CHAPTER 1
1.0
Introduction
Music industry is one of the
contributors for economies in the global world. In this regard, various
industries are trying to initiate a marketing approach that would be able to
enhance their market position and to sustain their competitive advantage.
Primarily, the main goal of this dissertation is to investigate the differences
of marketing strategies in the music industry in United Kingdom (UK) and China.
Music marketing in the modern music industry poses challenge for record label
distributors. Publicity is a buzzword for musicians, singers, record producers
and the like. Publicity strengthens the name register and the quality of the
music. Though it is more instrumental in building awareness, it is the degree of
marketing which will truly sell a record (Summers, 2004).
Since most studies
regarding music marketing are relatively focus in general, this study proposes
examining music marketing strategies from a specified locations as UK and China.
There are several reasons why marketing music in these regions is a challenge.
On the one hand, music marketing in China passes through a political scrutiny
wherein all music and videos are subjected to formal examinations of various
bureaus under the State Council and authorized provincial distributors (Li,
2003). On the other hand, the development of clubbing, DJing and partying in
different UK destinations inhibits a presence of oneself in music destinations
over just merely listening to it (Horner and Swarbrooke, 2005). There is drive
to understand how these two countries overcome such challenges and continually
keeping their respective music industries alive.
The rationale of this
study is basically to differentiate and compare music marketing strategies in UK
and China. This study will be useful for companies and musicians that are
willing to market their produce in UK and China.
Research Questions
The study will answer the following
questions:
-
What are the relevant music
marketing strategies in existence in UK and China?
-
What are the challenges and
conflicts in implementing music marketing strategies in UK and China?
-
What are the similarities and
differences of music marketing strategies in UK and China?
-
Do the music marketing strategies
in UK and China proved to be feasible financially and economically?
-
How the success of a specific
music marketing strategy does is measured?
Research Objectives
The study will address three key
objectives as follows:
Ø
To determine the
music marketing strategies employed in UK and China and to identify their
similarities and differences
Ø
To determine the
challenges and conflicts these music marketing strategies are experiencing and
to identify factors that underpin such
Ø
To determine the
performance of different music marketing strategies in UK and China and to
identify success or failure indicators
Research Model
Since this study will
focus on marketing of music industry in UK and China, the research model to be
used is Marketing Mix. The idea of the marketing mix has been around for many
years - well before an 'e-' came in front of 'marketing' or anything else.
Marketers devise strategies and tactics aimed at providing satisfaction and
adding value for customers. The marketing mix can be defined as the blend of
tools and techniques that marketers use to provide value for customers. It is
most widely known as '4Ps': Place, Product, Price and Promotion. Place refers
to the routes organizations take to get the benefits of the product or service
to the intended customers. Product means both tangible product and also
'service' and all the ways in which an organization adds value. Price means not
just the price charged, but also all aspects of pricing policy.
Finally, promotion is
not just the more specialised sales promotion, but also every way in which a
product is promoted to customers – from print advertising to websites. The 4Ps
are used as an approach to marketing planning. The prominence of the 4Ps derives
largely from Kotler's and colleagues' (e.g. 2003, 2001) focus on these as
central to marketing strategy.
In recent decades,
there have been numerous attempts to update and revise the marketing mix.
Jefkins (1993, p. 37) pointed out that the concept of 4Ps is no more than a
simplifying convention that “loses sight of the chronological sequence. He
devised a more realistic twenty-element mix that attempted to describe the
marketing process sequentially, starting from conception, through pricing,
product, distribution and sales to maintaining customer interest and loyalty.
For some marketers
there are '5Ps' of marketing, with the fifth being 'People'. 'People' has two
meanings in this context. First, customers are people, often buying according to
emotion and whim; without them, there is no business. Second, people make it
happen. Without people to put marketing plans into operation, nothing happens.
Furthermore, Booms and Bitner (1982) proposed that for marketing services, the
marketing mix should be extended to seven, with the sixth and seventh being
'Process' and 'Physical Evidence', respectively. For a service, where there is
no tangible product, the process of providing the service is all-important.
Similarly, a service cannot be sampled. The provider needs to present evidence
of the quality of the process.
In recent years, what
marketers actually do has changed radically. Some authors (e.g. Gronroos, 1997)
have questioned whether the old idea of the marketing mix can still be valid.
The challenge is based on a shift of emphasis towards relationship marketing and
customer relationship management (CRM), aspects which are fundamental to
marketing the e-Business. One development has merit as being descriptive of the
way marketers think about the customer. The '4Cs' (Lauterborn, 1990) imply more
emphasis on customer wants and concerns than do the 4Ps. In this paradigm,
'Place' can be thought of as 'Convenience for the customer', recognising the
customers' choices for buying in ways convenient to them. Rather than being
something that a company makes, 'Product' can be thought of as a 'Customer
benefit' - or satisfactions wanted by customers.
Furthermore, 'Price'
may be what companies decide to charge for their products, but 'Cost to the
customer' represents the real cost that customers will pay, including, for
example, their own transport costs. Lastly, 'Promotion' suggests ways in which
companies persuade people to buy, whereas 'Communication' is a two-way process
also involving feedback from customers to suppliers.
Marketing and promotion
costs are among the most significant costs incurred in the music industry. Such
expenditures are necessary to help artists stand out from competing releases.
Whereas major labels achieve significant economies of scale in promotion, small
labels are hampered by, for example, the high costs associated with obtaining
radio airtime. In an online world where consumers have many more listening
choices, the role of promotion will become even more critical in differentiating
individual artists and driving sales. Owing to the high costs associated with
promotion and distribution independent labels rarely reach large audiences
(Coats et al., 2000).
CHAPTER 2
REVIEW OF RELEVANT LITERATURE
2.0 Introduction
One of the recognized industries in
the world today is the music industry. For years, music had very little to do
with business. Basically, the music industry revolves on business activities
including fast-phased unit-led production, licensing, marketing and
distribution. The objectives of the music business is primarily concentrated on
fast distribution of products, speed of re-stocking and selling products on
major territories and be more competent. The music industry is a department
that is in-charge with the promotion, creation as well as preservation of music.
In the business world, the music industry is simply equated as the business of
music. Since the popular music is of worldwide significance, the international
music industry is deemed highly relevant. And according to Burnett (1996), the
international music industry is widely based on thee production and sales of
phonograms (records, cassettes, mini and compact discs).
Today, the music
industry does not only consist of cassettes, mini and compact discs. The music
industry has gone a long journey which enabled it to become more loosely
integrated vis-à-vis the rest of the entertainment industry. The music industry
has become one of the most profitable industries in the global marketplace.
Indeed, the music industry has been highly commercialized. However, in the
recent years, there has been a noted decline on the global sales of music. This
can be attributed on the lack of “blockbuster” releases, competition from other
media such as computer games for younger consumers, and the availability of free
music on the Internet. Because of this, issues have been raised regarding the
delivery of music over the internet. (Fox, 2004)
Chiefly, the access to
free music has made a great on the delivery of online music. As a result,
companies under the music industry are pressured to devise strategies that can
address the threats of online music delivery. There is also an urge for them to
adopt new business models in order to meet consumer needs successfully in the
e-commerce milieu.
In the ever-changing environment of
the music industry, competition becomes the major organizational principle of
marketing activities. As time evolves, consumer behavior, trends and issues put
the music business on considerable stress. Changes and marketing approaches
would have to be altered accordingly. Thus all companies in the industry are
challenged to formulate marketing strategies that will ensure them of achieving
competitive advantage over other companies. In order to position themselves on
top of the competition, many companies are focusing on developing loyal
customers – customers that avail of its products and services consistently over
time, generally at regular prices, commonly ignoring the pleas and platitudes of
competitors. The main objective of this dissertation is to compare the marketing
strategies of music industries in China and UK. In order to achieve the
objective of this paper, the literature review will focus on the following
topics: Business Strategy for Music Industry, UK and Chinese Music Industry
Marketing Strategy; the government policy of UK and Chinese music industry;
Effect of the information technology and internet on marketing strategy of UK
and Chinese music industry for non- academic literature. For academic literature
the discussion will include the discussion of consumer behaviour, specifically
the audience development of music industry in UK and China. For this paper, the
research model to be used will be based on the 7ps of marketing.
Business Strategy for Music Industry
Business model is an integrated and
coordinated set of commitments and actions the firm uses to gain a competitive
advantage by exploiting core competencies in specific product markets (Rindova &
Fombrun, 1999). Only firms that continuously upgrade their competitive
advantages over time are able to achieve long-term success with their strategy
and implementation. Choosing the appropriate business model is intended to
create differences between the industry’s positions relative to those of its
rivals (Drejer, 2002). To position itself a firm must decide to whether it
intends to perform activities differently or to perform the different activities
as compared to its rivals. Thus, the firm’s business model is a deliberate
choice about how it will perform the value chain’s primary and support
activities in ways to create unique value. Over the years, different companies
and organization are trying to utilize the business model in which they think
should bring success to the over-all performance of a business. In addition,
business model is also referred as the mechanism or system by which any firm or
business aims to produce profit or revenue. It is the totality of how the
industry intends to serve its target market. It involves both the marketing
strategy and its strategic implementation. Throughout the years, the uses of
business model are regarded as complicated and sophisticated. Business models
have different kinds.
However, the business model that
has been used by the music industry prior to the emergence of the internet is
the basic business model which is the subscription business model. In this
chosen model, different music industry like Sony Music, or EMI do not sell their
products directly. Instead, these industries are selling their products monthly
or annually. In this model, the effect simply lies on the conversion of a
one-time sale of a particular music labels or musical records into a frequent
sale of a product. This to know where the target market lies, providing their
products on time that they know it will hit the target market and tries to
promote it through advertisement.
Prior to the use of Internet, music
industry’s competition depend largely on how they locked their consumers. This
means that the music industry is in control of their consumers by means of the
kind of music that the music industry will offer. The relationship between the
organization and the consumers are being embedded to consumer as a buyer and the
organization as the producer. In this manner, the consumer would tend to buy
the music products from the store just to hear the particular songs that they
wanted to listen to. Herein, It does not matter whether the other songs or
tracks included in the album may or may not attract the consumer. In addition,
the music industry prior to the use of internet tries to market their products
depending on the artists or the musicians and the labels that they have.
Using the Porter’s Five Forces
Model (See Appendix 1), the model of the music industry can be seen in Table 1.
As can be seen in the table the competition for the music industry vastly
depends on the musicians in which the industry has. And the competition not
only lies within music industry but also to its rival competitors. Moreover,
the competition on the labels is very tight since consumers have different taste
when it comes to music and its label. The music industry depend its profit on
the musicians and the artists. On the other hand, in the suppliers of the music
industry will also depend on the musician, labelling and the consumers. Herein,
a certain music industry likes for example the Sony. The company will be able to
get their supplies from those musicians who wanted to use their industry as the
promoting agency. The labelling, will include copyrights for its original
holders, the agreement is in between the music industry and the people behind a
certain musical records.
Utilizing still the Porter’s Five
Forces Model, the buyers of a certain music industry is depended on their
listeners through the labels and the concerts. The labelling in this manner
came from different distribution channels, promotional media, retail outlets and
customers with playback devices. The only threat of a music industry during the
times when the business does not utilize the internet is the emergence of new
popular sounds and new bands. Moreover, the threat will also include new record
labels and other musicians and for the audiences the threat would possibly be
the digital lifestyle due to the technological progress. However, the music
industry’s marketing or business strategy may also have its own substitute.
This enters music videos and movie soundtracks in which they can use as an
alternative to get the attention of their target market. Moreover, labelling
may include different variance such as tape, cassettes, CD of DVD. On the other
hand, the substitutes for the music industry for the audiences may include new
media, peer-to-peer audiences and the digital lifestyle as well (Henderson and
Mihas, 2000).
Likewise, the music industry also
value brands and brand creation. Indeed, in any firm, building brand is a
significant management skill. Branded product lines generate a distinct set of
benefits that is covered within a recognizable character. Along with these
products are the connection between the customers and the product. In the music
market, the artists are the brands themselves. When the brand is strong and
powerful enough, it produces an image and identity for a certain product or
company. This further establishes the relation between brands and consumers.
When the requirements of the customers are met by particular music brands,
consumers tend to become loyal. Upon failing to do so, consumers are quick to
patronize other brands.
UK Music Industry’s Marketing Strategy
The UK music industry
is enjoying a boom as new artists are breaking through the scene and the people
are lapping them up. Not including compilations, CD sales are higher than ever
and albums by British artists have hit a seven-year sales peak in 2005 (Youngs,
2006). According to a recent survey by research firm XTN Data, around 85% of
people buy at least one album monthly. Legal song downloads are also enjoying
sales increase (Youngs, 2006).
Although online digital
music sales are a small fraction of the overall UK music market, they are
increasing rapidly. According to the International Federation of the
Phonographic Industry (IFPI), online sales tripled in 2005 to reach 6% of the
overall market (Reimer, 2006). In another report, it was revealed that legal
song downloads more than quadrupled in 2005 (Youngs, 2006).
According to the
British Phonographic Industry (BPI, 2006), in 2005, the UK's digital music
business was worth $69m, bigger than Germany ($39m) and France ($28m) combined.
The $69m / £38m total was split £25m a la carte downloads, and £13m mobile –
which does not include an estimated £2.5m from subscriptions (BPI, 2006). As
more sales move from CD to online transactions, the UK music companies are
enjoying increased profits as a result of lower costs for digital distribution
compared to the costs for physical media.
However, the growth of
legal music downloads is being challenged by illegal filesharing. In a report by
TNS Worldpanel (2006), the cost to British music of illegal filesharing reached
£1.1bn from 2003 to 2005. Figures estimate the cost to British music in 2005 of
people illegally filesharing rather than paying for music was £414m; 2003 had
£278m lost sales and 2004 had £376m lost sales (BPI, 2006). According to Peter
Jamieson, BPI chair: “The UK record industry is the biggest single investor in
British music. Too often people believe that when they take music illegally over
the Internet it is a victimless crime. But when people share music files
illegally, they are stealing the future of British musicians and the people who
invest in them” (BPI, 2006, p. 1). The figure below shows the change in spend on
entertainment products in the UK.
The downloading of free
music by young consumers is also a particular concern for the music industry in
many countries worldwide. In the United States, evidence shows that these
consumers are purchasing less music: Between 1991 and 2000, the overall market
share declined from 18.1% to 12.9% for 15-19-year-olds, and from 17.9% to 12.9%
for 20-24-year-olds (Recording Industry Association of America, 2001).
Understandably, these findings raise concerns about the future of music as a
product, particularly with regard to young consumers, whose future
music-purchasing habits are being influenced by the availability of free music
over the Internet.
Offsetting the above
concerns are predictions that delivery of music over the Internet, that is,
music as a service, will expand significantly through the coming years. Aside
from the sale of physical music products over the Internet, sales of music
downloads may increase significantly over the next few years. Most downloadable
music sales are expected to take the form of subscriptions, wherein users pay a
monthly fee to gain access to and download as many songs or albums as they
choose. Estimates indicate a rapid increase in both a la carte and subscription
music sales. While the predictions may be overly optimistic, the distribution of
music as a service (rather than a physical product) likely will grow
significantly in the future and will comprise an increasing proportion of
overall music sales.
Free music online has redistributed power in the music
industry from music labels to individual consumers. The record labels have
attempted to thwart the efforts of free music providers through the creation of
copyright-protected files and through lawsuits against providers of free music.
According to Sherman (2001, p. 36): “Ultimately the best response to online
piracy is a legitimate alternative.” Currently, record labels are increasingly
competing with free filesharing systems for consumers. To compete effectively in
this context, labels will need to come up with marketing strategies aimed at
encouraging consumers to legally download music or buy physical music products
online.
The market of music in the United
Kingdom is very big. Aside from the large population of the place, music is also
highly relevant in the lives of the people. Various artists in the international
arena came from United Kingdom. Undoubtedly, music in this area makes it big in
business. The market reach of this industry is not only concentrated on the
domestic or local level but as well as in the international level.
According to Youngs (2006), the UK
music industry enjoys its ‘boom’ today. Specifically, the business is booming as
talented new artists are breaking through and the public are lapping them up.
Moreover, the industry asserts that excluding compilations, CD sales are higher
than ever and albums by British artists have hit a seven-year sales peak. In
fact, 85% of its people buy at least one album per month and the legal song
downloads have even quadrupled. As a result, the continued investment in the UK
record’s industry is definitely paying off. And this success has been the basis
of building digital business. More importantly, there has been a strong growth
within downloads as well as within the mobile space.
In 2004, there has been a price war
on the online music market between Apple and the RealNetworks. Specifically,
there has been a cutback on the price of online music by the RealNetworks
Company. Because of this, it directly undercut its arch-rival Apple. They sell
their music products half of the price of Apple. And, this move has created a
fuss on the market competition for online music. (BBC News, 2004)
The situation presented above
greatly reflected the nature of e-commerce on the music industry in the United
Kingdom. Obviously, this is an actual case on the music industry of UK. More
importantly, the case presented a promotional tactic in order to acquire a large
market of online music. In addition, the cutting of prices did not only outsmart
its competitor but also encouraged people who are currently downloading
illegally to start buying online music legally.
Indeed, the year of 2005 has been a
good year for the music industry in UK. This is because of the claimed victory
in its first battle with the illegal file-shares. Twenty people have paid
£50,000 in order to settle their crimes out of
court. The illegal sharing was done through the use of different file sharing
software such as Kazaa peer-to-peer network, Imesh, Grokster, WinMix and
BearShare. The compensations payments were returned to the music copyright
holders. (BBC News, 2005)
Chinese Music Industry
Because of the rapid changes
in the market environment, music industries all over the world are trying to
initiate their own marketing strategy and Chinese music industry is never an
exemption. In the Chinese music industry it is said that the only sale of music
in a virtual approach is through the booming of the ringback and ringtone market
that generated a $1.5 bln in revenues for China mobile in 2007. However, the
emergence of this market caused some problems with the labels and artists of
Chinese music industry.
Currently, the music industry
that is considered as the big winner in China is Baidu with business mainly
focused on digital music. Scholars believed that China represents rock bottom
for their music industry, specifically on the economics of the creative side. It
is said that CD business for music industries in China has disappeared and the
businesses which have emerged have not been able to help the artists.
In an article by Kennedy
(2006) he has mentioned that in this generation, Chinese market can be
considered as the most exciting new market in the global market, especially for
the international recording industry. Having been able to realise the
potentialities of the Chinese market, major international record industries have
been bale to establish their presence in the country. For instance, EMI has
launched a joint venture with one of China’s recording industry, i.e.
Shanghai-based
Push Sound. On one hand, other multinational industries to enters the Chinese
music market include Sony BMG which established a partnership with Shanghai
Audio and Visual Press; Warner Music Group, one the other hand has created a
local version of the industry which is the Warner Music China and Universal
Music have been associated with the Shanghai Media Group.
In
addition, independent industries are also seeking for new opportunities to
invest in China and enter the music industry in the county. For instance, some
music industries are experimenting with new types of business model which is not
common in the market. Accordingly, the Chinese music market in this period of
time has a picture of untapped competencies. The nation has a population of more
than 1.3 billion which is one sixth of the total population of the world. The
Chinese music industries target market includes the rising numbers of middle
class with disposal income and young people who are music enthusiasts.
Many
believed that if Chinese market and music industry will work together, the
country may experience an exciting growth in the years to come. Chinese music
industry is also being challenged by the emergence of various digital music
services. Presently, there are five legitimate digital music industries in
China and this is forecasted to increase more in the next years. The transition
of China to digital has been reflected across the globe. In this regard, the
record and music industries have rapidly changed themselves from an enterprise
dominated by revenue streams like radio and physical retail sales to one of
various licensing channels, from the use of ringtone to subscription music
service, from mobile downloads to the music video. In the article, it has also
mentioned that China has been able to cope into the digital period with the help
of the music industry. It is said that great opportunities comes with various
challenges and the music industry of China is now facing various challenged. One
of the challenges is the issue on the development of a legal environment,
promotion of legitimate music channels and most of all to destabilise the
culture of music piracy in the market which affects the music industry in a
negative manner.
Government Policy of UK and Chinese
Music Industry
The music industries
all over the world have been threatened by different challenges and one of this
is about piracy. Basically, piracy is a criminal activity being theft of others’
intellectual property. In relation to the music industry, piracy is considered
as unauthorized copying and in this aspect falls into 3 categories (IFPI,
2004c):
n
Piracy is the illegal copying of an
original recording for commercial profit without the permission of the rights’
owner. Herein, the packaging of pirated copies differs from the original one.
n
Counterfeits which are copied and
packaged to be like the original as closely as it can be. In this regard, the
original producer’s trademarks as well as their logos are reproduced so as to
mislead the targe audience into believing that they are purchasing the original
product.
n
Bootlegs referred to the
unauthorized recordings of broadcast or live performances. Such copying refers
mostly to Audio and Video CDs only.
The advent of the
mass-produced CD has changed the face of piracy from a problem largely confined
to local borders to a sophisticated which include Laser Discs (LD), Video
Compact Discs (VCD) and Digital Versatile Discs (DVD), are inexpensive to
manufacture and easy to distribute. In 2000, over 20 million pirated optical
discs were seized, and by comparison, 4.5 million videos were seized worldwide
in the same period. Unlike traditional analog piracy, a digital pirated disc is
as pure and pristine as the original (MPAA, 2004). In addition, a production
facility can churn out huge volume of illegal discs in relatively short time
(MPAA, 2004).
Wit this challenge, the
government of UK and China has been able to regulate their own policies to
protect their music industry. As compared to other media industries like press
or the broadcasting, the music industry of UK has not been considered as the
object of much governmental interest except on the notion of occasional
amendments of copyright law. However, in the 80s, British music industry has
been given emphasis in terms of the development of the local government cultural
industry policy implementations, and since the 1997 election, the labour
government has changed the policies of UK music industries to the national level
through the establishment of Music Industry Forum, Creative Industries Task
Force and others. Part of this was the provision of the British Department of
Culture, Media and Sports (DCMS), regarding the three strands of the music
policy which include the education and training (both as an element of
employment regulation and as a policy for securing British Music industry’s
future talents and artists base); rights protection which is specifically made
for the protection of the British rights in global environmental situation and
in new technology; and social inclusion which is referred to the use of music to
articulate the modern multicultural British for the nation and for the global
brand of the UK’s music industry. It can be said that the policy of UK begs two
essential aspects: first, it shows that the British music industry is equivalent
with their record industry and secondly, the policy assumes that there is a
modified national music interest (Frith, 2000).
Unlike in other
nations, the intellectual property protection of China as part of their
government policy for music industry is still at its early phase for a market
economy. The condition of the IPP in China is the same to the situation of the
protection of the environment which shows that there is a gap between the
day-to-day reality and government policy. The enforcement of intellectual
property policy can also be considered as ineffective and weak in most parts of
the nation. because of the local protectionism and because of the lack of an
independent enforcement authorities to implement the polices, infringers of
intellectual property are mostly not punished or prosecuted. Although, the
government is issuing fines, the fines are noted to be low to defer or eliminate
infringing operations.
During the last years,
Chinese government policy for music industry’s ip protection has seen essential
improvements. In china, internet piracy has rapidly increased in China which
threatens to strangle the improving legitimate digital music market. In
addition, China has seen an alarming growth in websites, and other streaming
sites along with illegal-file sharing which needs attention. Chinese music
industry in cooperation with the government agencies is said to stepping up
their attempts to eliminate the infringing internet sites from the networks. In
2005, China has sent over a thousand warnings which aims on taking the sites
down through ISP’s. However, the government has find this process to be slow and
cumbersome hence, they have proposed new internet regulations to give incentives
for ISPs who are effectively fighting piracy and shift the burden of
accountability for tackling infringement towards the ISPs.
Progress of IPP is considered to be
more visible in big cities in the country. In Beijing, for instance, a copyright
protection centre was established by the government in 1993 to protect the
rights of the artists in their music industry as well as in the performance
arts. In this regard, it can be said that China are trying to improve their
government policy to protect their music industry (Objectiva Software, 2008).
The music industry relies greatly
on copyrights. Copyright enables record companies to provide sufficient capital
and enterprise in producing commercial recordings that can be exploited in both
local and overseas markets as they contain legal protection to counter
unauthorized reproduction. Furthermore, copyright is significant in assuring
that all talents used by successful artists are given due recognition and
reward. In the music industry, there are two significant copyrights involved
(Monopolies and Mergers Commission, 1994). The first copyright protects the
performance and efforts employed to create the product, including those of the
artist and the composer. The second copyright protects the actual sound
recording involved in the production of the music when a certain artist
completes a musical work and is recorded.
Normally, the sound
recording copyright is owned by the record company, although copyrights may be
granted or licensed to others. These copyrights are vital to the owners as they
provide several rights, such as the sole right to produce product copies as well
as the exclusive right to perform the music piece in public, including
broadcasting. Moreover, performing the record in public, such as in public
places, radio or television, permits record companies to receive license fees.
Copyright is interpreted as territorial in its application and is enforced by
international agreements (Mansell and Steinmueller, 1995).
Business Strategy for Music
Industry
Business model is an integrated and
coordinated set of commitments and actions the firm uses to gain a competitive
advantage by exploiting core competencies in specific product markets (Rindova &
Fombrun, 1999). Only firms that continuously upgrade their competitive
advantages over time are able to achieve long-term success with their strategy
and implementation. Choosing the appropriate business model is intended to
create differences between the industry’s positions relative to those of its
rivals (Porter, 1980). To position itself a firm must decide to whether it
intends to perform activities differently or to perform the different activities
as compared to its rivals. Thus, the firm’s business model is a deliberate
choice about how it will perform the value chain’s primary and support
activities in ways to create unique value. Over the years, different companies
and organization are trying to utilize the business model in which they think
should bring success to the over-all performance of a business. In addition,
business model is also referred as the mechanism or system by which any firm or
business aims to produce profit or revenue. It is the totality of how the
industry intends to serve its target market. It involves both the marketing
strategy and its strategic implementation. Throughout the years, the uses of
business model are regarded as complicated and sophisticated. Business models
have different kinds.
However, the business model that
has been used by the music industry prior to the emergence of the internet is
the basic business model which is the subscription business model. In this
chosen model, different music industry like Sony Music, or EMI do not sell their
products directly. Instead, these industries are selling their products monthly
or annually. In this model, the effect simply lies on the conversion of a
one-time sale of a particular music labels or musical records into a frequent
sale of a product. This to know where the target market lies, providing their
products on time that they know it will hit the target market and tries to
promote it through advertisement.
Prior to the use of Internet, music
industry’s competition depend largely on how they locked their consumers. This
means that the music industry is in control of their consumers by means of the
kind of music that the music industry will offer. The relationship between the
organization and the consumers are being embedded to consumer as a buyer and the
organization as the producer. In this manner, the consumer would tend to buy
the music products from the store just to hear the particular songs that they
wanted to listen to. Herein, it does not matter whether the other songs or
tracks included in the album may or may not attract the consumer. In addition,
the music industry prior to the use of internet tries to market their products
depending on the artists or the musicians and the labels that they have.
Using the Porter’s Five Forces
Model (See Appendix 1), the model of the music industry can be seen in Table 1.
As can be seen in the table the competition for the music industry vastly
depends on the musicians in which the industry has. And the competition not
only lies within music industry but also to its rival competitors. Moreover,
the competition on the labels is very tight since consumers have different taste
when it comes to music and its label. The music industry depend its profit on
the musicians and the artists. On the other hand, in the suppliers of the music
industry will also depend on the musician, labelling and the consumers. Herein,
a certain music industry likes for example the Sony. The company will be able to
get their supplies from those musicians who wanted to use their industry as the
promoting agency. The labelling, will include copyrights for its original
holders, the agreement is in between the music industry and the people behind a
certain musical records.
Utilizing still the Porter’s Five
Forces Model, the buyers of a certain music industry is depended on their
listeners through the labels and the concerts. The labelling in this manner
came from different distribution channels, promotional media, retail outlets and
customers with playback devices. The only threat of a music industry during the
times when the business does not utilize the internet is the emergence of new
popular sounds and new bands. Moreover, the threat will also include new record
labels and other musicians and for the audiences the threat would possibly be
the digital lifestyle due to the technological progress. However, the music
industry’s marketing or business strategy may also have its own substitute.
This enters music videos and movie soundtracks in which they can use as an
alternative to get the attention of their target market. Moreover, labelling
may include different variance such as tape, cassettes, CD of DVD. On the other
hand, the substitutes for the music industry for the audiences may include new
media, peer-to-peer audiences and the digital lifestyle as well (Henderson and
Mihas, 2000).
Likewise, the music industry also
value brands and brand creation. Indeed, in any firm, building brand is a
significant management skill. Branded product lines generate a distinct set of
benefits that is covered within a recognizable character. Along with these
products are the connection between the customers and the product. In the music
market, the artists are the brands themselves. When the brand is strong and
powerful enough, it produces an image and identity for a certain product or
company. This further establishes the relation between brands and consumers.
When the requirements of the customers are met by particular music brands,
consumers tend to become loyal. Upon failing to do so, consumers are quick to
patronize other brands.
Changes and marketing approaches would have to be altered accordingly. Indeed, the Internet has been the most significant phenomenon to strike the Music Industry since its inception (Ashurst, 2001, p.101). Within the Music Industry the Internet is no longer a “neglected” medium (Mathews, 2001) as it has been researched significantly. This development however, still presents many challenges in marketing music through the internet. Despite the research and a genuine eagerness to make the Internet work for the music industry, marketers’ research and practice have been so far thwarted in uncovering an effective method to use marketing on the Internet (Holt and Watters, 2004). Marketing a band for instance, has been known and practiced by the industry. Nonetheless, internet marketing had simplified this role. Music marketers should then consider the establishment of a relationship between digital media with other forms of communication.
Consumer behavior is perhaps one of the most
interesting aspects of marketing because it deals with the individual
characteristics of consumers. It is basically the buying behavior of the final
consumers which are the individuals and households who buy the goods and
services offered in the market for their personal consumption (Kotler &
Armstrong, 2001). The main concern in marketing in relation to this aspect is
whether consumers actually respond to the marketing strategies employed for the
product (Best, 2004) which also gives rise to the model of consumer behavior
within which most market researches circle around.
A good consumer behavior model was introduced by
Kotler & Armstrong (2001) which discusses the process with which the consumers
respond to the different product features, prices and advertising. Figure 1
shows that the starting point consists of the stimulus-response model wherein
marketing-focused factors which involve product, price, place and promotion and
other stimuli which include outside factors in the market environment enter the
“black box”. This contains the individual buyer characteristics and decision
processes. The third component of the model involves the actual responses to
the marketing efforts which can translate into product choice, brand choice,
dealer choice, purchase timing and purchase amount among others. It is fitting
the end goal of marketing which is to gain consumer loyalty (Chow & Holden,
1997; Ducques & Gaske, 1997; Levitt, 1986).
Figure 1
Model of Consumer Behavior



Piracy of
Intellectual Property Right (IPR) works music, audio-visual works and computer
software for both business and entertainment purposes is continuing to have a
significant impact on the interest of both the IPR owners and the legitimate
intellectual property industry as huge demands for pirated CDs hinder IPR
protection. Software piracy refers to the copying of software, producing it
usually in bulk for sale through unauthorized shops, unlike the purchase of
original disc copies from official distributors. Further, pirated CDs involve
larger volumes and dollar value compared to the manufactured clothing,
medicines, watches or beverages as these generally only appear as counterfeits
and in much smaller volumes.
Implication of Internet to Music Industry
In the Music industry, increased
market competition identifies continuous adjustment and improvement in the
production lines, outsourcing and supply chain management of companies.
Interdependence and participation of suppliers and manufacturers in product
design, innovation, as well as research and development characterize the current
international business environment resulting to market volatility (Sobrero &
Roberts, 2001; Appleyard, 2003). These organizations usually share proprietary
corporate data with external suppliers and partners while ensuring maximum
security to enhance efficiency across the product lifecycle by streamlining
procurement, production, fulfillment, and distribution processes (Katsikeas,
Schlegelmilch & Skarmeas, 2002) which requires integration of applications and
data across multiple geographically dispersed supply chain partners, as well as
internal integration with legacy systems (Katsikeas, Schlegelmilch & Skarmeas,
2002; Appleyard, 2003).
Recently, Rabinovich and Carter,
(2003) illustrated the efficiency of e-based transactions in an internet
retailing supply chain in the music CD industry. However, they also emphasized
that e-based transactions may also affect negatively the music industry. Recent
technological and market forces have profoundly impacted the music industry.
Emphasizing threats from peer-to-peer (P2P) technologies, the industry continues
to seek sanctions against individuals who offer significant number of songs for
others to copy (Rabinovich, E et. al. 2003). Yet, Rabinovich, E et.al. (2003)
suggested that there should be a little rigorous empirical analysis of the
impacts of online sharing on the success of music products.
Appendix 1

Figure 1: Porter’s Five Forces Model
Source: Porter, M. E. (1980). Competitive Strategy. Free
Press