Group 4:

Muhamad HafidzCGA090003Shervin Shahidi HamedaniCGA080072Mohd Nashran Awang @ Mamat CGA090036

6th August 2009

Contents

Case Study Overview Physical vs Digital Download Online Music Distribution Analysis Value Chain and New Business Model “Bricks and Mortar” and Music Label

Strategies Recommendation and Conclusion

2

Case Study Overview

Music Industry in the Digital Era

Music industry is facing an array of market challenges

Technology - change the way people listen and obtain music

Issues of piracy and copyright theft

3

Physical vs Digital Download Comparison

4Source: http://en.wikipedia.org/wiki/Music_industry_in_the_21st_century

Physical vs Digital Download Comparison

5Source: http://en.wikipedia.org/wiki/Music_industry_in_the_21st_century

The Three Main Legitimate Online Music Providers

Apple iTunes Over 750,000 songs Compatible with iPod &

iPhone Napster

Over 1 millions songs. Sony Connect

Over 300,000 songs. Only compatible with Sony

products6

Alternative Channels

Peer to Peer Network (P2P) BitTorrent, Kazaa, limewire,

The Pirate Bay File sharing (direct

download) Rapidshare, savefile.com

Social-Networks Myspace, Friendster

YouTube

7

Users of Digital Music Tends to Think That Copying is Not Piracy

8

THEFT GROSS COMMERCIALCOPYRIGHT INFRINGEMENT

FILE SHARING PIRACY

Source: http://www.vincentchow.net/2473/file-sharing-is-not-piracy

Truth About Physical and the Future of Digital Distribution (Video)

9

Do

or

Die

!!

Analysis of Online Music DistributionPorter’s 5 Forces AnalysisThreat of Substitute Products• Physical music records such as Compaq Disc.

However, there are various types of digital music format – each competing with each other to win market share.

Threat of New Entrants• Barrier of entry is lowered as traditional value

chain providers. New and independent artist can market its music directly to the end consumer.

10

Analysis of Online Music DistributionPorter’s 5 Forces AnalysisBargaining Power of Suppliers• Artist and Record Labels have greater ability to

reach the consumers directly.• Further consolidation of Music Labels through

Merger and Acquisition could still take place due to high competitiveness nature of the industry.

Bargaining Power of Customers Customers are able to reach the cheapest cost

supplier using Internet. Customers have easy access to free music by

using P2P Networks.11

Analysis of Online Music DistributionPorter’s 5 Forces AnalysisThe Intensity of Competitive Rivalry• The number of major music labels was

reduced to four from five and are holding on a significant majority of the market share

• “Bricks and Mortar” music stores retailing is getting more competitive with integration with online distribution channel as well as competition from other supermarket chains.

12

The Value Chain and Evolving Business Models

13

• Shifting the power centers and introducing new players.

• Artists are increasingly getting more involved in the production, marketing and distribution

• Three categories of digital music retailers have entered the market • pure play : digital retailers whose main focus is music

sales (Napster)• vertically integrated players : who use music as a means

to promote their core offerings (iTunes)• diversified players : who have included music in their

service offerings (Amazon MP3 Store)

The Value Chain and Evolving Business Models

14

• Independent and unsigned artists are using the digital channels to distribute their content directly to the listeners, bypassing the traditional intermediaries

• Music companies are increasingly using their music along with other media and entertainment forms such as TV, mobile games, advertisements, etc

• Music companies are also partnering with ISPs and mobile handset manufacturers and portable music device manufacturers to broaden their customer reach

The Value Chain and Evolving Business Models

15Source: The Digital Music Market Outlook, Business Insight 2009

Strategies available to Music Labels and “Bricks & Mortar” channels to mitigate competitions from online music distribution

16

• Encoding a wide variety of songs in widely accepted industry standards and selling these songs via the Net

• Offering facilities in stores for compiling songs onto albums and charging a premium for these services

• Turning physical retail stores into social gathering places with appropriate ambience for music lovers

Strategies Available to Music Industry to Address Piracy Problem

17Source: How Market Smarts Can Protect Property Rights, Harvard Business Review, 2004

Nip It in the Bud (prevent misappropriation

)

Prescribe a

Sedative (lower

the competit

ive intensity

)

Dig a Honey

Pit (entangl

e key assets)

Make a Bundle

(combine a secure

with insecure products

)

Move the Goalpost

s (redefine

the firm’s

boundaries)

Let the Dogs Out (relinquish your

core assets)

Defend Core Assets Embrace the ThreatsMarket Strategies

pre-emp

t

deny asse

ts

out-innovate

threaten to

retaliate

create synergi

es among related busines

s

Marry assets

to complement

ary produc

ts

preserve the core with add-ons

expand into

rivals’ busines

s

narrow your own

business

reallocate

resource to

adjacent

business

Conclusion

The industry need to embrace the inevitable of Online Music Distribution Channel through integration of the channels

The internet as delivery medium and innovations of handheld devices will continue to be the key to growth

Piracy is expected to widespread among younger generation

Key to success shall be execution speed and flexibility to adapt to consumer demand

18

Is this theft?

19Source: http://infinity-sama.blogspot.com/2008/01/2008-anti-piracy-year-in-mauritius.html