BMG Entertainment
BMG Entertainment
BMG Entertainment
GROUP 6 Shiladitya | Kartik| Apurba | Sanket | Siddharth | Arushi | Srinivas | Ravin | Tommaso | Amber
Introduction
From its start, in the last decades of nineteenth century, music industry has proved to be an extremely dynamic context: an intricate system of roles evolved as a result of technologic and consumer changes. The majors, mainstream and highly diversified record companies, have been for seventy years undisputed protagonists in music industry, going through several market revolutions and consolidating their power. In late 1990s Internet gave the consumers the possibility to separate for the first time music from its material brace, and potentially from the power of Majors. In 1999 BMG Entertainment, as all the other majors, had to rethink its role as an intermediary between music and consumers in order to find a new, up-to-date way to deliver value in a radically changed context.
Agenda
Global Music Industry Major Players in Music Industry Music Industry in Internet Age Technology Adoption In Music Industry Decisions
Choice of Channels Managing Internet Business: Separate Division Managing Technology Partners
Reconsolidation(1970s-1999)
Music corporations operated multiple labels Introduction of CD sparked surge in consumer demand Due to M&As by 1999, 85% of global music industry rested in hands of 5 Majors BMG Entertainment, EMI, Sony, Music Entertainment and Universal Music Group
Performing Artists
Tended to stay with a single company Earned primarily through royalty fees, concerts and merchandise
Music Publishers
Purchased rights and promoted vigorously through variety of channels Key to success balance between selling the same piece through multiple channels and regulate content tightly
Record Companies
Central player in Music Industry Managed performing artist contracts and bringing them to commercial success Carried out manufacturing locally (now consolidating) Marketing largest function split between US and International Operations
Retail Channels
Largest 8 chains accounted for 17.5% of all retail sales in 1982 and 57.8% sales in 1992 Cooperative advertising agreements Retail price wars were common
Industry Economics
Very difficult to predict which album would be hit Less than 20% of recordings recouped their costs recoupable cost costs incurred by recording companies recouped from artists royalties
Manufacturing
Distribution
Music Publishing
Retail Interests
Label 1
Label 2
Label 3
Domestic
International
Marketing
Business Affair
Accounting
EMI
U.K. based company involved only in music industry Formed from Depression-era merger of Columbia, Parlophone , and the Gramophone Company Had the largest music publisher division in the world Strong history of association with bands like the Beatles
6
15% 13% 11% 21% 24% 16% BMG EMI Sony Universal Warner Others 4 2 0
Internet accounted for .3% for all music sales in 97 and slated to grow to 10% by 2005 Power equation between artists, record companies, distributors/retailers and end customer is changing More choice to consumers, role of record companies and distributors diminishing. Artists are getting higher royalties Piracy and Sharing pose serious threat to the online distribution model New business models are emerging with unconventional distribution channels
Downloaded Music
New ecosystem comprising downloadable MP3 songs, memory device, portable player and media software New start ups such as MP3.com and Emusic.com provides a platform for consumers and artists Apart from revenue sharing on downloaded music, the websites are exploring other sources of revenue such as advertising
Websites such as CDNow posts albums from composers and looks after all the marketing activities
Third party distributors such as Valley Media handles the logistics of supplying CDs to the end customer
Many of the MP3 songs are pirated and downloadable for free
Organizations such as SDMI along with software firms such as Liquid Audio are coming up with protocols to eliminate piracy of songs
Reaction of Retailers
Music download over Internet perceived to be threat by traditional brick-and-mortar retailers Forced to establish web presence
Sold prerecorded CDs and cassettes through sites Offered ability to download music Option to return unwanted CDs to traditional storefronts
But still retailers needed assurances from record companies to support storefront retailing Some retailers even ready to pull out of music if not supported
Sites also linked to the music world like BMG artists, interviews, downloads and more No advertising campaign needed to increase the popularity of websites Later introduced Getmusic.com, an online store for all the genres and linked to the genre sites Took active role in industries initiatives like SDMI Stayed in touch with all the key players for setting technological standards for downloadable music Arrangements and partnerships with companies like Microsoft, Liquid Audio, Real Networks, AT&T and IBM
EMI
Last among the majors in online activity Agreement of five years with musicmaker.com Liquid Audios technology for encoding
Traditional Retail
For high cost and risky products, customers prefer to touch and try the product before purchase Immediacy Can take home purchase immediately Personalized customer service Possibility for social interaction
SOD>SOS
Advent of online, downloadable music Assortment and variety
SOS>SOD
Oversupply of personalized service
Crowded shops Long billing lines Added Cost of travel and time Free-Riding of online stores: People may visit stores to try product and then buy online to attain cost advantage
Online Retail
Lower prices for products Large assortment and variety Bulk breaking possible Stress free shopping Saves time Brings within reach Stores from around the world Lesser chances of stock out Can visit multiple sites without extra effort
Impossible to touch and try product before buying Time to receive order Possibility of damaged product Does not attract conservative people Loss of possible target market Inconvenience in delivery of product
Channel type
Margin or turnover
Bulk breaking
Spatial convenience
Variety
Assort ment
Retailer
Both
No
Moderate
Online
Turnover
Yes
High
Low
High
high
BMG
Downloadable Music
CDs
Retailers Website
Savings in Advertising
Leveraging on existing brand of retailers
Challenges Faced
Sidelining of traditional retail Inequity in distribution of resources New technology might be prioritized Internal competition Cannibalization of the channel sales Extra costs incurred Duplication of resources Technology costs, administrative costs, etc. Relations with current channel members Key aspect of the industry
Future trends
Sales innovation
Long term contracts enhance oneto-one relationship Availability of exclusive software and technologies for music encoding, billing etc.
Industry still in nascent stage whom to align with? Exclusive longterm deals could backfire Insider knowledge decreases
Help s BMG stay industry insider with involvement in initiatives Facilitates knowledge transfer on an emerging industry Less risk w.r.t. licensing
Possibility of spoiling industry relations by playing the field Backing a failing venture could be harmful financially and strategically
In the short term, continue to maintain relationships with all major players. However, establish long-term contracts with promising or successful partners within the next 4-5 years
ARTISTS & PUBLISHERS Digital music would generate more revenue for artists BMG can negotiate better terms (e.g. royalty amount decreases with increasing online sales brackets) Organize store appearances to increase visibility among fans
RETAIL BMG currently needs to provide support to retail stores. Poor long-term prospects for specialized stores, potential competition in digital space in the near future. Increase shelf space on supermarkets & general stores (ex. 4 other stores provide 34% revenue)
CONSUMERS Encourage internet transactions as the medium of the future, while maintaining a retail presence as well Enable ease of use through online payments, multiple tech. and downloading options Increase advertising on prominent websites to enhance recall
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