Forecasting Piracy

Forecasting is the act of predicting future trends based on past events. Typically, forecasting is used when predicting the weather. Meteorologist use past weather phenomenon as indicators on what future weather may be like. People use forecasting in almost every aspect of our lives. If you drank too much at last years Christmas party and embarrassed yourself, you may drink less at this year’s party, so you don’t suffer the same fate. What is essentially happening is that you can forecast the results of drinking too much at the party, and you adjust your actions to avoid that prediction. The concept behind this is that the future is relatively predictable, and events will tend to repeat themselves. Unfortunately, this isn’t always the case, and traditional forecasting could lead us to make the wrong decisions. Therefore, planning outside of forecasting should be implemented. Scenario planning is a different method for planning for future events. Scenario planning builds sets of likely events and then builds plans to respond to those likely events. The core concept behind scenario planning is answering the question ‘what if’ (Chermack, 2004). Scenario planning provides a benefit of allowing for the inclusion of possible events and agents of change that may be new or previously unrelated to our forecasting efforts. A good example on the differences between forecasting and scenario planning, and how this may affect business can be found by researching the music industries response to digital music and piracy in the late 1990’s.

For many years, the music industry sold music in albums. If someone wanted to listen to their favorite song, they had to buy the whole album. Sometimes songs were so popular that they’d be released as a single for less money, but it was often the case that the album had to be purchased. Piracy of music existed by creating illegal copies of these albums, first with devices that could press copies of records, to cassette tape recorders, and then digital compact disk (CD) writers. The music industry would combat these forms of piracy, as they saw each copy as a lost sale (Marshall, 2004). The years of music sales and distribution locked the music industry into forecasting the same actions to yield the same profits and success that they were used to. This all changed with the rise of digital piracy. The music industry knew that most people would prefer to purchase individual songs, but the music industry made more money when they purchased albums. This is the reason why singles weren’t as popular, not because they wouldn’t sell but because they weren’t as profitable. When music changed to a digital format, it was much easier for people to pull the individual songs they wanted and to share them between computers over the internet. Figure 1 shows how digital single downloads dramatically increased over physical CD sales and even full album downloads as digital music became more accessible over time. The first mainstream music piracy application called Napster, made digital music piracy easily accessible for people with only a moderate amount of technical knowledge. The music industry reacted to digital piracy the same way they reacted to record pressing machines in the 1950’s. They condemned the practice and raised prices in part citing lost sales due to piracy. According to their forecasting models, this was the tried and true response. The music industry had more than enough information and time to capitalize on this new distribution method but failed to do it due to poor forecasting. Instead of adopting and commercializing sharing apps like Napster, they fought them only to have hundreds of copycat programs replace the few that started. By the time the music industry decided that digital downloads were a permanent change in music distribution, the illegal methods of doing so were so refined and easy to use that they couldn’t create a system that was preferable to piracy.

Figure 1: Music Sale Trends (Rocket, 2018)

The music industry failed to capitalize on one of the biggest softball opportunities presented in any industry. They had hundreds of thousands of digital products that were in high demand. They had a model system in Napster in how to distribute their products, and they had a trend in technology that supported this new business model. The deck couldn’t be stacked more favorably in their favor, and they blew it. Instead of realizing that the market was changing and conducting any predictive modeling or scenario planning, the music industry stuck to their guns. They pushed legal action against pirates, they increased costs of physical media, and reduced access to single song digital download. In 2002, the music industry was on the verge of collapse. Consumers weren’t interested in buying the physical CD’s they were selling, and they had failed to adopt a distribution system that provided digital single song access like piracy applications had been doing for the previous few years. It wasn’t until Apple Itunes, Google Music, and other digital purchase and streaming sites became available that this trend started to reverse. Figure 2 shows that digital single song sales far surpass all physical sales previously recorded.

Figure 2: Digital Downloads (Cumberland, 2013)

Its very possible that the music industry could have capitalized on the changes in music distribution and customer demands if they would have conducted scenario planning to complement their forecasting. Scenario planning could have answered the ‘what if’ questions that could have allowed the music industry to have an adaptive strategy to embrace digital music access like iTunes and Google music did earlier (Marshall, 2004). The shift to digital streaming has reduced major music labels influence on the industry away from them and towards providers like Apple and Google. Since the need to produce physical copies of digital media has almost been eliminated, small producers can go direct to distributers like Google and get their music direct to the customers. The failure of the music industry to plan for this scenario resulted in them losing their hold on the music industry. Scenario planning can account for the social impact of change and build possible responses that can account for those changes. In the case of the music industry, scenario planning could have been the answer to keep the music industry in the same dominant position while adapting the social changes in digital music consumption.

References:

Chermack, T. J. (2004). A Theoretical Model of Scenario Planning. Human Resource Development Review, 3(4), 301-325. doi:10.1177/1534484304270637

Cumberland, R. (2013, June 13). The new music business model how did the industry get here and what's next? Retrieved August 19, 2018, from https://www.bemuso.com/articles/thenewmusicbizmodel.html

Marshall, L. (2004). The Effects of Piracy Upon the Music Industry: a Case Study of Bootlegging. Media, Culture & Society, 26(2), 163-181. doi:10.1177/0163443704039497

Music Industry Sales, Piracy and Illegal Downloads – Better or Same? (2013, July 03). Retrieved August 19, 2018, from http://www.rockitboy.com/blogs/music-industry-sales-piracy-and-illegal-downloads-better-or-same/