Why have a handful of major record companies dominated the music industry through most of the last century? The world market of record music in sass was dominated by only five big corporations: BMW Entertainment, MME, Sony Music Entertainment, Warner Music Group and universal Music Group. The majors could maintain their status thanks to patents and agreements, technological improvements and M&As. The majors had the complete control of patents and music rights from the artists.
Even though the artists tried to directly contact to the customers, they could not afford the attempt. Thus, they relied on the professional signers and on the publishing company. The publishing companies hired composers and lyricists, and the products were sent to record companies with advanced phonographs. The companies that could follow the technological improvements were the successful ones. It was important to own the instruments that shaped consumer trend. When the industry faced difficult time, several merges took place as a means to sustain the company’s racket share and dominance in the industry.
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Three of the five major companies were formed out of the 1931 mergers. Also, through vertical integration, the recording companies could reduce costs and raised the entry barrier to the Industry. As the big companies got more and more market share, they diversified their Investments and produced all kinds of genres. They secured all the valuable shelf-space in the retail stores, making it extremely difficult for other newly competitors to compete with them. 2. How does the advent of the Internet change the structure and economics of the USIA Industry?
Will major record companies continue to dominate the business? The advent of the Internet is a disruptive technology for music industries like BMW and other major recording companies. The statistic shows the impact of the Internet. Online sales accounted for only 0. 3% of the total sales in 1997, and they grew to 1 . 1% in 1998, and It was forecasted to account for 10% by 2005. To be more specific, there were transformations In Independent agents, organizational structure and Industry economics. First, some Independent distributors managed to work with major impasses to distribute online sales.
Online sales of downloaded music are a big threat, so the recording companies will concentrate on the online market rather that the traditional distribution departments. Other types of companies to monitor the music royalties were created. The rights agencies got reports on the use of the music to member artists who benefited by having a better idea of the real value of their songs. When online purchase of downloaded music starts In large volume, recording companies and artists would benefit. Next, the organizational structure of cording companies can be changed.
Originally it was formed by five main divisions, Inch are manufacturing, distribution, music publishing operations, sales and marketing. With the advent of downloaded music, the demand for CDC decline, so the importance of distribution and manufacturing divisions may have decreased. The companies would rather focus on marketing to increase the exposure of their music, sales and music publishing operations departments. At last, the industry economics can also change. During the period of 1982 and 1992 total retail sales increased by 5% while the number of retail stores declined by 15%.
It is due to the technological development of the Internet. The costs structure has changed in that there will be less staff cost, distribution cost and rent required. To be more specific, although it hurt the retailers, for the record companies the Internet is not necessarily threat in terms of cost structure. Manufacturing of CD and Manufacturing of CD booklet will be significantly reduced and distribution and sales, along with overhead and mailing costs will also decrease. Looking at the actions taken by the major record companies, mom may survive and some may decline.
BMW and Sony are the first movers to make desirous efforts for the online market. BMW had invested $1 mill per year in to the Nor Wide Web by creating various websites even before the beginning of the online sales. With this BMW could attract the online customers beforehand. Also, Sony with its competitive downloaded music prices, digital kiosks and memory stick has been active to cope with the change occurred by the Internet. They signed agreements with other competition (BMW ; Universal, Sony ; Warner) and genealogy firms like Apple and Microsoft for more aggressive approach.
Compared to these first movers, MME was slow in reacting to the change. 3. Does Bum’s approach to the Internet make sense? BMW was the first major company to settle the online website and attract many Internet users. However, it missed the golden opportunity to sell music to customers earlier. It focused on promotion at first. Still, through the collaboration with America On Line (AOL) was a unique strategy that connected artists and fans via digital means. However, BMW then enter other Joint ventures with various other Internet revisers.
This dissemination failed BMW to make any dominant Internet presence. In terms of timing, Bum’s approach to the Internet perfectly makes sense, but in terms of strategy it is hard to say it was successful and it was a failure. If it had keep investing and focusing on the online sale with right target segments, it should have succeeded. 4. What should Ezekiel and Convoy do? Specifically, what should the strategy and structure of Bum’s digital organization be? Should BMW continue to work with a wide array of technology partners?
BMW should unify their several websites into one for focused and unique website. Since the website does not have space limitation like retail stores, it can embrace all the genres in one website. Thus, it seems like there is no need to divide different and related information can be exposed to more customers when the website is unified. In order to do so, BMW should set up a separate division to serve the new customers. Traditional customer base and the Internet customer base are completely different because the Internet is accessible to anybody and anytime.
Also, needs for information and purchasing style may also change in the website. Thus, setting up the new division would be more proper to approach to this technological innovation. Also, working with a wide array of technology partners are also important because to speak at the time of the beginning of the online market, nobody knew which technology companies’ technology would boom. Thus, it would reduce risk to work Ninth wide range of the technology companies in order to cope with the change or trend of the technology as soon as possible.