Essay Instructions: Purpose: To research and identify strategies, trends, and precedents in the air travel and software industries that have parallels to the music industry and recommend how the parallels could be used or adapted to benefit the music industry.
Guidelines & Required Sections:
1. Characterize the air travel and software industries in terms of size (as measured in US and/or global revenue), age, stability, and degree of consolidation. Specific products, services or companies can be used to illustrate the present state of both industries.
2. For each selected non-music industry, identify & describe in detail two parallels between it and the music industry. I have selected the below described parallels between the air travel and software industries and the music industry so paper needs to elaborate on the following: (a) In spite of economic slowdown and loosing money the airline industry has kept its seats remarkably full using a business model that stresses sacrificing profit margin, (by constantly offering low prices), over a high turnover ratio, (dealing in volume). The music industry is also undergoing economic hard times but most major labels refuse to bring CD prices down. It is vital for the music industry strategist to realize that product prices must be reconsidered, (probably applying a similar business model as the one the airline industry has been using). Settling for a lower priced product might help reposition product with music buyers, (turned off by high prices and attracted by illegal downloading). (b) Internet technology allows consumers to be more specific about the music products they want, and it allows music buyers to establish a more detailed operating criteria for the investment of their leisure dollar. Airline industry has turned into an internet enabled industry, (sites like Expedia, Orbitz, etc), while the record industry still sees the internet as ?the enemy?. This can be translated into the record industry as the idea that a label built to stay ahead in the new millennium will likely have to adopt a continuous implementation of the latest technologies and show persistence on new initiatives, (i.e. the acceptance electronic distribution as a way to better serve their customers). (c) The software industry faces the same problem as the music industry in the sense that software products are also subject to internet piracy, illegal downloading and bootlegging. In spite of this, and contrary to the music industry, the software industry still finds ways to make a profit. This is mainly due to the software industry?s ability to constantly reinvent, repackage, incorporate value adds, etc, their product. The music industry can start solving its problems by using creativity, (the same way the software industry is using it), and developing new music products designed to entice audiophiles and music fans so that they are willing to pay for services on label-sponsored Web sites. This can be done by offering digitally pristine sound, (MP3 is still a form of audio file compression that slightly degrades the original product), that can be downloaded to hard drives and portable players and special features, such as artist interviews, artwork and graphics. Making the line between entertainment and marketing undistinguishable can both increase consumer satisfaction and propel traditional music sales. (d) Software & technology industry companies are constantly developing partnerships, synergy, joint ventures or cooperation (Apple developing the PC version of their iPod, Microsoft developing versions of their products for Mac, etc), while the music industry seems to ?isolate? itself. How can the music industry learn and adapt from this model.
3. Analyze each parallel in terms of its relevance to the music industry and recommend how the parallel could be used or adapted to benefit the music industry. Needs to be specific; avoid overviews and generalizations.
4. Bibliography is required.
5. MLA format is required.
Additional Information Provided
From The Economist print edition
The record industry is desperately seeking a way out of its problems
-- Reuters
HAVING failed to squelch digital piracy, can the record industry merge its
way out of trouble? That question has been around since late last year when
EMI, the world''s biggest independent record company, is said to have begun
talks to revive two old merger ideas. In time, some expect the five big
companies to become three.
Piracy remains the biggest headache. The record industry has squashed
Napster in the courts, but other online music-swapping services have sprung
up in its place. File-sharing on KaZaA was 1,491% higher in June 2002 than
in June 2001, according to ComScore Media Metrix, a research group. The
industry is suing this and other file-sharing services, but new ones emerge
as fast as old ones are shut down. Little wonder that sales of recorded
music dropped in 2002 by an estimated 9%.
In this shrinking market, the savings that might be squeezed from a merger
offer a lifeline. In the past, European regulators have been an obstacle,
repeatedly blocking mergers among the big five record companies?Vivendi''s
Universal Music, Sony Music, EMI, AOL Time Warner''s Warner Music, and
Bertelsmann''s BMG?which between them control 70% of the global
recorded-music market. In 2000, they blocked a merger of Warner and EMI by
imposing heavy divestment conditions. They stopped EMI marrying BMG even
before a formal proposal was tabled.
In its present state, the record industry may get a more sympathetic
hearing; and Brussels, having lost several court cases over mergers, is less
obstructive. Though talks are preliminary, and the BMG option is not ruled
out, EMI is more likely to do a deal with Warner. The two firms complement
each other: EMI is strong in Europe and weak in America, Warner the
opposite. Alain Levy, EMI''s boss, has streamlined his firm, but savings from
a merger could still reach about ?150m ($240m), says Brett Hucker of Merrill
Lynch.
There remain obstacles to a deal, however. AOL Time Warner, under pressure
to pay off debt, needs cash, but this could be hard for EMI to provide given
its own large debts. There would also be awkward negotiations about who
would run the combined firm. Mr Levy, who has cut the flab and curbed the
extravagance at EMI, would resist ceding any control. Regulators might
quibble over combining their music-publishing operations.
Consolidation is but one of three strategies that the industry hopes will
help it survive as it works out how to beat the pirates. A second is a
renewed effort to rely less on instant stars and more on long-term talent.
Overnight stars can fade as fast as they are born. Hear''Say, a British band
assembled by a TV talent show two years ago and signed to Vivendi
Universal''s Polydor, went straight to number one with its first album; now,
the band has split up. EMI, by contrast, launched Norah Jones, a singer who
blends country, folk and blues, a year ago. Her first album, ?Come away with
me?, took 46 weeks to top the American charts; at this week''s Grammy
ceremony, she won eight awards.
A third idea is to transform narrowly defined record firms into broader
music companies. Revenues from touring, concerts, sponsorship and so on
added about 40% to global sales of recorded music in 2001, making the global
music industry worth $47.6 billion, according to a recent report by Music
Week, a trade title. Some new sorts of music revenues are emerging: sales of
snatches of songs to use as mobile-phone ring-tones raised $71m last year
for artists, according to Informa Media, a research group?small, but 58% up
on 2001.
For a true star, the extra pot is far bigger: record companies get only 15%
of all revenues generated by such an artist, although they have made the
star''s name and marketed his brand. The rest goes to the singer, agent,
manager, producer and assorted other hangers-on. Although only such
mega-stars as Eminem or Christina Aguilera pull in serious money from such
activities, they represent a handy pot which, at the moment, the record
companies have no fingers in. Now, they are trying to rectify this. The
apparently extravagant recent record deal between EMI and Robbie Williams
was a bid by Mr Levy to reorient his company in this way. The deal, in
effect, gives EMI a stake in Robbie Inc and in all his future earnings.
But even if the industry buys itself time through consolidation and other
strategies, its long-term health requires a solution to piracy. Investing in
musicians is ultimately about building a back catalogue of hits that provide
an ongoing source of revenues. But what is the point of a back catalogue if
pirates are helping themselves to its tracks for nothing? If that is the
outcome, the winners from today''s merger talks could simply be the sellers.
There are faxes for this order.