Exploring Innovation in Action: The Changing Nature of the Music Industry 1st April 2006. Apart from being a traditional day for playing practical jokes, this was the day on which another landmark in the rapidly changing world of music was reached. ‗ Crazy‘ – a track by Gnarls Barkley – made pop history as the UK‘ s first song to top the charts based on download sales alone. Commenting on the fact that the song had been downloaded more than 31,000 times but was only released for sale in the shops on 3rd April, Gennaro Castaldo, spokesman for retailer HMV, said: ‗ This not only represents a watershed in how the charts are compiled, but shows that legal downloads have come of age … if physical copies fly off the shelves at the same rate it could vie for a place as the year‘ s biggest seller‘. One of the less visible but highly challenging aspects of the Internet is the impact it has had – and is having – on the entertainment business. This is particularly the case with music. At one level its impacts could be assumed to be confined to providing new ‗ e-tailing‘ channels through which you can obtain the latest CD of your preference – for example, from Amazon. com or CD-Now or 100 other websites. These innovations increase the choice and tailoring of the music purchasing service and demonstrate some of the ‗ richness / reach‘ economic shifts of the new Internet game. But beneath this updating of essentially the same transaction lies a more fundamental shift – in the ways in which music is created and distributed and in the business model on which the whole music industry is currently predicated. In essence the old model involved a complex network in which songwriters and artists depended on A & R( artists and repertoire) to select a few acts, production staff who would record in complex and expensive studios, other production staff who would oversee the manufacture of physical discs, tapes and CDs and marketing and distribution staff who would ensure the product was publicised and disseminated to an increasingly global market. Several key changes have undermined this structure and brought with it significant disruption to the industry. Old competencies may no longer be relevant whilst acquiring new ones becomes a matter of urgency. Even well-established names like Sony find it difficult to