The advent of the internet has had a profound effect on countless aspects of our lives. Since the internet’s commercialization and availability to the general public in 1995, its impact and influence on our culture and commerce has been immeasurable. Nearly every industry has been affected to some extent or another by the widespread use of the internet. The entertainment industry has received seemingly endless media coverage pertaining to the industry’s adaptation, or lack of adaptation, to the new age of the internet. The entertainment industry (also informally known as show business or show biz) is a broad term for the industry of providing entertainment, which includes the sub-industries of radio, television, film, music, and theatre. This industry has gone through an enormous transformation since the internet’s inception in 1995. The internet continues to pose many challenges and opportunities to the industry. This paper will examine the impact, both positive and negative, that the internet has on the entertainment industry.
Media coverage indicates that, among the entertainment industry, the film and music industries have been most affected by the World Wide Web. However, the other forms of the entertainment world have, albeit to a lesser extent, been affected as well. The least affected area of show business is theatre. The very nature of theatre is to view a performance live and in-person. There are websites, such as Arte Live Web, that do broadcast live theatre on the web, but such services have not at this point of time become a significant source of revenue or exposure for theatre. There is likely a specialized niche market for this type of internet broadcast so this is a potential area of growth in the future for theatre.

The channels of distribution and promotion of theatre has greatly benefited from internet technology. The web has made the purchase of tickets available to anyone, anywhere, at any time. Gone are the days of having to travel to the physical box office to purchase tickets. This is of particular convenience to those who don’t live near the box office and to those who lead busy lives. Other forms of live entertainment, such as music concerts, also greatly benefit from online ticket distribution from online ticket retailers such as Ticketmaster. According to a 2010 Billboard magazine poll, only 15% of concert goers purchased their tickets in person at the box office, while 76% are purchased online through the primary seller, 6% online through secondary sources (such as eBay), and 3% in-person from a ticket scalper (Reitz, 2010). That’s a minimum of 82% of ticket purchases made online. Providing customers with convenient ticket purchase options is very important as the music industry has become increasingly dependent upon concert ticket sales for a significant portion of their revenue due to declining record sales.

The web has had an enormous influence on all forms of entertainment with the online user’s ability to read reviews and blogs from both professional critics and casual consumers. Everyone has the outlet to be an armchair critic and can critique any form of entertainment on various online communities and blog websites. One of the most well-known of these sites is the Internet Movie Database (IMDb). This site is a virtual online encyclopedia of virtually every film and television show ever made. Users of the site can rate and discuss any aspect of the film or show that they wish. Sites such as IMDb have significantly increased the importance of “word-of-mouth” as people are increasingly turning to the internet for critical and user reviews prior to spending their entertainment dollar. For some user reviews are very important and for others the critical reviews are of more importance. One of the most popular internet resources for reading the reviews of film critics is Rotten Tomatoes which contains access to reviews of over 200 film critics. Additionally, all film fans can rate and write their own personal reviews on any film. Therefore, the reception of a film now, more than ever, has the power to make-or-break the commercial success of a film or any other form of entertainment. In theory, the growing influence of reception should lead the producers in the entertainment industry to produce higher quality products as a high quality product will likely yield better returns. This general concept has always been true, and word-of-mouth has always been very important to the success of all forms of entertainment, but the web has brought the significance of critical and peer evaluation to a much higher level.

The distribution of media, in particular music and films has and continues to change. The current number of physical record stores relative to the pre-internet era is astounding. For example, in North Bay Ontario where I currently reside, there are no specialty record stores in the entire town of 55,000 people. Two decades ago, before the widespread use of the internet in the early 1990’s, the Northern Ontario town had four specialty record stores. A similar trend is evident everywhere. The closing of Sam the Record Man on Yonge Street in Toronto was a sobering indication of the dying bricks and mortar business model of a record store. Sam the Record Man was an iconic landmark in Toronto and was the most famous record store in Canada (Black, 2007). Closing in 2007, it made everyone aware that the music market was changed forever. If Sam’s had to close then all physical record stores are vulnerable and in danger of falling victim to the rapidly changing landscape of the marketplace.

But why is this happening to the traditional bricks and mortar record store? The answer is not that people don’t listen to music anymore. There are several reasons for the decline of the record shop. Mass retailers, such as Wal-Mart and Future Shop, have taken market share away from specialty record stores, but the primary cause for its decline is the internet. The internet has revolutionized the way that all physical multimedia is sold and distributed to the consumer. There are countless online retailers offering competitive pricing and more comprehensive selection than that of the physical record store (Reid, 2011). The 24 hour online convenience to customers everywhere, including customers in rural and remote locations, is very appealing to consumers. Online browsing makes price comparison very easy for the very price sensitive multimedia market. Online retailers are not the only threat to the record shop. The online secondary market for multimedia has exploded in the past 15 years. Websites such as eBay, Amazon, Craigslist, and Kijiji has made it easier than ever to connect buyers and sellers on the secondary market. Anyone can easily buy or sell second-hand multimedia at a discounted below retail price range.

However, online sales are not the only threat to the record shop. The largest single threat to the market for sales of physical copies of multimedia is the digital download. In 2011, digital music sales were up 8.5% from the previous year, while physical album sales declined 5%. The statistics from 2011 marked the first time in history that digital music sales have topped sales of music in physical formats. Digital music sales now account for 50.3% of all music sales (Segall, 2012). It is a narrow margin but nonetheless it is a margin that is expected to continue to widen on an annual basis for the foreseeable future. There are now dozens of legitimate online websites providing consumers with the option of downloading digital copies of music and video online.

But why do consumers prefer digital music to physical recordings? One of the major advantages of the digital format is convenience. A consumer can download the music 24 hours a day from anywhere on any internet enabled device instead of traveling to a store to purchase a CD. Another major contributing factor is the popularity of portable digital devices, such as the iPod, and the emergence of smart phones, such as Apple’s iPhone, with digital audio and video capabilities. Digital downloads also make single track purchases available to consumers.

The largest and best known of these online providers is Apple’s iTunes. In fact, iTunes currently has a market share of approximately 66% of the online music market. The second largest market share of online music belongs to Amazon with 13% of the market. Further, Apple’s iTunes has become the largest distributor of all music in the U.S. with 28% of the overall market (Haselton, 2011). Obviously, this lucrative market is attracting many new market entrants, such as Google Music. As well, many existing online music services, such as Amazon, are getting more aggressive in challenging iTunes and competing for market share. This advance in technology should be great news for the music industry. There are far less costs involved with the digital distribution of music as opposed to the physical sale of music. There is virtually no manufacturing, transportation, or warehousing costs associated with the digital distribution of music. It should be kept in mind that when the entertainment industry complains about declining sales, they tend to only release falling sales numbers. They do not typically discuss the fact that their expenditures are decreasing as well. I’m not saying that their net profits have not decreased over the past decade, only that the decrease in sales are partially offset by declining costs associated with the distribution of online digital downloads.

The music industry’s initial participation in online distribution was very cautious to say the least. But why the hesitation considering the dramatic decrease of costs associated with online digital download distribution? The industry was, and continues to be, very fearful of copyright infringement. The internet technology that changed the industry forever was file-sharing. Essentially, the widespread popularity of the online downloading of music and video forced the industry to embrace rather than fight the technology. The industry really did not have any other alternative. The loss of revenue incurred due to internet file sharing has been immeasurable. While copyright infringement and file sharing wasn’t new in 1999, Napster brought it to the masses on a global scale. Six months after Napster launched, more than two million people downloaded the software. Realizing that they had tapped into something explosive, Napster even attempted negotiations with the Recording Industry Association of America (RIAA), which represents the largest music companies in the United States. Despite continuing partnership discussions, the RIAA sued Napster demanding a permanent injunction to stop Napster from committing alleged copyright infringement. The suit kicked off a legal battle that would last for nearly two years and which would eventually bring the U.S. justice system into the age of the Internet, forcing lawmakers to examine the implications of digital media (Hartley, 2010).

But the lawsuit had an ironic effect – it catapulted Napster into the mainstream. Newsweek magazine ran a cover story about Shawn Fanning, co-founder and lead software engineer of Napster, in March of 2000 and mainstream media outlets began telling the tale of his software and the panic it brought to the boardrooms of the music industry. The public was captivated – not only because most users were discovering file sharing for the first time, but because there was little love lost for an industry long thought to have abused its relationship with consumers. Fanning received widespread public support and became somewhat of a folk hero fighting on behalf of the masses against the “greedy and evil” corporate America.

Finally, in July 2001, Napster was shut down after losing the lawsuit for contributory and vicarious copyright infringement. In other words, Napster was found guilty for facilitating copyright infringement. The music industry spent hundreds of millions of dollars in a race to get a product into the marketplace as fast as possible before the Napsters of the world became entrenched and before consumers came to expect that music is free (Pepitone, 2011). But the demise of Napster was just the beginning. The music industry was changed forever and would never be the same.

Various companies and projects successfully followed Napster with peer-to-peer (P2P) file-sharing software. Various services, such as Limewire and Grokster, have come and gone over the past decade. Currently, the battle between file-sharing sites and the artists and copyright holders of intellectual property continues. However, the advancement of technology has widened the problem on a larger scale to include video file sharing. The popular file-sharing format has evolved and is now primarily torrent sites that dominate the P2P file-sharing landscape. In the early days of file-sharing, users were limited to sharing audio files as video files were simply too large. The cost of mass storage was far too expensive to store movie files a decade ago. Additionally, slow dial-up internet speeds did not realistically allow for the download of large files. For example, in the year 2000, a 1GB film would have taken approximately one year to download on a dial-up internet connection. A single 1GB film would have also used over 10% of an entire home computer’s hard drive at that time. But such technological obstacles do not exist today. Broadband internet connections can now download a 1GB file in as little as one to two hours. Mass hard drive storage has become inexpensive. Today, approximately 2,000 good quality full length films can be stored on a $120 2TB hard drive. Therefore, it comes as no surprise that the film industry is no longer safe from file-sharing on the internet.

The Motion Picture Association of America (MPAA) has been very aggressive in recent years in combating the online file-sharing of films. As the file-sharing websites moved offshore to avoid legal action, the RIAA and the MPAA began targeting and suing random users of these sites for copyright infringement. With tens of millions of users worldwide it would clearly be impossible to scratch the surface with this method, but the strategy was to scare people from using these sites. This did not work and cost them more money in legal fees than they were receiving in settlements. The focus has turned to lobbying the government for tougher legislation.
On January 19, 2012, the US Justice Department shut down the popular file-sharing website Megaupload. Authorities were able to target Megaupload on the basis that they had a server based on American soil in Virginia. This sting operation sent ripples throughout the file-sharing community, resulting in the voluntary shutdown of the popular torrent website BTJunkie (Perry, 2012). Also contributing to this voluntary shutdown was likely the impending American Stop Online Piracy Act (SOPA) introduced in the House of Representatives. The SOPA bill would have given the US Justice Department the power to prosecute any organization that advertises or provides any services (such as billing services) to a copyright infringing website. The bill would also outlaw internet browsers, such as Google, from giving any access to these copyright infringing file-sharing sites. The bill would also further enforce copyright laws against offshore foreign websites. This bill was scheduled for a vote in January and was initially expected to get passed. However, unprecedented public outcry halted the bill from going to a vote. In a show of opposition to the bill, Wikipedia blacked out its website for 24 hours and Google collected an online petition of 7 million people opposing the bill. Hackers attacked and temporarily shut down the several websites including the MPAA, the US Justice Department, the RIAA, the FBI, Warner Brothers, BMI, and Universal as a show of defiance against the bill (“SOPA bill halted”, 2012). Currently, the SOPA bill has been successfully blocked but a softer less aggressive anti-piracy bill is sure to be introduced in the near future. The war between copyright protection interests and internet freedom advocates will surely rage on for many years to come.

Though movie theatres continue to be profitable, the physical video rental store, similar to the record store, has been hit hard by changes in the industry. The most obvious example of this was last year’s bankruptcy of the largest and most popular video chain Blockbuster Video. Additionally, Rogers Video is now in the process of closing 40% of its video rental stores in Canada. There are several factors to the decline in popularity of the physical video store. Certainly widespread cable access to Pay-Per-View and Video-On-Demand services has played a significant part. But the online availability of movies, in all is forms, has taken a huge toll on the video store. Several online DVD mailing services, such as Zip and Rogers here in Canada, are available where the customer selects the films of their choice on the website and the movies are mailed to the customer. Online subscription streaming services, in particular Netflix, have also grown in popularity (Kaiser, 2011). Many websites, such as iTunes, also offer films to download for rental or for purchase priced on a per movie basis. Of course, illegal movie downloading on file-sharing websites has played a major role in the video rental store’s decline. The extent to which each factor has played a role is debateable, but all the factors have collectively changed the movie rental marketplace forever. Similar to music, the age of the internet and digital media has forced the movie industry to adapt to the inevitable changes to the industry.

Television has certainly not remained unaffected by the internet. Like films, the streaming and downloading of television programs, both legitimate and illegally, has become very commonplace. Television programs can be purchased via download by episode or season from services such as iTunes. Television programs are generally available from these services before the release on physical media. Internet streaming services, such as Netflix, also offer television programs in addition to their selection of feature films. However, P2P illegal downloading has plagued the television industry as programs are often available on the file-sharing websites within 24 hours of their original air time.

Though the news media tends to widely publicize illegal file-sharing and its negative impact on the entertainment industry, there are many positive opportunities that internet technology has and will make available to the industry. The possibilities are nearly endless. All forms of entertainment can utilize the internet to bring their product to the world-wide public in a faster, more efficient, and cost effective way. The fight over copyright infringement, especially via the internet, will continue for many years to come as it is an international issue. The internet has done nothing short of revolutionizing the entertainment industry. The changes have been both exciting for the consumer and petrifying for the entertainment industry. As a film and music enthusiast, I look forward to see what internet technology will bring to this industry in the future.

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