The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture 10.1 The Internet and Business Lecture 10. Industry Analysis Example: Music Industry.

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture 10.2 Music Industry Size

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture 10.3 What should we include when we talk about “the music industry”? Live performances? Sales of recorded music? Licensing of recorded music? Sales of MP3 players and recording equipment? Sales of musical instruments?

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture 10.4 Industry data sources International Federation of the Phonographic Industry (IFPI) Recording Industry Association of America (RIAA)

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture 10.5 Broadly defined, the industry size is $155 Bn. worldwideindustry size is $155 Bn. worldwide Recorded music sales – trade and retail Music publishing revenue - income from public performance and broadcast rights Musical instrument sales Live music revenue Portable music player sales Source: IFPI The Recording Industry in Numbers

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture 10.6 Trend in U.S. recorded music sales

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture 10.7 Music Industry Structure

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture 10.8 Who are the players?

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture 10.9 Some industry participants Musicians – performers, recording artists Songwriters, composers Record labels Music publishers – ensure songwriters and composers get paid when their compositions are used commercially (royalties etc.)Music publishers Retailers Online music sites Music player manufacturers Cellphone manufacturers and service providers …

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Before the internet… Retailers: record stores, superstores Some piracy: cassette tapes, but costly Major labels, some independents Talent spotting: label A&R Distribution: physical goods Manufacturing: factory Selling product Advertising supported: radio Performances and merchandise

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture After? Retail: Specialist bricks and mortar retailers extinct – replaced by iTunes, Amazon.com and retail superstores such as WalMart Piracy: Greatly increased Talent spotting: artists required to prove commercial viability prior to signing with label – self-release, sell on iTunes, count MySpace downloads Revenue model: Increased emphasis on live performances to generate revenue (note the proliferation of old acts returning): major acts signing with Live Nation Labels: Major record labels remain dominant, albeit in a smaller industry

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Some bands doing own promotion and distribution Push Play is an unsigned band that promoted themselves on YouTube and with free concerts. –Their self-released album sold 30,000 copies on iTunes. –They managed to book the 2,100 seat Nokia Theater in Manhattan despite being unsigned. The Bear Hands is one of many bands that uses MySpace to promote its music. –The band distributes music via iTunes and CDs and merchandise via InSound, an Online Indie Store. –They are not signed to an Indie Label. –They self-produced a 4-song EP called Golden which sells for $6.99 in CD format and $3.96 on iTunes.

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Dance music DJ performance is the primary source of revenue Web sites set up to market to DJs – – DJs can follow hottest music live via online radio –hottest BBC U.K. radio shows including Pete Tong and Judge Jules, 2 of the most influential players in the international world of dance music: “These guys get and play all the hottest tunes FIRST”.

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Major record companies Sony Music Entertainment Arista, RCA Records,… Universal Music Group Universal Music Group (owned by Vivendi) Decca, Motown, Island Def Jam, Universal, Verve… Warner Music Group Asylum, Atlantic, Rhino… EMIEMI (private: owned by Terra Firma private equity Capitol, EMI, Virgin,…

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Warner Music Financial performance for 3 months ended December 31, 2008: –Revenue: $878 million –Operating income: $41 –Operating margin: 5% Only publicly traded music company Equity partnerships in social media sites Alternative Distribution Alliance Growing artist services business

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Warner Music Group stock vs. S&P500

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Sony Music Entertainment Revenue Q3 08 $1.16 B, operating income $0.16 B, operating margin 14% Revenue decreased 22% compared to Q3 07; operating income decreased 41% Digital sales represent 31% of SME’s US revenue and 18% of worldwide revenue Sells music via MySpace One of the founders of MySpace Music –Music sales, subscription, ad-supported entertainment Participated in “Comes With Music” – bundles music with mobile phones Sells MP3s via Amazon Launched MusicPass (MP3 gift cards) “Plans to develop a wide range of business models”

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Sony Music has MyPlay.com Music retailer; also video and movies, electronics, books Through Amazon webstore – buyers sign in with their Amazon account MySpace Music also uses Amazon for fulfillment

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Why is the industry dominated by four large labels? Economies of scale Manufacturing – CDs, DVDs Global logistics –Promotion: media buy, radio station relationships etc. –Distribution: local languages, legal costs

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Recorded music industry structure Industry competitors SuppliersBuyers Substitutes Potential Entrants Musicians Songwriters Composers Self-publishers iTunes Amazon Wal-Mart Grooveshark? EMI… Sony Music Warner Indie labels…

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture iTunes iPod one of many “MP3” players, not the first iTunes introduced January 9, 2001 as a digital jukebox for Mac usersintroduced January 9, 2001 iTunes store opened April 28, 2003opened April 28, 2003 Leading music retailer Sales estimated $1.011 B for 3 months ended December 27, –Estimate annual sales $3-$4 billion –Worldwide recorded music sales about $30 Billion

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Peer to peer file sharing LimeWire Uses BitTorrent protocol

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Economics of the Industry

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture How has the internet affected costs? Artists can record, mix, distribute their own product Digital music represents lower distribution costs for record labels Manufacturing costs and distribution costs  zero!

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture How has the internet affected revenues?

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Business Models

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture New or more prevalent revenue models Direct sales by artists Subscription: Napster etc. 360 degree deals Licensing to marketers Ad-supported sites: RCRD LBL “Comes with music” – bundling with cable or cellphone services

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Devices MP3-players Cellphones SmartPhones

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Music web services Grooveshark – revenue from digital downloads, shares with person who uploadedGrooveshark Grooveshark artists – revenue from promoting artistsGrooveshark artists Spotify – advertising revenue modelSpotify Last.fm, Napster, Pandora, Jango, Rhapsody,…

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture New ventures How do they get financing?

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Competitive Strategy

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Labels compete head-to-head Record labels compete by differentiation: signing different acts Some focus on different market segments Sony integrates content and consumer products, strong emphasis on Asia

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Marketing Strategy

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Pricing options iTunes is the “price leader” for digital singles –Amazon prices at a discount to iTunes –Wal-Mart… Bundling –Digital single sales reduces revenue per sale –Bundling attempts to get customers to spend more per purchase Versioning (DRM free versions at a premium price)

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Promotion UMG in talks with YouTube to put music videos in a special area of the site (March 2009) Viral marketing

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Future Developments

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture Piracy Pirate Bay web site on trial in Swedenon trial in Sweden France seeking to legislate to demand ISPs cut off illegal downloaders

The Internet and Business R. David Seabrook. Purchase College, SUNY. Spring Lecture New business models Increasing focus on cell phones as music players and distribution channel Live performances provide an increasing share of revenue ?