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