The attractiveness of the music industry from the perspective of Warner Group Music Summary Major transformation in the music industry over the last decade has resulted in the three major record labels; The Warner Music Group, Sony Music Entertainment and universal Music Group folding themselves with rapidly decreasing revenues and company structures which no longer provide profitability. A brief analysis of the external strategic factors affecting the Warner Music Group has revealed the changes in technology and social habits of customers has had the biggest detrimental influence on the company.
Further analysis of the competitive environment revealed a major change in industry dynamics and the need for this large companies to change their operations and adapt to the new environment In order to survive. Contents Introduction Strategic Issues Facing the Warner Music Group Macro Environmental Issues shaping the music industry PESTLE Analysis ere Attractiveness of the music industry Industry Dynamics Globalization Ethics and CAR Recommendations Conclusion References In the sass’s the rather stable music industry started to transform.
Cad’s introduced chital music and this digitization started a revolution in the industry and resulted n a rate of change which the three major music companies struggled to deal with. This report considers this transformation and how it affected on of these three companies – The Warner Music Group. The strategic issues faced by Warner Music are firstly identified from a report written by Professor Theodore Periods and Professor Cyril Bouquet (Periods and Bouquet 2012) and then grouped using the PESTLE model of external factors. The impact of the factors on the attractiveness of the industry is then discussed.
Drawing in information from the Periods report the structure of the industry is assessed using Michel Porters Five Forces framework. The conclusions drawn from this assessment are then used to suggest considerations for future strategies for the Warner Music Group. Finally the potential impacts of the following pressures; Industry Dynamics, Globalization, Risk, and Ethics and Corporate Social Responsibility on the attractiveness of the global music industry is discussed and the conclusion drawn that the music industry and the Warner Music Group must transform radically in order to maintain profitability in the future.
Strategic Issues Facing the Warner Music Group High order issues within the industry have resulted in the erosion of product sales, a constant state of change and poor strategic decisions. These issues, which have led to a loss of control, are of most concern to the Directors and CEO of Warner Music. It is these key issues which ‘keep the CEO awake at night’, which are significant in this case. The enormous power held by the major companies is being lost and product sales have been dropping year on year, to a point where the industry is no longer focusing on the sale of tangible goods.
Revenues have fallen from a high in 2000 of begun to manage their own careers. Taking control of marketing, promotion and distribution, this has dismantled the value chain created by the industry and the traditional industry structure is no longer creating a sustainable profit. It is the external influences which have affected Warner Music Group’s decisions and performance. Failing to understand these and choosing an inappropriate direction or strategy to follow has led to this decline in profits. The landscape is changing so fast that any deliberate strategy is likely to fail as it is will be obsolete very quickly.
A more emergent strategy need to be employed. To begin to understand the external factors a PESTLE framework has been used to organist the information. The significance of these strategic issues and the context for the Warner Music Groups role in the industry can then be explored. Marco-Environment factors shaping the Music Industry In order to use this knowledge to inform future company strategy and assess the attractiveness of the industry, it is helpful to organist the factors influencing or causing this change. The PESTLE framework is a tool for analyzing the global environment and organizing the factors.
The framework considerer 6 factors; Political, Economic, Sociological, Technological, Legal and Environmental. Not all of these are relevant to every organization and understanding the most significant to an organization is essential in developing a strategy to deal with them. Analysis of the current situation indicates that the major current influences of change, fall into two categories: Technological and Sociological. PESTLE analysis Technological: Since the introduction of the CD in 1983 and the digitization of music the landscape for the music industry changed.
Music is easy to buy, store, transport. The internet and online streaming has all but removed the need for tangible goods to be sold. The rate of technological advancement and the emergence of new products – MPH music players (and subsequent obsolescence of other products – Cad’s) has removed many of the traditional music industries opportunities to add value to the product and thus create profit. The digitization has also led to the prolific coping and sharing of music. Sociological: the life styles of customers have changed to accommodate new technologies and customers’ needs and wants have changed.
Value is no longer attributed to ‘hard copies’ of music and sharing music is socially acceptable. Customers no longer feel obliged to pay for music they do not want and individually purchase tracks or even listen to music online without making any purchase. These two factors have had the greatest influence on the industry and the value chain it created. The strategy might be to accept the predicted change and adapt to deal with it, or it might be to attempt to stop the change by countering the influencing factor, but these factors are not independent.
There is a strong link between sociological and technological. Sociological is now argued to be the most dominate factor in the electronics industry – replacing technological (Vine 2013) and the same argument could be applied to the music industry. Warner Music Group must understand the asymptomatically associated within the industry. Keeping up with the pace of technological change can often be extremely difficult and expensive and may not be an area of competence for the Warner Music Group but by positioning itself correctly there may still be areas of profitability within the industry.
Industry attractiveness is determined by the level of profit in an industry and the requisite for profit is the creation of value for the customer (Grant, 2010) The opportunity to create value hence the economic structure of the industry is, according to Michael Porter a product of five forces whose collective strength determine profitability (Vine 2013). Porters five forces framework is used in Figure 1 to show analysis of the music industry. Figure 1. Porters Five Forces analysis of the music industry ere Five Forces analysis shows Warner Music Group are operating in a hostile competitive situation.
As highlighted by the PESTLE analysis technological factors eave been most influential. They have broken down barriers to the industry, Increasing the rivalry. Technological factors have affected buyer power and allowed new powerful distributors to emerge. The industry has changed beyond recognition and companies need to react to this change. Warder’s strategy needs to be emergent to allow the agility to move with the trends. The old models of profitability no longer Norm.
As well as the external influences identified in the PESTLE framework and the forces highlighted in Porters five forces model the 88835 Strategy Framework implies here are four dominant and powerful ‘pressures’ which have a major impact on any organization. Before deciding a future strategy these pressures should be considered. Industry Dynamics All industries change and all industries are in a state of change, what differs is the rate of change. For the Warner Music Group the rate of change over the last 30 years has speed up to an unmanageable rate.
Since the digitization of music and the advent of online streaming the Warner Music Group has found itself in very much in the wrong place and the growth trajectory is not good. The two key points affecting industry dynamics identified by Vine and Seal-Horn (2013) are the emergence of new competitors and changing industry boundaries. The removal of barriers to entry has seen vast numbers of new entrants into the industry and the number of substitutes to the traditional product has meant new competitors are not all coming from the music industry, hence changing industry boundaries.
Technological advances mean profit is no longer derived from having tangible products to sell. The Manner Music Group need to consider what part of the industry it should get evolved in, online music stores, streaming services and/or the technology associated Math either. Globalization ere Warner Music Group are an international company and although operating in domestic markets where cultural identities mean different artists will sell in different countries, their advantage is now being lost.
Technological change operates across International borders and has no geographical boundaries and is a strong drive of globalization it has removed barriers and allowed all competitors to operate globally. ere biggest players are now far less significant and if not careful will become Insignificant. Risk gets ever higher. Events and trends in the wide or macro environment are fickle and difficult to influence or predict. Warner Music Group would not want to invest organizational resources into a product that will be technologically obsolete before it goes to market or that will not meet social conventions when it goes to market.
Manner Music Group must recognize its strengths and exploit what it is good at. It has a strong history of predicting trends in what customers want to listen to, but not how they listen to it. The future may lie in marketing to other manufactures of IT peccaries distributors rather than the final customer. Control of the core risk, of as Heat unknown technological advances being adopted by consumers and wiping out any profit, is outside the organizations capabilities. Selling music in a market which operates at a level above that of the final device may lessen this risk.
As with the words’ from an author, music from a musician will always be demanded, but the final method of reading or listening is changeable – books to e book, Cad’s to online streaming. So structuring the business not to be depended on a single device or method will reduce risk. Ethics and CAR behaving ethically or responsibly is a challenge to Warner. Not because they deliberately behave unethically but because it is difficult to define what ethical is. ere music industry is notorious for needing to be ‘cool’, and as many parents know trying to be cool is paradoxically counterproductive.
CIT has ensured a wide audience and can create bandwagon. The Warner Music Group have suffered from social media making it easier for opinions to be shared and gain attention. The very notion of being a large multi-national company may burden the Warner Music Group so the tragedy needs to acknowledge this and play to the strengths of the brand and not the elements which will appear unattractive to the music listening audience. ere music industry has changed beyond recognition and Warner Music Group need to react to this change, and more importantly continue to react to it.
The models used n this analysis have presented a snapshot of the situation from Warder’s current perspective and enabled a brief understanding the dynamics and drivers needed to stay in tune with the industry dynamics . Designing a strategy must be an iterative recess and the iterations must reflect the speed of change in the industry. A constant process of horizon scanning and re assessment of strategies together with an emergent strategy will allow the agility to move with/even create new trends.
This gives the potential to influence the development of the industry to suit their own needs and grow profitability. Conclusion This report has given a brief overview of the strategic external factors facing the music industry from the perspective of the Warner Music Group. Following initial analysis of the strategic issues, the macro-environment was explored using the PESTLE framework which identified technological and sociological factors being the most influential to the change in the industry.