Global consumer values on the Internet & the relationship of diffusion characteristics, lifestyle & trustworthiness to P2P file-sharing behavior

International Journal of Business Research, March, 2007 by Valerie L. Vaccaro, Deborah Y. Cohn

ABSTRACT

A study was conducted to generate a greater understanding of the global phenomenon of consumers' unauthorized peer-to-peer (P2P) file-sharing of music on the Internet. Diffusion of Innovation Theory (Rogers 1983) was used to interpret global consumer perceptions of this widespread online behavior. The sample for this study included consumers from nine nations (U.S.A, Russia, Croatia, Turkey, Bulgaria, Venezuela, and Mexico). Results indicated that similarities among global values and consumer behavior on the Internet are related to Diffusion of Innovation characteristics. Global consumer values on the Internet were also found to be related to Internet lifestyle themes (Smith and Whitlark 1999), attributes of trustworthiness, and perceived risk (Huff 2000). Managerial implications and future research recommendations are provided.

Keywords: Diffusion of innovation theory; global, consumer values; peer-to-peer (P2P), file sharing; music industry

1. INTRODUCTION

Since 1999, digital music distribution via unauthorized consumer peer-to-peer (P2P) file-sharing has emerged as one of the most popular Internet activities in the world. After eight years of users being spoiled with access to unauthorized free music, file-trading behavior has become part of global consumer culture. In 2006, 5 billion P2P files were downloading illegally, an increase of 47 percent compared to 3.4 billion files in 2005 (NPD.com 03/14/07). In 2005, approximately 90% of all songs were obtained online via unauthorized P2P, according to Big Champagne, a web monitoring company (Krim and Ahrens, 2005). In 2006, there were approximately 25 million unauthorized songs available for illegal P2P file-sharing compared to about 2 million songs licensed legally for digital downloads online (IFPI, 01/19/06).

P2P activity may be leveling off in the U.S. (IFPI, 04/04/06g) and is either steady or growing in other countries (e.g., Italy, Spain Ireland, Finland, Austria, Denmark, Switzerland, Argentina, Singapore, and Australia) (IFPI, 04/04/06h; IFPI, 04/04/06c). P2P has been rampantly rising in nations such as Canada, Portugal, China, Hong-Kong, and Russia (IFPI, 03/02/06). On the other hand, P2P file-sharing activity is slowly declining in the UK, Germany, France and Sweden (IFPI, 04/04/06) and Japan (IFPI, 04/04/06h). Declines in P2P activity have occurred due to a number of factors: the availability of legal music sites, educational efforts about copyrights and legal issues, concerns over computer viruses, and worry about legal consequences of lawsuits (in over 18 countries) with thousands of cases against individuals as well as against major unauthorized P2P networks (IFPI, 01/19/06). In April 2006, the U.S. Trade Representative Ambassador placed 48 countries on notice (related to the "Special 301 Report") to request improvement on intellectual property protection (RIAA, 04/28/06).

The legitimate online music download business is also growing, but is much smaller in scale than unauthorized P2P music file-sharing behavior. Apple iTunes, launched in 2003, is the most successful legal music download service in the world, in over 21 countries (IFPI, 01/19/06). It has taken four years for Apple iTunes to sell over 2.5 billion songs (and Apple has sold 100 million iPods) (Apple.com, 04/09/07). However, in 2006, over 5 billlion songs were traded via P2P in just one year alone (NPD.com 03/14/07), which still dwarfs legitimate download sales. Globally, in 2007 there are now 500 legal music sites in over 40 countries (IFPI: 07 Digital Music Report, p. 8), up from only 50 sites in 2003 (IFPI, 01/19/06). Worldwide, music fans legally downloaded over 500 million songs in 2006 (NPD.com 03/14/07) compared to 420 million songs in 2005, (which was twenty times larger than in 2003) (IFPI, 01/19/06). Also, digital music (60% online and 40% mobile phone) sales accounted for about 6% of record company sales (compared to about 0% in 2003) (IFPI, 01/19/06).

A significant percentage of global music sales declines are attributed to online piracy, with the music industry losing about 30% of its business between 2002 and 2005 (Krim and Ahrens, 2005). Other causes of declining music sales include offline piracy (i.e., sale of counterfeit CDs), a poor economy, and shifts in purchase priorities of consumers from music to DVD's and video games (Strauss, 2003; IFPI, 03/31/06). Two major reasons are at the root of this massive diffusion of innovation phenomenon of unauthorized P2P file-trading. One key reason continues to be consumer dissatisfaction with the record business (i.e., complaints about high prices, available music selection, and the traditional distribution system); another reason for this diffusion phenomenon is the available technology that has enabled renegade online services to distribute software for free that allows for unauthorized digital music distribution to consumers (Vaccaro and Cohn 2004). The outcomes of these issues have global implications for the music industry. The future also includes music streaming on mobile phones and streaming of digital music on the radio, and there is now a potential threat of "digital stream ripping" on the radio, which could "undermine the growing market for legal, paid-for download services" (IFPI 2007, p. 20). Similar issues with P2P file-trading are challenging the entertainment industry--for all content that can be digitized and downloaded on the Internet (e.g. movies, television, video games, etc.). According to Forrester, "On-demand services are the future of entertainment delivery. CDs, DVDs, and any other forms of physical media will become obsolete" (Legon, 2003). Recently, although legal means for downloading music are offering what is perceived to be a fair price (Verna 2007) the problem of illegal downloads persists in the form of digital entertainment (e.g., movies). For example, 32 million Americans over the age of 12 have illegally downloaded a movie during the month of February 2007 (e-marketer 2007).