Download - Music Industry-Structure
Case AnalysisBMG ENTERTAINMENT
Presented By: Group 2
Abhishek Pandey
Alisha Sehgal
Kapil Jaitley
Yatin Malhotra
Yashupriya
Case Overview
¨ History of Music Industry¨ Evolution of Music Industry¨ Major players in Music Business¨ Introduction of Internet¨ Impact of internet on economics, Structure
and Dominance on Music Industry¨ Actions taken by major companies in wake
of e-music
Internet Usage
Music Industry-Structure
Before the advent of Internet
Music Industry-Structure
After the advent of Internet
Structure of music industry
1. Lower barrier to entry
2. Reorganization of the supply chain
3. Subjecting the public to a different point of service.
ECONOMICS of Music Industry
Pre Internet
A typical Recoding Company spent $ 300,000 in Production and Marketing
Of this $ 200,000 was classified as Recoupable cost
Artists were paid $2 per unit sold after selling 100,000 units
Hence a failed album put the burden on primarily on artist
Post Internet
¨ MP3.com gave artists the flexibility to choose setting their prices within a range of $5.99 to $ 14.99
¨ The company lost $ 40 million on sales of $20 million
¨ Emusic.com set the price of downloading a song for $ 0.99 and an album for $ 8.99
¨ It lost $ 18 million on revenues of $ 92,300
For Major Players
REVENUES in:¨ Singles downloads have reached $363
million ¨ Album downloads $135.7 million¨ Annual growth rate of above 160%
DOMINANT PLAYERS
Dominant Players of Music Industry
Before Internet
EMI; 13.4
SONY; 16.5
Universal; 25BMG; 9.2
Warner; 26.5
After Internet
BMG
1. BMG took the opportunity to use the internet as a marketing tool promoting its newest artists such as Britney Spears.
2. By placing the website on its CD covers, it created a large base for the success of its numerous websites promoting its artists.
3. By providing a service that updated customers on their favourite artists, the customers also knew when to expect new products.
4. Used the internet as a means to maintain market share without actually taking the operations online
5. The company has also established relationships with all the major companies involved in digital music downloading technology such as AT&T, IBM, etc.
6. Set up many websites for specific genre of music
SONY MUSIC ¨ Launched Total E ¨ Pursued digital downloads¨ Installed “Digital Kiosks”
Universal Music Group¨ Launched Getmusic with BMG¨ Went for digital downloads
REVENUES OF MUSIC COMPANIES
Beginning of INTERNET ( FY 1999)
COMPANY REVENUE( $ mm)
BMG 4306
EMI 3596
SONY MUSIC 6336
UNIVERSAL MUSIC GROUP
3751
WARNER MUSIC GROUP
3834
POST INTERNET ( FY 2000-2007)
INFERENCE
From the table we can infer that post internet era has led to:
1. Decrease in revenues of BMG
2. Substantial increase in revenues of Warner group, EMI
3. Increase in revenues of Universal group
IMAPCT OF INTERNET ON MUSIC INDUSTRY¨ Internet file sharing is an inevitable fact and a rapidly increasing trend. ¨ • People enjoy to trade music and to download favourite songs at zero
cost. ¨ • People prefer to download individual songs, not entire albums. ¨ • People are searching for popular music but also for music that is
difficult to obtain in ¨ offline music stores (for example old songs and regional music). ¨ • Digital music industry is not immune to theft within recording
companies (for instance ¨ some songs were released trough Napster months prior to their
commercial release, ¨ such as Mettallica’s “I Disappear” and Madonna’s “Music”)
Positive Impact
¨ Ease of music distribution by artists`¨ Music downloading is the only way for most
people to access the “dead” songs¨ Music Piracy allows down loaders to experiment
with unknown artists, thereby increasing the sales in long run when they buy songs of these artists`
¨ As shown by by the 2005 RIAA Consumer Profile, cd sales at concerts have risen, implying that there are more people attending concerts
Negative Impact
¨ The record labels have experienced falling sales and attribute this to the increase in 'piracy‘
¨ Retailers of all sizes are feeling the effects of falling CD sales on their business. Smaller retailers complain that the disadvantages they face in competition with the larger stores is being exacerbated by the availability of downloaded music
¨ HMV, Virgin and Tower Records, the three major retailers, have had to face renewed competition from on-line retailers such as Amazon.
¨ Intellectual property theft (IPT)
Conclusion¨ Long term album sale increase¨ Access and exposure of out of print music¨ Greater influence of independent and other lesser known
artists¨ Sony, EMI, Universal and Warner Group have had
increase in their revenues while there has been a huge drop for BMG. This shows that these players still dominate the industry scene wherein BMG has lost its hold substantially
¨ Many small level players have also come up¨ Value chain now focuses on involvement of internet