Music group to create Sony BMW. With 46 offices all over the world, Sony BMW finds there headquarters in New York. The company aims to provide a wide variety of music through limitless distribution channels. Sony BMW caters to almost 1,000 artists in six different genres. Despite the problems Sony BMW has dealt with in the past four years, they have stayed strong in their position as the second largest recording company.

They have problems with their top executives and powered through new Ideas which turned out to be some of the worst decisions. Sony BMW Is dedicated to customer satisfaction and Introducing artists Into as many markets and divisions as possible. Problems Sony and BMW executive clashing over management styles Follow the Leader mentality ; Inability to cope with Illegal downloading Advertising their artists Instead of themselves as a company SOOT Analysis (See Appendix Part A) The Music Industry The music industry is the largest art related industry in the world.

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The SIC code of the music industry is 3652, which is the Phonograph Records and Prerecorded Audio Tapes and Disks. Basically, it concerns the creation and selling of CDC, cassette tapes, ND now the new realm of the Internet amps (US Department of Labor, 2008). It has been around. To a lesser extent, since the sass. When musicians first began to make a living selling their music to the public (Glover, 2005) and has progressed from selling sheet music to now using the internet to pass along music.

It is constantly expanding with thousands of albums being produced every year with new ways to distribute the constantly changing music. Getting into the physical industry (selling CDC) Is fairly easy, but succeeding on a global scale requires an Immense amount of luck, ability, and financial backing. The market structure, Like most established and large Industries, Is an oligopoly. There are four major music producing companies that are producing at least eighty percent of the market’s music. The industry is hard to get into because of the high capital needed to produce national and even global awareness of their products.

While it is possible for a small company to produce several records for their niche markets and compete with the Big Four locally, it is quite unlikely that other companies are able to compete on a global, national, or even state-wide scale against the Big Four. Another resource that Is taken up quickly by he main four companies is the human resource. The best singers and musicians are likely to be given much better contracts and promised much better exposure to their customer base by going with the Big Four. This is also a problem for gaining entrance into the industry.

The four main companies in the industry are as follows: Universal Music Group owning 31. 61% of the overall music Industry market and 34. 37% of the albums market, Sony BMW owning 27. 44% of the overall music Industry market and market and 16. 85% of the albums market, and finally Thorn/Mel owning 10. 2% of the overall market and 9. 3% of the albums market (Cashmere, 2007). The largest trend in all industries around the world is the use of technology and the music industry is no different. New technologies are causing an uproar by recording companies and applause by consumers.

Programs such as the infamous Anapest, Aziza, and the now prominent tunes are allowing easier distribution of single songs and whole albums at prices much less than originally believed possible when compared to albums on CDC. These new programs (tunes excluded) originally started out as free-ware: a program that is downloaded for free and doesn’t require a fee for downloading songs. In 2006, through the use of programs like those and other freeware it is estimated that around five billion songs were illegally downloaded (Fishbowls, 2008) causing around sixteen billion dollars worth of damage to the economy each year ARIA, 2008) .

After much litigation by recording companies, this form of illegal downloading has mostly been stopped. People are now slowly beginning to pay for their music on programs such as tunes, but the main damage has been done. Consumers have become accustomed to the easy accessibility and cheap pricing for their music. New programs such as Bitterness have become the new “free” way for nonusers to gather their favorite music. Bitterroot programs are starting to run rampant and now the ARIA, who represent the recording industry of America, is legally battling the websites offering the programs (ARIA, 2008).

One website in question is able to evade being taken down due to Swedish laws and is even going so far as to post legal threats against them and openly mock them on their website She Pirate Bay, 2008). Common copyright laws that are broken in the US are: Burning a CD for your friend, uploading your music you bought on the internet, downloading music from illegal share programs. The ARIA has been using the full extent of the law to enforce these rules and have been slapping five year, $250,000 penalty fees on those they catch (ARIA, 2007).

The main problem for the ARIA now is that they are unable to stop the servers in Sweden. Bootlegging is legal in Sweden and they cannot take down the servers in the country due to a loophole in the systems (the Bitterroot is providing the location of the file, not actually providing the file so it is legal). Looking at the generations that are currently buying/downloading music and the generations that are to come, it is easy to say that the record impasses should be concentrating on technology.

Both Generation Y (Ages and Z (Ages 1-10) are the two main demographics that record companies are looking to attract. Generation Y, the current generation, is buying from record companies Nile generation Z is currently controlling their parent’s spending habit. Both these generations are technologically as’. N. Y. Several facts found in a large survey include: 37% own computers, 94% own a cell phone, 97% have downloaded music on a peer- to-peer network (48% regularly), and 44% read blobs Noun and Mastication’s, 2007). Eye also represent the largest consumer base currently at 70 million people. Both, especially Generation Z, look toward the internet first when they have questions about anything and sometimes they only look toward the internet (Schmidt and Hawkins, 2008). The internet has become their guide, their knowledge, and their power. These generations have both helped the music industry to expand greatly on companies are beginning to work with tunes, Rhapsody, and other programs that require their customers to pay a fee to download songs, albeit a much cheaper fee then buying albums on CDC.

They are working out promotional contracts with impasses such as Pepsi that allow customers to download songs for free when they buy Pepsi products. Also, recording companies are beginning to take advantage of other technological avenues such as selling cell phone rhinestones (Reuters, 2007). Rhinestones have been growing year after year. In 2007 the US sold 220 million rhinestones worth $550+ million (Diffracts, 2008) and European rhinestones totaled $1. 1 billion (Diffracts, 2007)! Also, new technologies have been coming out that allows converters to changing the formats of music to be able to be played on cell phones. His is one feature that Sony should definitely take advantage of. Record companies that wish to survive in the future must recognize that the internet and file-sharing programs are going to be the CD killer in the same way that the CD was the cassette killer and the cassette was the A-Track killer. By using new technology in new ways, instead of letting the new technology and illegal activities take advantage of it, the record companies will be able to stay ahead in the industry.

Strategic Evaluation After analysis the team believes Sony Bum’s mission statement is to shape the future of recorded music by focusing on the central business of identifying, developing and racketing the best artists in every genre. (Sony BMW, 2008) Sony BMW original mission statement was quite good, but broad. The team believes the new mission statement is brief but improved, because they are focusing on customer outreach and satisfaction.

The goals of Sony BMW are simply to offer the widest variety of music in as many different formats and locations as possible, commitment to security and customer ease, and a creative environment and continual growth for employees. After further researching these goals the team believes Sony BMW has set it sights at the right height. Sony BMW is involved in seven genres ranging from R&B to Christian, they are partnered with such corporations as Google, Amazon, and Namespace to spread their music globally thus hopefully increasing market share.

Sony BMW is a growing company hoping to challenge its employees to be the best in the music Industry, and think outside of the box to create new innovative ideas moving them from the second largest music company to the first. These goals are attainable and can be reached. Hopefully with these goals Sony BMW will be able to develop new strategies to stay in these digital days, and procure greater customer loyalty. They ay not always be first in the area of innovation but they are fast to Join in on new trends and stay afloat with the digital age.

Head of Bertelsmann Music Group, aromas Arab, believes Sony Bum’s core competency is discovering and developing artists, and bringing their music to audiences worldwide through a variety of products and distribution channels (Arab, 2008). This could be considered broad for company who has many competitors; with only 6 North American record labels, compared to the 21 North American labels which belong to Universal Music Group. After analysis, the team feels Sony Bum’s core competency is there online music immunity. Mayfly. Mom is a prime example of this; it is revamped and re-branding of Sonny’s Musicals site which presents Sony Bum’s artists, allowing free access to artist’s videos and music worldwide. Users can create lists of their favorite artists as create a place where music lovers of all ages can come together to talk about their passion, music. Sony BMW holds a few distinctive competencies which can be seen through discovering artist, developing artists, customer loyalty to developed artist, and customer responsiveness. Unfortunately, Sony BMW may have an advantage with Mayfly but they are still slow to innovate in other areas.

Allowing the team to believe they have a follow the leader mentality. With decreasing CD sales Sony BMW followed n the footsteps of other music companies, trying to stay ahead of the digital age. Earlier this year they were the last record label to sell downloads without copy restriction (Lieberman, 2008). Also within the past year, Sony BMW has been trying to ensure customer responsiveness by signing into a Joint venture with Warner Music Group, Universal Music Group and Namespace to allow music to be played on Namespace Music.

This allows for another solution in the digital age which will let people listen o songs and watch videos for free on the Web, in addition to selling merchandise, concert tickets, and music through downloads (Holman, 2008). Sony BMW takes pride n providing limitless entertainment choices, developing new artists, and having a ‘rarity of genres for their customers. After analysis, the team saw Sony BMW having a clear competitive advantage through differentiation and easy access. They have a ‘ere strong marketing strategy in which they aim at pleasing people worldwide.

This also fits with their strategy of diversifying there products in terms of genres. Sony MGM has a corporate strategy in which they listen to their employees in terms of innovation and listen to what the customers have to say in terms of keeping up with the times. Sony BMW does not contradict themselves in strategies and after analysis the team believes the mission statement, goals, and objectives fit well together, as Nell as saw Sony BMW leans more on the distinctive competencies they have retained over the years other than there core competencies.

Management Analysis Since the merger of Sony and Bertelsmann, the organization has struggled with the infighting between executives from both sides (Leeds, 2006). Executives have clashed on issues such as marketing and promotion strategies along with executive salaries. Since the venture, top management has been able to integrate many of Sony and Bum’s international business units, but the two companies’ American labels have continued to run as separate companies (Leeds, 2006). Sony Bum’s management structure is setup with a board of six directors, divided evenly between the two companies.

With this inordinate setup, executives from both sides are forced to at least try to live in harmony. The two companies have developed distinct cultures for heir music units, so uniting the two has been a difficult task, one that they continue to struggle with (Leeds, 2005). Executives from both sides have remained very protective of their operations. As a result of all the internal conflict, Sony lost two of TTS most powerful executives, Michele Anthony (President) and Don lender (Chairman of the unit).

The resignations of the two came as the company’s new CEO Roll- Schmidt Holt was revamping the company (Leeds, 2006). In the beginning of the denture, Andrew Lack (Sony) was the organization’s CEO and Roll Schmidt-Holt Bertelsmann) was chairman of the board. Conflict appeared in 2006 when retranslate did not wish to renew Lacks contract due to a series of financial setbacks, including a sharp erosion in market share in the U. S. (Leeds, 2005). Alienated some of the people reporting to him through disrespect and poor communication about corporate strategy.

Howard Stringer, (Sonny’s top U. S. Executive) Nas a strong supporter of Lacks position and believed that he would bring a set of ‘fresh eyes” to the company and be able to tackle the company’s structural problems Leeds, 2005). Clearly there are conflicting views here between the two sides. The last trawl for Bertelsmann occurred when the ventures chief operating officer and Bertelsmann senior executive, announced he would be leaving at the end of the [ear, upsetting the balance of power on the board of directors (Fanner, 2005).

In an attempt to settle the issue of Smellier leave as well as Bertelsmann disappointment in Lacks position, Sony management created a management realignment structure. In this realignment, Roll Schmidt-Holt (former Chairman of Board) was named Chief Executive Officer of Sony BMW Music Entertainment, and Andrew Lack (former CEO) became Chairman of the Board (Guesthouse, 2006). In Schmidt-Holly’s new position he possesses overall management responsibility for the company and is based in New fork.

Lack, is now leading the company’s public policy and industry initiatives, and handles operating responsibility and oversight for the theatrical film business of Sony BMW and is also based in New York (Guesthouse, 2006). This was a good strategy for Sony BMW management in that it enabled an executive from Bertelsmann side to possess more power, as well as eliminated Lack from the controversial position of CEO. This shows that Sony is making an effort to try to balance the power between tooth sides and is trying to be as fair as possible in an attempt to make executives from Bertelsmann happy.

Since this realignment structure, there have not been reports of discontent from either sides of management with the executive’s new positions. So, one would assume that this management realignment approach resolved the issue concerning power. As stated above, with Sony being American and Bertelsmann German, there is a significant difference within corporate cultures. When it comes to corporate culture, both Sony and Bum’s styles, echoes that of their corporate parents.

Sony is driven such by a vision in which its various content divisions, including film and music, feeding its hardware operation that makes home electronics and vice versa, in order to propel the conglomerate (Leeds, 2004). Bertelsmann, on the other hand, tends to run its divisions, including publishing, television stations, music and direct marketing, as separate businesses (Leeds, 2004). Sony Music has maintained a centralized structure, with one unit to handle. Sonny’s operation in the U. S. Is overseen by a single executive who takes a direct role in planning releases across its major labels, Columbia and Epic.

BMW, however, is less centralized. It is similar to Sony in that its domestic division also reports to one executive. It differs when this executive then lets the other units run with some sort of autonomy (Leeds, 2006). Because BMW acts as a subsidiary of Sony Corporation of America (Sony BMW Music, 2008) their management is going to possess the majority of the parent company’s traits. This is where the two sides of management are going to clash. Nobody likes change when they are familiar with something. One would assume that this is much how executives of BMW feel.

Executives of BMW need to realize that when the merger occurred, the essence of the company changed. They Ewing open minded and willing to do whatever it takes in order to better the health of their company. Sony needs to take into consideration the changes BMW executives are dealing with and also try to incorporate as much as they can from each culture. Both sides need to realize that they are not going to be able to run their company exactly the way they were used to running it in the past. They need to be sensitive to the other culture and work on compromising in some aspects in order to create better synergy within the team.

Sony BMW maintains a divisional structure. It is broken down into three areas: product, market, and geographic. Sony BMW operates internationally and tries to market the products appropriately to each geographic location. The product of Sony BMW is much the same for each geographic location being the artists and music. After analysis, our team feels that this is in fact the best structure for the company because it allows the attention of managers and employees to be focused on results for the product, customer, and geographical area.

Because each unit focuses on its own environment it is flexible and responsive to change, and this can definitely be seen as an advantage. With the constantly changing market it is vital to have a legible structure. Each of the three units are an important part of the structure and by allowing them to be focused on separately it can improve the performance of each area. When it comes to management and employee relations, Sony management values communication between the two.

This is essential in conveying management policies to employees and encouraging them to voice their opinion (Corporate Responsibility, 2008). In 2006, Sonny’s CEO and President visited sites throughout Japan and the world holding meetings and providing chances for them to speak directly with employees (Corporate Responsibility, 2008). After analysis, our team feels that this can be seen as a great way to motivate employees. When Sony personnel see that their opinions matter to management it can give them a sense of worth and in turn, can motivate them to work harder and improve their on the Job performance.

It is good that even though Sonny’s management structure is centralized, they still take the time to collect feedback from employees. This can benefit the management team in that it can provide insight that manager’s may not have been able to see from their point in the corporation. Sony seeks to obtain adequately trained employees. They do so by offering various raining programs for employees of all levels, from new graduates to senior executives, suitable to each region and business (Corporate Social Responsibility, 2008).

This allows the employees to get the proper training they need and, in turn, will improve their on the Job performance and aid in the operation of the company running more smoothly. Sony BMW management is nowhere near perfect, but they can be credited with taking necessary steps in order to fix SOME of the problems within the organization (I. E. Management realignment structure). The decision of both sides to merge with each other was a great strategy. Both sides of executives awe the environment changing, with the increase in piracy and saw the opportunity that this merger could provide and they took advantage of this.

Schmidt-Holt said, “If (Sony and BMW) stood alone, we would have to cut artist rosters and even closing maintain a broad roster of artists in the current environment” (Sony, BMW Agree, 2003). Marketing Analysis The product that Sony BMW offers is recorded music. This product can be purchased by consumers in two forms which are the physical, hard copy on a CD or the digital version that can be downloaded to a computer, portable music player like an pod, or even a mobile phone. The product life cycles of these two types are currently in completely different phases.

CDC are following the trends of its predecessors, vinyl records and cassettes, by entering the decline stage, with the sales of CDC dropping from 942. 5 million in 2000 to 511. 1 million in 2007. At the same time digital downloading has moved past the introduction period and well into growth with 809. 9 million singles downloaded in 2007 (ARIA, 2007). Sony BMW, which has always focused on CD sales, must now manage its strategy to account for future trends and cycles and even deal with the looming future of technical obsolescence for the compact disc.

Also, these two forms exist as substitute goods for each other because consumers will decide to purchase their music in one of these ways. The most common complimentary goods would be the devices used to play music such as CD players, MPH players, and cell phones. Sony needs to rearrange its priorities in terms of the product mix. The company’s strategies should be adjusted to account for the growth of digital and the decline of CDC. They should allow for the remaining loyal CD market, but focus on the future of the downloading market to come. Price has been a hot topic in the recording industry.

Sony BMW likes to employ a rice skimming strategy, by charging higher prices for new releases and highly demanded artists for a short period of time and then slowly decreasing the price as demand fades. Keeping premium prices for CDC has been almost impossible for the declining product, however, with sales decreasing exponentially by the year. The company has also experienced a barrier in the digital realm, with Apple’s tunes store, accounting for about 70% of the paid digital-music download business, strictly selling all tracks for $0. 99 without compromise (Record Labels Need, 2007).

In order to find more price flexibility, Sony has turned to Amazon. Mom where they can charge ‘arable prices even for different songs on the same album (Lowry and Burrows, 2008. ) The big fear is that lowering prices too much will devalue the music. The change occurring in consumers seems to point to their preferring to pick and choose single tracks rather than buying an entire album. This was shown in the U. S. In 2005 En 353 million digital tracks were purchased during the year, but consumers only bought 16 million digital albums (Record Labels Need, 2007. This new trend is forcing Sony to adapt its strategy to taking a smaller portion of lower prices in order o get more from increased volume in the end. It seems that the company will always have to compromise in order to use the services of other digital music stores. Sony Bum’s distribution strategy directly lines up with its previously mentioned mission and goals of delivering a wide variety of music in as many different formats and locations as possible. The company tries to take its wide variety of music and put it in the ears of consumers in any way that it can.

Sony Bum’s strategy is to be more of a music entertainment company than Just an ordinary record company. Although t is a big part of it, this strategy moves beyond the traditional channels of retail In the emerging mobile phone market, Sony is the only record company to have deals Ninth all 5 mobile phone companies (Tallboy, 2005). Recent activities show Sony distributing its music on the internet through collaborations with Namespace, which has 120 million users (Grover, 2008), as well as others such as Google, Youth, Yahoo Video-on-Demand, Meme, and Amazon.

Sony has also worked through various other Channels for instance reality TV shows like X Factor, Guitar Hero, and Stardom Hotels and Resorts to sell and distribute its artists’ music (synonym. Mom). Although it is great that the company utilizes many different sources, it does not seem like the strategy is focused enough to reach the full potential these outlets have to offer. The promotion strategy of Sony BMW also follows the mission of variety in format and locations. The company uses more of a pull strategy to create demand with added direct exposure among the consumers.

In order to do this, the Strategic Marketing Group of Sony has staged many promotional events and Joined with a number other companies for cooperative advertising campaigns. One example was the release of Michael Jackson’s Thriller 25 year anniversary. They arranged to have dancers perform the Thriller zombie dance in public areas all over the world, and these performances were posted on Youth. The videos resulted in 1. 5 million downloads on the site where a promotion for the album was viewed over 600,000 times leading to the success of the release (Hill, 2008).

Companies that have helped market Sony BMW artists include Hershey, Proctor and Gamble, Victoria Secret, Exxon Mobile, Namespace, Stardom Hotels, and many more (Sony BMW, 2008). One of the most recent marketing initiatives taken by Sony BMW is that partnership with Moses, an Interactive mobile service. Sony utilizes artist interaction with fans for direct marketing through a multitude of ways from texts, e-mails, blobs, voice messages, performances and personal meetings (Sony BMW, 2008). While Sonny’s promotional strategy is also not very cohesive, recent actions have shown some great advancement.

This is one of the areas where it seems Sony is staying current and using the technology to meet with modern consumers on their ground. Production Analysis ere purpose of a music company like Sony BMW is to sign artists in return for royalties on units sold, which generally run between 12 to 16 percent of net revenues Music Industry). The production of music is complex and pricey for a music company. The company bears the cost of recording and producing the music, pressing the CDC, marketing, and distribution. Production costs for a particular album are around $125,000, but can easily reach $1 million (Music Industry).

The importance stressed on producing music videos only increases the production costs of Sony BMW and similar music companies. Video production commonly ranges from $100,000 to $250,000. When adding in the marketing expenses that range anywhere from $100,000 to $500,000, a single album can cost a music company $350,000 to upwards of $2 million (Music Industry). The aspects of production costs are unique for each artist. Two million dollars may not be a major risk for a well established artist. However, Sony BMW will always have the danger of taking a loss on a new artist. The costs of production are similar for all the major music producers.

Therefore, the costs are not of any real concern. Sony BMW is made up of 22 are the five most notable ones. Since Sony BMW holds the second highest market share in the music industry, there are many major artists represented by them. Currently five Sony BMW artists are in the top ten in both the Billboard 200 and the Billboard Top 100 (Billboard. Com, 2008). The Billboard 200 ranks top albums while the Billboards Top 100 concerns single titles. Jennifer Hudson, T. L. , Pink, T-Pain, and Christina Agiler are some of those top artists signed by Sony BMW. The success of these artists is a great thing for the company.

Not only are they profiting financially through these individuals, Sony BMW is also being recognized more and more as a top player in the music industry. Quality is an extremely important aspect of production. On a continuing basis, Sony introduces new product quality improvement measures into all processes. Recently, there have been two major assure stressed. First, Sony has assured senior management oversight on improving product and service quality and safety (Product, 2008). This is a great and needed addition. Now, senior management’s opinions and experience can be utilized more.

This assurance has added another level to the checks and balances system of Sony. Second, the company now holds regular Quality Strategy Meetings attended by Sonny’s president and top management from each business group. These meetings serve as a platform to discuss and set policies, strategies, and key measures relating to product quality. Quality is a major aspect of Sonny’s products and services. The Quality Strategy Meetings illustrate how valued quality truly is to Sony. With the president and managers from every department within the company present, quality issues can be discussed and actions taken.

The importance and attention paid to environmental issues has recently increased dramatically. To encourage consumers to recycle and dispose of electronic devices in an environmentally sound manner, Sony has established a national recycling program for consumer electronics. The Sony Take Back Recycling Program allows consumers to recycle all Sony-branded products for no fee. This is the first national recycling Initiative in the U. S. O involve both a major electronics manufacturer and a national Nasty management company (Earthman, 2007).

The Sony Take Back Program is part of Sonny’s broader global commitment to environmental stewardship, which spans product design, recycling, facilities management and energy conservation across all categories (Earthman, 2007). This recycling program illustrates the importance Sony places on its social responsibility. It is an excellent program that will help not only the company, but the world as well. Financial Analysis (See Appendix Part E for Financial Statements) To fund requirements from business strategy, Sony utilizes cash flow from operations and cash and cash equivalents.

If needed, funds from the financial and capital markets can be obtained. In order to sustain the liquidity needed, Sony has ample lines of credit. Sonny’s policy is to maintain a level in the cash balance to cover their working capital needs. If there is a shortage in the cash balance that is deemed short-term, Sony relies on the issuance of commercial paper. Internal controls are in place to monitor outstanding commercial paper to ensure that Sony does not exceed short-term debt limits, putting the company at risk (2007 Sony Annual Report). Sonny’s et working capital increased *425,575 in 2007.

Accounts Receivable, Inventories, Liabilities resulted in the increase of working capital (2007 Sony Annual Report). The current ratio demonstrated that for every in liabilities, Sony has *1. 28 in assets. The quick ratio is 1. 02 with little change because Sony maintains low inventory levels (2007 Sony Annual Report). Warder’s current ratio is 1. 02 (2007 Manner Annual Report) and Universals is . 71 (2007 Veined Annual Report) and their quick ratio is . 85 and . 68 respectively. This indicates that Sonny’s ratios are above the average of their major competitors.

The current ratio is important to short-term creditors because it indicates that Sony can meet short-term borrowing and repayment requirements. To Sony, a high current ratio indicates liquidity, but it could also mean an inefficient use of cash and other current assets. Please see Appendix E for Balance Sheet. The common size income statement shows that the cost of sales percentage is . 71 for every of sales (2007 Sony Annual Report). Sonny’s competitors, Warner and Universal are at . 59 (2007 Warner Annual Report) and . 46 respectively (2007 Veined Annual Report). Please see Appendix E for the income statement.

Sony competes in an intensely competitive environment, where technology changes rapidly, so cost control is vitally important to the sustainability of the company. Sonny’s music business is dependent on developing new artists and the cost associated with their development has experienced significant increases. Sony invests in these new artists Ninth the hope that they will generate a return large enough to cover the cost that is required for their development. This rarely happens. Throughout the music Industry, the cost to develop a new artist can range from $350,000 to $2 million (Hill, 004).