To provide the experience of performing an analysis of a company’s external environment. Sample Responses to Questions . Laws and Regulations. What are some key laws and regulations under which this company and the music industry must operate? Key laws and regulations in the music industry might include copyright regulations, contracts, royalty practices in both retail sales and radio broadcasting, anta-trust, advertising regulations, foreign-trade practices. Economy. How does the state of the economy Influence the sales of this company’s reduces? The state of the economy has traditionally had less of an immediate impact on the music industry than on some others. CDC and on-line music sales tend to be low- ticket items, and are less likely to be affected too adversely even by a recession. A key driver of sales is the presence or absence of popular new talent. . Technology. What new technologies strongly affect the company you have selected?
New technologies permitting on-line music sales, Like Tunes, and recording and playing devices like pod and upcoming cellophane technologies, increase the easy availability and sale of music products. They also allow music companies to avoid the expense of manufacturing and distributing CDC, and sharing sales revenues with retailers. A major downside is that new technologies permit easy copying of music without payment. Technology that can provide copyright protection (e. G. , preventing unauthorized copying) may be one solution to this problem. 4. Demographics.
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What changes in the population might affect the company’s customer base? Demographics affecting the company might Include changes In the population of young people who are the primary purchasers of pop music (conversely, the gradual crease in classical music sales as the demographic for that segment ages), and the 5. Social Issues. What changes in society affect the market for your company’s music Social issues affecting the company include not only the increased tolerance for illegal copying of music, already mentioned, but also the increased fragmentation of public tastes and interests.
Objections to obscenity in lyrics, and the rising influence of the religious market, are other social factors influencing the music business. . Suppliers. How does your company’s relationship with suppliers affect its profitability? The lower the cost of supplies, the more profit the company will make. In the music industry, supplies are both tangible (the cost of CDC and Jewel cases, for example) and intangible (the money paid to artists. Companies that introduce new artists take bigger risks, but also have smaller costs than companies that record and distribute the music of established acts. 7. Competitors. What companies compete with the firm you have selected? Do they compete on price, on quality, or on other factors? Key competitors in the industry include Bertelsmann, MME, Sony, Universal, and Manner Music. There used to be many more companies, but the industry has experienced considerable consolidation. (There might be even more consolidation but for anti-trust regulations in the U. S. And Europe. The companies do not compete on price at all, or even on the quality of their products per SE; the main sources of competitive advantage are the companies’ backlash – the music copyrights they own – and, even more important, the new talent they are able to find and sign. Most music buyers do not know or care which company is selling the music they are buying. . New entrants. Are new competitors to the company likely? Possible? Traditionally, new entrants were extremely unlikely; given the large capital investment the music business requires (millions to launch a new album, for example).
That may still be the case, but today potential new entrants include music distributors themselves, like Apple, who can decide to bypass music companies and sign new talent on their own. This is unlikely, as companies like Apple currently do not have the expertise, experience, or perhaps even interest in the business. But it remains a possibility that music companies need to take into account, particularly as n-line distributors become an increasingly important part of the supply chain.
In addition, the ability to sell music on line may reduce the need for some well-known to sell directly to consumers on their own. . Substitutes. Is there a threat of substitutes for the music industry existing There are many substitute delivery systems for music, and the music industry is constantly being threatened by non-paying delivery systems. Music itself is more difficult to replace, however time spent on other forms of entertainment may decrease the amount of time and money spent on music. 10. Customers. What characteristics of the company’s customer base influence the company’s competitiveness?
Customers in the industry are characterized mainly by the fickleness, volatility, and unpredictability of their tastes. Only a small fraction of new releases succeed – and these are new releases issued by extremely experienced, knowledgeable companies, n an extremely competitive industry. Even sales of new albums by well-known groups are difficult to predict, and very few stars maintain their longevity. Customers also think there’s nothing wrong with making free copies of music for their friends, or do they have great affection and respect for music companies.
Sample Responses to Discussion Questions . What has the company done to adapt to its environment? To adapt to the environment, music companies are taking over more of the supply Chain, manufacturing their own CDC and managing their own music clubs. They are making deals with on-line music distributors to sell individual songs. They are also increasing their on-line marketing efforts, as in letting AOL offer its customers music ‘died and song samples. . How does the company attempt to influence its environment?
To influence the environment, music companies pay slotting fees to retailers to gain shelf space, and pay fees to ensure play time on radio stations. They heavily market new releases. They are aggressively seeking to enforce copyright laws forbidding illegal copying – their success in shutting down Anapest is an example of that. They are also enlisting the artists themselves in an effort to educate and influence the public on the illegal copying issue. In the U. S. , they are also asking the government to pressure China to reduce the widespread music piracy in that country.