Online Music Industry Group Members; ArchitMehrotra 09BM8012 ShailenderNegi 09BM8046 17th March, 2011
Structure Digital Music Industry: Introduction Key Players Statistics Piracy as a challenge and steps to curtail it Trends Porter’s 5 Forces Analysis Recommendation
Digital Music Industry An online music store is an online business which sells audio files, usually music, on a per-song and/or subscription basis. It may be differentiated from music streaming service in that the music store offers the actual music file, while streaming services offer partial or full listening without actually owning the source file.
Digital Music – Statistics US$ 4.6 billion – trade value of the digital music market worldwide -31% – the decline in the value of the global recorded music industry 2004-10 6% – growth of global digital music revenues in 2010 1000%+ – the increase in the value of the digital music market 2004-10 29% – the proportion of record companies’ global revenues from digital channels 16.5% – proportion of internet users purchasing digital music in the US 13 million – tracks licensed by record companies to digital music services 400+ – licensed digital music services worldwide Source: www.ifpi.org
Statistics Source: www.ifpi.org
Key Players in the market ITunes Music Store: It is the largest player with more than 75% of the market share in the online music industry. Also it is biggest music seller in the USA in all forms Opened: April 28, 2003 Pricing model: Pay per song Platforms: Mac OS X, Windows, Apple TV, and iOS. Format: Protected AAC (.m4p), MPEG-4 Video Restrictions: (Protected) Music, unlimited iPods and iPhones. Catalogue: More than 14 million songs worldwide, 1,000,000+ podcasts (USA), 40,000+ music videos (USA) Streaming: Previews Availability Worldwide Website: itunes.com
Key Players in the market eMusic Opened: January, 1998 Pricing model: 30-day subscription Platforms: MP3s downloadable in any platform; open-source clients available for Microsoft Windows, Mac OS X and Linux Format: MP3 (.mp3) Catalogue: 6,000,000+ tracks, 7,000+ audio books Preview: 30 seconds Trial: 7 days music Availability United States, Canada, Europe, United Kingdom Website www.emusic.com
Key Players in the market Amazon MP3 : Amazon MP3 is an online music store owned and operated by Amazon.com Opened: September 25, 2007 Pricing model: Variable pricing per album Platforms: Amazon MP3 Downloader is required for downloading albums (Windows 98 or later, Mac OS X or Linux) Format: 256 kbit/s VBR MP3 Catalogue: 14,815,786 songs Preview: 30 seconds Availability United States, United Kingdom, Germany, France, Austria, Switzerland, Japan Website: www.amazonmp3.com
Key Players in the market Napster Napster is a successful online music store and a subsidiary of Best Buy. It was originally founded as a file sharing service. Opened: 1999 as free (and reconfigured as non-free by Roxio in 2003) Pricing model: Offers unlimited listening for $5–7 per month. Napster also offers an MP3 store, a pay-per-track store which does not require a monthly subscription fee. Format: DRM Free MP3, WMA Catalogue: 8,000,000 tracks three times each Availability USA, Canada, the U.K. and Germany Website: Napster.cpm
Digital Rights Management (DRM) Digital rights management (DRM) is an access control technologies to limit the use of digital content and devices Controls if and how many times a digital music file can be copied Many online music stores employ DRM to restrict usage of music purchased and downloaded online Example: Napster music store offers a subscription-based approach to DRM alongside permanent purchases
The Biggest Challenge: Piracy Decreased sales because of piracy Pressure on new artists globally Lower music sales means fewer jobs Customer’s unawareness about copyright laws and illegality
Can Piracy Be Stopped: isp and government’s role ISP Blocking services Communication with subscribers over the punitive lawsuits Educational notices to the customer culminating into a sanction Government Role France led the way in 2007 by enacting a graduated response law South Korea passed a law in April 2009 providing for suspension of user accounts : for less than one month for first time offenders; one to three months for second time offenders up to six months thereafter UK, New Zealand, Ireland, European Union, Taiwan, Chile, US have enacted similar laws
Can Piracy Be Stopped: Content Protection Strategic litigation US District Court injunction for Limewire in 2010 ISPs were ordered to block the popular The Pirate Bay in Italy in Feb, 2010 Between February and October 2010, usage of The Pirate Bay in Italy tumbled by 54 per cent Role of intermediaries Restrict use of search engines to as a vehicle for piracy Tackling pre-release piracy The IFPI global anti-piracy team removed about seven million infringing links in 2010.
Can Piracy Be Stopped: Consumer education Consumers not even aware about what they are doing is illegal Unaware about the damage being caused to the industry Some Steps to increase customer awareness Music, Film, TV and the Internet - a guide for parents and teachers Music Matters created in the UK by the music industry Pro-music - an international information campaign
Some Trends Downloads still the dominant source of revenue Itunes account for 70% of total revenue in USA Subscriptions package gaining momentum Free advertising-supported streaming service and a premium paid-for service Now improved compatibility, underlying technology Broadband penetration levels have improved quality and the consumer experience
New Trends ISPs as logical partners ISP’s billing relationships with a wide customer base Cost could be bundled within the cost of a broadband fee or paid for separately Benefits to ISP’s Strategic partnerships can act as a marketing tool Significant in reducing churn Increase ARPU Acquire new customers
Mobile operators as logical partners Achieve scale in the marketplace Highly visible distribution Direct billing that puts customer not more than 2 clicks away from download Benefits to Mobile operators Strategic partnerships can act as a marketing tool Significant in reducing churn Increase ARPU Acquire new customers New Trends
New Trends Music in the living room Subscribers can now access music through their TV set(79%) Apple also launched the new version of Apple iTV Music in the cloud Access own music collection through: a range of different devices or catalogue of tracks owned by the service provider Sony Corporation’s Music Unlimited is a cloud based music streaming service, launched in December, 2010 Several others are reported to be in the pipeline, with parties involved including Google and Tesco
Analysis of Online Music IndustryPorter’s 5 Forces Analysis Threat of New Entrants- Medium Capital requirement for the new player is low Brand loyalty is missing The entry barriers are reduced due to absence of sales force required and other infrastructure Every new customer need to have tie up with record companies to get into market. . 19
Analysis of Online Music IndusrtyPorter’s 5 Forces Analysis Bargaining Power of Customers- High There is very little difference in the service provided by different players so customer switch easily from one player to other. Customers are able to reach the cheapest cost supplier, hence bargain on price. Shift the bargaining power to the end customer by eliminating the intermediaries. 20
Analysis of Online Music IndustryPorter’s 5 Forces Analysis Bargaining Power of Suppliers- Medium
The online stores have to sign distribution deals with major record labels.
Further consolidation of Music Labels through Merger and Acquisition have increased their bargaining power. (Universal Music Publishing Group & BMG Music Publishing)
There is no substitute for what the supplier group provides.
Cannot squeeze profitability out of an industry by increasing prices beyond a certain level.
Analysis of Online Music IndustryPorter’s 5 Forces Analysis Threat of Substitute Products- High
Physical music records such as Compact Disc. However, there are various types of digital music format – each competing with each other to win market share
Customers have easy access to pirated music by using P2P Networks and other websites
Analysis of Online Music IndustryPorter’s 5 Forces Analysis The Intensity of Competitive Rivalry- High
With nearly 450 player world wide and with little difference between the service provided by them the competition is very high
Due to absence of geographic boundaries the player are competing at the global level.
Integrated players who use music as a means to promote their core offerings are increasing the competition (iTunes)
Recommendations Highly competitive industry with High bargaining power of customers, High threat of substitutes and new entrants. The sector is not worth investing until there are proper legislations in place to curb piracy and free sharing of music. If you want get into business to offer integrated service which will boost your core offering then it could be a good investment.
ISP responsibility and role of government to stop piracy ISP by blocking services that offer access to unlicensed content and addressing file-sharing by individuals on P2P networks communication with subscribers over the more punitive and less effective alternative of mass-scale individual lawsuits series of educational notices to the customer would culminate in a sanction, which could include restrictions on the use of their internet service, for those who refuse to stop infringing Government Role France led the way in 2007 by enacting a graduated response law, which is now in operation South Korea is another early adopter of graduated response. A law passed in April 2009 provides for suspension of user accounts, excluding email, for less than one month for first time offenders; one to three months for second time offenders and up to six months thereafter UK, New Zealand, Ireland, European Union, Taiwan, Chile, US have enacted similar laws