Development Of A Global Music Industry

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Development Of A Global Music Industry

  1. 1. BMG Entertainment internet business models text and cases Kristin Belanger
  2. 2. Development of a Global Music Industry
  3. 3. Overview <ul><li>Introduction </li></ul><ul><li>History </li></ul><ul><li>Strategies </li></ul><ul><li>Stakeholders </li></ul><ul><li>Get Big Fast! </li></ul><ul><li>20-20 Hindsight </li></ul>
  4. 4. Introduction <ul><li>Music Industry </li></ul><ul><ul><li>One of the fastest moving Industries </li></ul></ul><ul><li>CEO – Strauss Zelnick (in 1998) </li></ul><ul><li>Brick and Mortar company gone Online </li></ul><ul><li>Two of the Six leading companies merged in the past year </li></ul><ul><li>Steered BMG towards online opportunities </li></ul><ul><li>Cautiously made strategic moves </li></ul>
  5. 5. Introduction cont. <ul><li>Subsidiary of Bertelsmann AG (German company) </li></ul><ul><li>World 4 th largest media company (Billboard.com) </li></ul><ul><li>By 1999, $4.6 billion music and entertainment company </li></ul><ul><ul><li>More than 200 record labels and in over 53 countries (Billboard.com) </li></ul></ul><ul><li>1999 distributed 5 of the best selling albums </li></ul><ul><li>Cut money – losing divisions (apparel, video distribution) </li></ul>
  6. 6. Road Blocks <ul><li>The ever changing Music Industry </li></ul><ul><ul><li>Company able to keep up with changes </li></ul></ul><ul><ul><li>Predict upcoming problems </li></ul></ul><ul><li>Five other competitive content providers </li></ul>
  7. 7. History of Music Industry <ul><li>Sheet music to phonograph </li></ul><ul><li>Tin Pan Alley (NY, NY) </li></ul><ul><li>First popular song “After the ball” 1892 – then industry spiked </li></ul><ul><li>Numerous roadblocks </li></ul><ul><ul><li>Broadcast radio – Sales dropped, radio’s soared </li></ul></ul><ul><ul><li>Depression (1920’s) Music Industry peaked </li></ul></ul><ul><ul><li>1948 vinyl </li></ul></ul><ul><li>Major compeditors RCA/Victor, EMI, and CBS Records </li></ul>
  8. 8. History (cont.) <ul><li>Rock and Roll </li></ul><ul><ul><li>Hundreds of record companies </li></ul></ul><ul><li>RCA/Victor and CBS were afraid of marketing to teenage market </li></ul><ul><li>1960’s began merging multiple labels under one music corporation </li></ul><ul><ul><li>Branding each into different genre’s of music </li></ul></ul><ul><li>Industry decline between 1980’s and 1990’s </li></ul><ul><li>Music Industry mergers helped in the 1990’s </li></ul>
  9. 9. Music Industry Organization <ul><li>Composers & Lyricists </li></ul><ul><ul><li>People who wrote the music and words </li></ul></ul><ul><li>Performing Artists </li></ul><ul><ul><li>Performers of their own original songs or used some created by lyricists and composers </li></ul></ul><ul><li>Music Publishers </li></ul><ul><ul><li>Bought rights to the pieces and promoted music through channels </li></ul></ul><ul><li>Record Companies </li></ul><ul><ul><li>Artists under contract, bought musical rights, managed recording, made CDs, distributed, promoted products </li></ul></ul><ul><li>Independent Distributors </li></ul><ul><ul><li>Distributed on behalf of independent labels and made cross-regional mergers </li></ul></ul>
  10. 10. Music Industry Organization (cont.) <ul><li>Retail Channels </li></ul><ul><ul><li>Sold through brick & mortar, record clubs, mail order, online retailers </li></ul></ul><ul><li>Consumers </li></ul><ul><ul><li>Directed at individual consumers (by genre) </li></ul></ul><ul><li>Promotion </li></ul><ul><ul><li>Battled with radio stations to get new releases aired (equals more record sales) </li></ul></ul><ul><li>Rights Agencies </li></ul><ul><ul><li>Paid by royalties (payments tied to actual use of music) </li></ul></ul><ul><li>Industry Economics </li></ul><ul><ul><li>Divided profits among various players </li></ul></ul>
  11. 11. Strategic Plans <ul><li>Mergers in 1920’s helped in 1999 </li></ul><ul><ul><li>BMG one of top 5 corporations </li></ul></ul><ul><li>Manufacturing, distribution, music publishing, sales and marketing activities were centralized over the 200 labels </li></ul><ul><li>Labels responsible for individual promotion of artists </li></ul><ul><li>Launched first website in 1995 with many different website for different genre’s </li></ul><ul><ul><li>Peeps.com for hip-hop (non – existent anymore) </li></ul></ul><ul><ul><li>TwangThis.com (country) </li></ul></ul>
  12. 12. Strategic Plans cont. <ul><li>Teamed up with GetMusic.com – comparable to CDnow.com or Amazon.com </li></ul><ul><li>Were first to experiment with downloads in 1997 </li></ul><ul><li>Had longer-term intentions </li></ul>
  13. 13. Strategic Partners <ul><li>Microsoft, Liquid Audio, Real Networks, AT & T and IBM </li></ul><ul><li>Helped stream in audio clips, music video’s and more </li></ul><ul><li>All partners were needed to help set technological standards for downloading music </li></ul><ul><li>Had hundreds of files on potential deals </li></ul>
  14. 14. <ul><li>Don’t sell your copyrights or license them exclusively. </li></ul><ul><li>Don’t make long-term deals that you can’t change. </li></ul><ul><li>Once you’ve followed those rules, be willing to take risks and try things out. </li></ul><ul><li>If God forbid you’re wrong, you still own your copyrights. </li></ul><ul><li>-Strauss Zelnick </li></ul>
  15. 15. Competition <ul><li>Universal Music Group </li></ul><ul><ul><li>Still around today </li></ul></ul><ul><li>Sony Music Entertainment </li></ul><ul><ul><li>(merged with BMG – now called Sony BMG Music Entertainment) </li></ul></ul><ul><li>Warner Music Group </li></ul><ul><ul><li>Still around today </li></ul></ul><ul><li>EMI </li></ul><ul><ul><li>Still around today as well </li></ul></ul>
  16. 16. Brands (Labels) <ul><li>Some of the labels that were under BMG included: </li></ul><ul><ul><li>Arista </li></ul></ul><ul><ul><li>Ariola </li></ul></ul><ul><ul><li>RCA </li></ul></ul><ul><ul><li>BMG Records </li></ul></ul><ul><ul><li>Red Seal </li></ul></ul><ul><ul><li>Windham Hill Group </li></ul></ul><ul><li>Had artists such as Christina Aguilera, DAVE MATTHEWS BAND, Grateful Dead, Kenny G, Barry Manilow, Notorious B.I.G., Puff Daddy, Santana, Sarah McLachlan, Whitney Houston, ZZ Top </li></ul>
  17. 17. Serious Threats <ul><li>Napster, BearShare, Limewire </li></ul><ul><ul><li>All free* MP3 download programs </li></ul></ul><ul><li>Listen.com, Emusic.com, MP3.com </li></ul><ul><ul><li>Consumers sampled music for .99 cents a song – downloaded an album for $8.99 </li></ul></ul>
  18. 18. Why Content Provider? <ul><li>BMG Entertainment was clearly a Content Provider </li></ul><ul><ul><li>Content included Artists, Songs, Lyrics, Downloads, Appearances, and much more. (Original Professional content) </li></ul></ul><ul><li>Considered a horizontal content provider </li></ul><ul><ul><li>Reached out to everyone </li></ul></ul><ul><ul><li>Reached out to people with different genre tastes (had a little something for everyone) </li></ul></ul>
  19. 19. Stakeholders <ul><li>Customers </li></ul><ul><ul><li>Strategic Partners </li></ul></ul><ul><ul><li>Buying consumers </li></ul></ul><ul><li>Employees </li></ul><ul><ul><li>Employees of BMG </li></ul></ul><ul><ul><li>Shareholders (both employees of Bertelsmann AG and Sony) </li></ul></ul><ul><li>Partnerships </li></ul><ul><ul><li>Microsoft, Liquid Audio, Real Networks, etc. </li></ul></ul>
  20. 20. Winner Takes All? <ul><li>Customer Acquisition Costs </li></ul><ul><ul><li>Low to moderate - people keep returning for the content (i.e. Music downloads, albums, information) </li></ul></ul><ul><li>Network Effects </li></ul><ul><ul><li>Strong the more people go to BMG music to see their favorite artists the more they can download songs & info </li></ul></ul><ul><li>Scale Economies </li></ul><ul><ul><li>Strong – the more people go to the webpage's the more people buy the more revenue they receive </li></ul></ul><ul><ul><li>The costs are fixed – ad companies add to scale economies (the more the exposure the more revenue) </li></ul></ul><ul><li>Customer Retention </li></ul><ul><ul><li>High – great discounts (get 12 free buy 3 CD’s) </li></ul></ul><ul><ul><li>Appearance information </li></ul></ul><ul><ul><li>Usernames – keep sending updates to customers e-mail accounts </li></ul></ul>
  21. 21. Success? <ul><li>I definitely think that BMG will be around for a long time. They have been through the music industry (fast moving industry) and have continued to release Top 10 Best Selling Albums </li></ul>
  22. 22. Update! <ul><li>August 2004 Merger </li></ul><ul><ul><li>Sony Corporation of America and Bertelsmann A.G. (Billboard, 9/24/2005, Vol. 117 Issue 39, p5, 2p) </li></ul></ul><ul><li>Reason for merger </li></ul><ul><ul><li>Music industry = global crisis (Billboard.com) </li></ul></ul><ul><ul><li>Costs risen and CDs fallen (Billboard.com) </li></ul></ul><ul><li>Andrew Lack is CEO of Sony BMG Entertainment (previous jobs include President of NBC News, CBS News, West 57 th ) (bmg.com) </li></ul>
  23. 24. Questions??

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