1.1 Industrial Background
For nearly twenty years, the music industry has experienced a drastic change, including product upgrades, shifting consumption patterns and marketing strategies with the rapid improvements of Information and Communication Technology (ICT). Consumer demand for music has not changed. The change is the new products and new consumption patterns born out of the emerging of new information technology. Digital music is the product of the development of Internet technology, which is different from physical music. In China, physical music records such as phonograph records, CDs and magnetic tapes are gradually disappearing in people's lives and markets. These physical music records only occupy a minor part of the music market or become collections of a few enthusiasts. In many other countries such as Japan and Germany where physical music product accounts for a large proportion of the market size, online music services based on information technologies dominate the market and call for more research to generate insights toward the management of music streaming information systems.
After that, consumers began to download music from the Internet and listen to music online with the maturity of Internet technology and digital music emergence. Simultaneously, digital music players were invented. According to Sanitnarathorn and Prajaknate (2018), Sony introduced the ‘Walkman' in 1979 and also invented the MP3 digital format by its “Magic Gate Memory Stick” in 2002. Moreover, Apple also released the iPod in 2001, which can store 5 gigabytes of music or about 1,000 songs that could be easily downloaded from the Internet (Sanitnarathorn and Prajaknate, 2018). In recent years, the rapid development of smartphone technology like the Apple iPhone series and mobile network technologies such as 5G (the fifth generation of broadband cellular network technology) provides a hardware foundation for music streaming services (Ziegler et al., 2020). Moreover, emerging and popular music streaming services like Spotify, Apple Music, QQ Music (China) and NetEase Music (China) supported the software foundation. Streaming music refers to music streaming media continuously and simultaneously received by and delivered to a terminal user while running by an operator (Towse, 2020). The user can listen to music on the above music services before the entire file has been transmitted, which provides a more efficient and convenient approach to obtain music content.
Figure 1.
Digital music distribution channels structure (Dörr et al., 2013)
Music consumer's ways of accessing and purchasing music are affected by the introduction of online music services and the increase in broadband speed (Martins and Slongo, 2014). Figure 1 displays the existing three digital music distribution transmissions on the Internet: download-to-own, download-to-rent and music streaming services. After 2000, the music industry started allowing digital music downloading through the Internet after a significant drop in revenue, known as download-to-own consumption; download payments primarily expense that and originally be protected by Digital Rights Management System (DRMS) (Dörr et al., 2013). Although music can be transmitted into any terminal device without a validation program and can be disseminated without restrictions, the music still contains the information of its source on the music sharing website (Dörr et al., 2009). Moreover, download-to-rent consumption also adopted the digital rights management system (DRMS). Consequently, the music file downloaded on the users’ terminal can only be played after the legal status test by DRMS. Lastly, the revenue model of music streaming services is recurring payments for the premium service subscription. During the subscription interval, consumers can access all the music without restrictions, while music streaming services are streaming music files to the user's devices. However, the music file is not permanently stored on the user's devices.
Usually, music streaming services adopt a “freemium” model, which provides premium services with subscription fees based on free use. Differently, music streaming ads such as Google or Amazon are not considered music streaming services because consumers purchase and download their own music and then update it to the cloud database of a service provider (Dörr et al., 2013). It is more advanced in the recommendation system in music streaming services, which means that users can easily share and receive music via mobile applications, email and social networks. Most music streaming services in China often provide a free service with advertising support, metered listening and a limited music library while promoting a premium monthly fee service that offers advertising-free, unlimited access to music libraries and music offline playing allowance. Otherwise, there is still a unique market model like Apple music, which requires users to pay for subscriptions and then access the music library.
In China, owing to the large population base, the amount of Internet service users is higher than that of developed countries (Zhang et al., 2017). For example, although QQ Music only supports music streaming services in China, monthly user activity is up to 400 million higher than Spotify's 125 million and Deezer's 16 million (Zhang et al., 2017). However, the percentage of users who paid for premium music streaming services is 5 percent, which is lower than Spotify's 40 percent and Deezer's 37.5 percent (Zhang et al., 2017). Accordingly, huge potential with a giant user base but rare payment rate is an interesting phenomenon of the music streaming services market in China. Providing premium services is a major revenue model for most music streaming services providers; investigating the factors affecting this revenue model is significant. Research insights of the current study might also be generalized to the management of other online information systems that involve the co-existence of free and premium services.