3. Music Industry
SDMI (founded 1998): forum for music industry to develop open
framework for digital music.
Participants included IT companies, Consumer Electronic,
telecommunication, Internet Companies, security providers, etc.
RIAA: main body for intellectual property rights in American record
music industry. It’s members included Record Companies.
Technological developments
New Audio
CDs Mp3 format Mp3 Devices compression
technologies
4. • SDMI strategy Phase I Phase II
NAPSTER
• Napster was created in 1999 by Shawn Fanning
• It was designed as a peer to peer file sharing site.
• Had approximately 60 million users by 2001.
• Napster is nothing but a “Giant Online Pirate Bazaar.” (Recording
Industry Association of America (RIAA))
• Acquired by Roxio and eventually has become part of Rhapsody in
Dec,2011.
6. Political
Factors
Technological Music Economic
Factors Industry Factors
Social
Factors
7. POLITICAL
Copyright infringement policy
Permitted copying of musical works for personal use
Gaps in policy
File sharing law “unclear”
No proper law for online distribution of music
Court was forced to take decision.
Technological challenge in implementation
9. SOCIAL
More technological awareness and willingness to
adopt
Rapid adoption of digital music specially by college
goers who constituted a key demographic
Youth culture was free exchange of ideas over internet:
“No fee”
10. TECHNOLOGICAL
High Growth in
number of
internet users.
New technological advancements
New formats such as .mp3
Digital recording
Emergence of new products to enrich online experience
online distribution network
11. DISTRIBUTION CHAIN
SDMI
`
Traditional
Retailer
Online Retailer
Artist
Record Company Distributors (Amazon.com) Consumer Retailer Distributor
Manufact
Mass Production urer
Online Source
(MP3.com)
RIAA
12.
13. New Entrants
Not an easy entry for Record Companies: High cost
for signing, recording and promoting a potential star.
Easy entry for Internet Companies who can sell and
distribute digital music achieving product
differentiation
New business model to gain a competitive advantage
as low switching cost to buyers.
Need initial capital for technical infrastructure.
14. New Entrants cont...
Ease with digital format and easy distribution, thus a
cost advantage
No need of a retail presence.
No proper laws for entry into this segment.
Open possibility for new modes of operation
15. New Substitutes
Substitute for CDs is the new MP3 Format: Small
compressed file with good quality, can be uploaded on
internet and shared.
Conversion of music files also possible.
Disruptive technology. May make Music industry
undergo a rapid change.
Buyers can buy single songs. No need to buy whole
album. Thus low price and switching cost to buyers.
16. New Substitutes cont...
Peer to peer sharing of files can severely affect the
copyright holders.
All this due to a rapid penetration of internet and its
new products.
Also, development of new formats like ATRAC and
new MP3 players
17. Buyer Power
Buyer Power increased as now they have multiple
sources to get music from.
No need to buy CDs. Can get digital music files from
internet. Thus saves time, effort and money.
Switching cost low. Buyer can easily switch to a
different source.
Price sensitivity:
No Impact on quality.
Buyer Profit
No need to buy whole album.
If Phase 2 is implemented, buyer power will be limited.
Also exemption clause will become narrow in scope.
18. Industrial Rivalry
New rivalry high due to entry of new business models
Market Concentration has increased.
Diversity of competitors in the present market.
Absence of Proper Laws results in Copyright lawsuits
and thus increase in rivalry
NO existing laws for such companies.
NO clarity over the legality of file-swapping facilitators.
19. Supplier Power
Earlier supplier power higher: RIAA
But now, product differentiation has lowered the
supplier power.
Artists can upload his album and sell it online,
bypassing the traditional hierarchy of distribution.
Reduced dependence on record companies and
availability of supplier substitutes.
At present, the power will depend on the outcome of
the case. Implementation of 2 phase strategy may give
back the power to RIAA.
20. NEW DISTRIBUTION CHAIN
SDMI
`
Traditional
Retailer
Online Retailer
Artist
Record Company Distributors (Amazon.com) Consumer Retailer Distributor
Manufact
Mass Production urer
Online Source
(MP3.com)
RIAA
21. SWOT ANALYSIS: Napster
Strengths :
Huge customer base
Advantage on the legal front as it identified itself as a
facilitator.
Cost involved was minimal.
Supply of the content was easy.
Weakness:
could not capitalise on the idea
22. SWOT ANALYSIS CONTD.
Opportunities:
Huge untapped market
Can generate revenue in collaboration with the
recording companies.
Can form alliances with social networking websites.
Threats:
Vulnerable to legal attacks
Uploading of malicious content
23. FUTURE TRENDS OF MUSIC
INDUSTRY
The market for CD’s has reached saturation point and
with acceptance of MP3 technology trends are
changing.
People are becoming internet savvy due to ease of
access and MP3 is now widely accepted.
Industry must reach a consensus on how to keep a
check on piracy and simultaneously achieve
profitability.