Group 4: Muhamad HafidzCGA Shervin Shahidi HamedaniCGA Mohd Nashran Mamat CGA th August 2009

Contents  Case Study Overview  Physical vs Digital Download  Online Music Distribution Analysis  Value Chain and New Business Model  “Bricks and Mortar” and Music Label Strategies  Recommendation and Conclusion 1

Case Study Overview  Music Industry in the Digital Era  Music industry is facing an array of market challenges  Technology - change the way people listen and obtain music  Issues of piracy and copyright theft 2

Physical vs Digital Download Comparison 3 Source:

Physical vs Digital Download Comparison 4 Source:

The Three Main Legitimate Online Music Providers  Apple iTunes  Over 750,000 songs  Compatible with iPod & iPhone  Napster  Over 1 millions songs.  Sony Connect  Over 300,000 songs.  Only compatible with Sony products 5

Alternative Channels  Peer to Peer Network (P2P)  BitTorrent, Kazaa, limewire, The Pirate Bay  File sharing (direct download)  Rapidshare, savefile.com  Social-Networks  Myspace, Friendster  YouTube 6

Users of Digital Music Tends to Think That Copying is Not Piracy 7 THEFT GROSS COMMERCIAL COPYRIGHT INFRINGEMENT FILE SHARING PIRACY Source:

Truth About Physical and the Future of Digital Distribution (Video) 8 Do or Die !!

Analysis of Online Music Distribution Porter’s 5 Forces Analysis Threat of Substitute Products Physical music records such as Compaq Disc. However, there are various types of digital music format – each competing with each other to win market share. Threat of New Entrants Barrier of entry is lowered as traditional value chain providers. New and independent artist can market its music directly to the end consumer. 9

Analysis of Online Music Distribution Porter’s 5 Forces Analysis Bargaining Power of Suppliers Artist and Record Labels have greater ability to reach the consumers directly. Further consolidation of Music Labels through Merger and Acquisition could still take place due to high competitiveness nature of the industry. Bargaining Power of Customers  Customers are able to reach the cheapest cost supplier using Internet.  Customers have easy access to free music by using P2P Networks. 10

Analysis of Online Music Distribution Porter’s 5 Forces Analysis The Intensity of Competitive Rivalry The number of major music labels was reduced to four from five and are holding on a significant majority of the market share “Bricks and Mortar” music stores retailing is getting more competitive with integration with online distribution channel as well as competition from other supermarket chains. 11

The Value Chain and Evolving Business Models 12 Shifting the power centers and introducing new players. Artists are increasingly getting more involved in the production, marketing and distribution Three categories of digital music retailers have entered the market pure play : digital retailers whose main focus is music sales (Napster) vertically integrated players : who use music as a means to promote their core offerings (iTunes) diversified players : who have included music in their service offerings (Amazon MP3 Store)

The Value Chain and Evolving Business Models 13 Independent and unsigned artists are using the digital channels to distribute their content directly to the listeners, bypassing the traditional intermediaries Music companies are increasingly using their music along with other media and entertainment forms such as TV, mobile games, advertisements, etc Music companies are also partnering with ISPs and mobile handset manufacturers and portable music device manufacturers to broaden their customer reach

The Value Chain and Evolving Business Models 14 Source: The Digital Music Market Outlook, Business Insight 2009

Strategies available to Music Labels and “Bricks & Mortar” channels to mitigate competitions from online music distribution 15 Encoding a wide variety of songs in widely accepted industry standards and selling these songs via the Net Offering facilities in stores for compiling songs onto albums and charging a premium for these services Turning physical retail stores into social gathering places with appropriate ambience for music lovers

Strategies Available to Music Industry to Address Piracy Problem 16 Source: How Market Smarts Can Protect Property Rights, Harvard Business Review, 2004 Nip It in the Bud (prevent misappropri ation) Prescribe a Sedative (lower the competitive intensity) Dig a Honey Pit (entangle key assets) Make a Bundle (combine a secure with insecure products) Move the Goalposts (redefine the firm’s boundaries) Let the Dogs Out (relinquish your core assets) Defend Core AssetsEmbrace the Threats Market Strategies pre- empt deny assets out- innov ate threaten to retaliate create synergies among related business Marry assets to comple mentary products preserve the core with add-ons expand into rivals’ business narrow your own business reallocate resource to adjacent business

Conclusion  The industry need to embrace the inevitable of Online Music Distribution Channel through integration of the channels  The internet as delivery medium and innovations of handheld devices will continue to be the key to growth  Piracy is expected to widespread among younger generation  Key to success shall be execution speed and flexibility to adapt to consumer demand 17

Is this theft? 18 Source: