivery company based in London. 7digital have worked with record companies, artists, retailers, fashion brands and advertising agencies looking to distribute digital entertainment. 7digital was the first company in Europe to have a 100% MP3 offering, including content from all the major labels and have provided digital distribute to over 500 partners including, Spotify, Universal Music, EMI, Warner Music, Sony, KitKat, Samsung, Hugo Boss, Yahoo!, NME, AOL, XFM, BFI and Adidas. (7digital 2011) (See appendix VI for the 7digital home page.)

3.5 Future of HMV

Following my research into HMV’s future intentions I found what appears to be confirmation of my thoughts detailing the possible success factors of digital stores - headed possible success factors found in section 2.3. The HMV group are currently working on an idea that I can only speculate is to simulate that of a digital company. Their concept is that 50 to 60 seats providing networked PC and consoles are played across a local area network or online in the HMV stores. HMV say on their website it is “a driver of HMV’s packaged games sales and customer loyalty, gamer base is a productive use of our store space.” I see this move by HMV as an attempt to replicate a physical representation as to what is happening online and on our desktops, HMV attempting to capitalise on the idea that the longer you have your customer in your store the more you can get to know them and push the relevant products their way. They even say on one of the HMV websites they advertise by “informing and inspiring...with promotions”.

I imagine at this stage that HMV will offer this as a free service, just like the services I have come to expect from Steam. This business model alone could save the HMV high street branches from going the same way as Zavvi, not to mention help keep physical sales of music and games high. I think this because, to me, it’s even more powerful then the click and shop model, except from the traditional problems with retail. The main advantage is real sales people, not collected information about a customer but real people with training in retail and sales. I do not believe any database to be as good as a sales person standing in front of me, as they can explain that I really should by this music CD because of reasons based on a conversation, and have more effect over ‘impulse buys’. Compare this with a simple function in a database of “Do you like A, well I think you will really like B”, and it becomes evident that a database is only as good as the information it contains and if I don’t buy often from that digital store, I’m not a typical person in my age group or at Christmas I buy varied gifts for the family, its ability to appeal to me as a consumer is reduced. (HMV Group 2011)

4. Digital Distribution And The Written Word

Digital distribution is changing the way we read the written word. This year we have seen newspapers being replaced by smart phones and hard cover books replaced with hardware, such as the kindle.

4.1 Digital News

With traditional newspaper sales down globally, Rupert Murdock is said to be releasing a new newspaper called “The Daily”, branching out into the pay to view digital media. The Daily will be a completely digital electronic newspaper and will be aimed toward iPad users originally but with the release of new tablet computers in the next few weeks, this ‘newspaper’ will have a larger audience if it so chooses.

The Daily and other e-papers face problems though as many internet users searching for news online can find it for free on the internet, Mr Murdock who brought the UK satellite television is hopeful that his new e-paper with interesting features such as 360 degree photographs, animations, touch graphics and video will be considered a new way to consume the media, inspiring people to pay to view. Currently The Daily is only available to the US, is priced around 60p and sold exclusively on the apple iTunes store. (Michelle Fleury 2011)

4.2 Digital Books

An eBook or electronic book is where the text and pictures of a printed book have been digitised into an electronic format. These books are read with a Smartphone or electronic reader. The electronic reader allows you to access thousands of your books wherever you go, the Amazon Kindle can also connect wirelessly to the Amazon online eBook store enabling you buy and download the latest books and other literature. The electronic readers are usually lighter than a single novel making them popular with commuters.

The electronic book and reader brings many advantages to suit the needs of a visually impaired person offering text to speech, read aloud functionality and dynamic font sizes for the eBook. Apple's iBook's application for the iPad is the most accessible eBook reader. The iBook application comes preloaded with zoom magnification, a screen reader and white-on-black display making the device accessible for blind or partially sighted readers from the go.

So is this the end of the physical book? Neill Denny doesn’t think so who edits the industry journal 'The Bookseller' says the publishing companies have “had a tough year....But overall publishing has been in rude health for the last decade” He goes on to add that this is because the industry has been able to profit from an explosion in the market for English language textbooks from India and that its actuality the retailers who have felt the shift in digital distribution. Neill Denny feels the e-book "softens people up" for a future in which the book becomes a much richer experience. (Neil Henderson 2011)

4.3 Retail And Library

W H Smith's is Britain oldest bookseller and has reported sales were down 4% for the ending six months of last year but still managed a 3% profit, while Waterstones was reportedly down 8% profit. W H smith achieved this with crowded, cramped and promotion-heavy stores with staff only to be found behind tills, to book retail purists this is not idea but it is effective and could be a future model for the booksellers alike, over models include the traditional trade model of publishers as booksellers and booksellers as publishers founded in the 18th and 19th century. (Neill Denny 2011)

The increasing pressure from digital distribution on retail outlets has also hit the public library and unfortunately for communities around the UK, library closures will be announced following this Mays local elections and through into the summer. The library could be saved though by consumers of an e-reader or a Smartphone as libraries plan to distribute digital books.

People have always been able to share books with friends, but this is more difficult as the eBook brings with it complex digital rights management issues but Amazon are pushing to enable book lending and announced it will soon launch Kindle Library Lending, meaning users of the kindle can check out a digital book from their local library and temporarily store it on their device. Benefits of this service include the borrower of the eBooks will be able to make and keep annotations in their library borrowed eBook. The company OverDrive is working with Amazon to implement the Kindle Library.
(
Felicity Wood 2011)

5. Conclusion

I believe we live in a society of now (Mike Morton 2010) and people will obtain their electronic goods from the fastest channel available. Music and eBooks are being downloaded and accepted amongst the everyday consumer because even with slow internet speeds and restrictions on bandwidth allowance, an eBook or mp3 can be read or listened to within seconds because the file is only a few megabytes in size and will not largely affect their download limits.

An interesting point to be made is the location of high speed internet, usually in very close proximity of towns and retail outlets, meaning that the consumer who prefers to download files such as high quality films and games is doing so rather than taking the trip into town. If I was the owner of a high street shop this would concern me greatly, as I would be thinking that if the local populace, who probably do not have to worry about public transport or parking, are not making the hassle free trip into town to purchase from my shop. What chance does my shop have when high speed internet is available to people out in locations where public transport is far and few between?

I do not download large files as it would take me around 8-10 hours to receive a film or game, so I am currently taking the trip to town but I think it is a worry for high street shops because if the average 24year old consumer is anything like me, they will not care about a shiny box or collectors editions that contain a poster or something just as trivial, they will not collect loyalty points and will hate driving around looking for parking spaces. If they are in an area where they receive high speed internet they definitely will be using ecommerce because they want the convenience of online shopping and are interested in expanding their digital library of mp3s and eBooks to include films and games.

To combat this possibility, I can see the high street shop moving away from owning lots of shops situated in towns and move into large department stores out of town as seen in America; this will reduce overheads and funnel shoppers. The HMV group already own a varied amount of shops and grouping them together under one roof not only increases the chance of block survival but also brings with it a controlled advertising environment. This is almost a physical representation of the online model, as in a large department store an owner can provide other services similar to that the ecommerce sector. An example of this would be dedicated parking, crèche, refreshments and activities. The reason being, as mentioned in previous sections, the longer you can keep a customer in your store, the more you can advertise and further understand your market. This also increases the chance of impulse buys and appeals to the generation of ‘now’ because they didn’t even realise they wanted a particular product before they left for the store therefore meaning they didn’t have a chance to download it causing them to buy a physical copy.

I believe that digital distribution is making necessary a move away from traditional retailing, to what is detailed above as a new model for servicing customers as from my perspective this seems to be the clear way to save high street shops. In terms of books, I am unclear from research as to the future of the printed word, such as what will happen to the second hand book, and more worryingly how will this affect the selection of and sale of books within charity retail sector. From a social, ethical and economic point of view there are conflicts surrounding digital distribution, as although in terms of accessibility and business economics it seems a positive step, considering the effect on social funding through charity and the ethical kudos from supporting such organisations, it raises the question – What will happen to the charity shop?

6. References

7digital. (2011). About 7digital. Available: http://about.7digital.net/AboutUs. Last accessed 24th April 2011.

Apple. (2011). About iTunes. Available: http://www.apple.com/itunes/what-is/. Last accessed 24th April 2011.

Arthur, C. (2011). Technology Blog. Available: http://www.guardian.co.uk/technology/blog/2010/feb/25/apple-ten-billion-songs-itunes-analysis. Last accessed 24th April 2011.

Fleury, M. (2011). iPad magazine The Daily launched by Murdoch's News Corp. Available: http://www.bbc.co.uk/news/technology-12347551. Last accessed 25 April 2011.

HMV Group. (2011).Gamer Base. Available: http://www.hmvgroup.com/our-brands/hmv/gamerbase.aspx. Last accessed 24th April 2011.

HMV Group. (2011).Main Page. Available: http://www.hmvgroup.com/. Last accessed 24th April 2011.

HMV Group. (2011).On the high street. Available: http://www.hmvgroup.com/our-brands/hmv/on-the-high-street.aspx. Last accessed 24th April 2011.

Henderson, N. (2011). Is this the end of the book?. Available: http://www.bbc.co.uk/news/uk-12308374. Last accessed 25 April 2011.

Morton, M. (2010). The Now Society. Available: http://www.modular.org/magazine/morton2.aspx. Last accessed 29 April 2011.

Neill ,D. (2011). Smith's scores. Available: http://www.thebookseller.com/blogs/smiths-scores.html. Last accessed 25 April 2011.

Steam. (2011). Main Page. Available : http://www.valvesoftware.com. Last accessed 24th April 2011.

Wood, F. (2011). Business focus: hybrid bookshops. Available: http://www.thebookseller.com/feature/business-focus-hybrid-bookshops.html. Last accessed 25 April.

Created: 2014-09-17 13:08:34 Updated: 2014-10-06 13:28:34