Corporate Strategy of Sony Music Entertainment - Case Study Example

Corporate Strategy Table of Contents 1. Industry Background 2 2. Internal Resources and Culture Analysis 3 2.1 Financial Resources 3 2.2 Physical Resources 4 2.3 Human Resources 5 2.4 Intangible Resources 6 2.5 Organisational Culture 6 3. Analysis of the Threat of Online Competitors and Substitutes 8 4. Performance of Sony Music in Emerging Markets 10 4.1 Sony Music’s Performance in India 10 4.2 Sony Music’s Performance in China 11 4.3 Sony Music’s Performance in Turkey 12 5. Conclusion and Recommendation 15 6. References 17 1. Industry Background The organisation that has been selected for discussion in this research paper is the Sony Music Entertainment (SME) that operates in the global music industry. It is a fully owned subsidiary of Sony Corporation of America. The music company operates globally and includes a roster inclusive of a broad range of artists, both international superstars and local artists (Sony Music Entertainment, 2011). Data revealed from the financial results of the company during the year 2010 suggest that there was a decrease in the operating revenue and sales figures by 6.7% in comparison to its performance of the previous year (y-o-y). The sales figure was hit during the year 2010 due to the decrease in the sale of devices and consumer products. However, it is also evident that the decrease in the sale of this segment was moderately offset by that of the segment of financial services of the company. Due to depreciation in the value of Yen against both US dollar and Euro, the sale of the Sony in Japan suffered the crisis. However, there was an increment in the operating profit of the company by 259.6 billion Yen (Sony News and Information, 2010). Sony Music has however effectively managed to come out of the crisis and during recent times, the company has ultimately surpassed Universal Music Group through market share in the overall US market. The market share of Sony Music in the overall album segment including albums equivalent to tracks stood at 29.35% as of the end of the week on April 24, 2011. According to Nielson SoundScan, this percentage figure is only a few points above that of the Universal Music Group that stood at 29.26% during the same period (Christman, 2011). The neck-to-neck percentage figure of the market share suggests that there prevails cutthroat competition in the music industry. Apart from the Universal Music Group, the biggest competitors of the Sony Music are EMI Group Limited and Warner Music Group Corp. In this industry, demand of the products or the music publications is driven by spending of the consumers. The companies’ profitability is dependent on promotion of new talent of music and also discovery of those talents. The companies in this industry operate through generation of revenue from its assets whose base is created by publications and recordings. Large companies in this industry such as that of Sony Music hold the advantage of both distribution and marketing. The smaller companies dwelling in this industry are generally referred to as ‘indies’ and these companies compete by concentrating on local artists and varieties of music (Christman, 2011). 2. Internal Resources and Culture Analysis 2.1 Financial Resources The music segment of Sony that comprises of operations of the US based Sony Music Entertainment (SME) and Sony Music Entertainment (Japan) Inc. (SMEJ) generated sales of 522.6 billion yen during the year 2010 that rose by 35% from the previous year’s performance. Simultaneously, the operating income also increased by 31.1% and rose to 36.5 billion yen from 27.8 billion yen during the past year of 2009. The increment figure of sales in the music segment has only been due to the fact that although the segment had begun its operation during the month of October 2008, the sales figure has been considered for the full year on a consolidated basis. Had the sales figure been considered otherwise, there would have been a decrement in sales by 5%. On the other hand, considering the operating income of the music segment, had the income been considered for the quarters and not on a full year basis, it would have increased by 72% (Sony Business Overview, 2010). The news and information segment of the Sony Corporation in Japan reported that the company faced loss during the year 2009 pertaining to the global economic crisis but has become successful in recovering from the adverse situation and thus has achieved the increment in figures of operating profit. On the basis of this success, the company anticipates to experience an increase in its consolidated operating income during the year 2011 (Sony News and information, 2010). 2.2 Physical Resources Despite the fact that Sony operates with an infrastructure that is spread across both the domestic as well as international market, the company still goes on towards continuing investment in infrastructure. It invests in infrastructure with the objective of holding sufficient capacity required for meeting the customers’ needs and demands. For example, in the years 1988 and 1989, US based companies CBS records and Columbia Pictures were acquired by Sony respectively. Later on the two companies were renamed as Sony Music Entertainment and Sony Pictures Entertainment respectively. Investment was also undertaken by Sony in the game business and it made its entry into this industry with the aim of taking on already established huge industry players such as that of Sega and Nintendo. This market was dominated by Sony consequently. Along with these investments, during the year 2001, a joint venture was formed by Sony with Ericsson and the result was the evolution of Sony Ericsson. By the year 2003, Sony owned altogether 55 plants of manufacturing along with 12 home based plants in Japan (Marcus, 2010). Recently, during the year 2009, a significant amount was invested by the company for investment purposes. Considering these perspectives of the company, it can be noted that the physical resources possession by Sony are prospective of enhancing its level of competitive advantage through value addition (Marcus, 2010). 2.3 Human Resources The organisation at Sony holds the belief that their biggest asset is the employee force. They work with this motto impaired upon the team of human resources within the organisation. The human resources team strives towards finding and developing the industry’s best talents. The company focuses on pin pointing the key personnel for the most appropriate job within the organisation and this is done by partnering with every divisions. The team nurtures the employees and looks after the development of career and organisation as a whole along with diversity programs and support for business units. The company believes in building both dynamic as well as diverse groups of work for achieving the competitive advantage that ultimately contributes greatly towards shaping the brands’ future. A number of specialties are possessed by the Sony’s groups of human resources and those include benefits, compensation, and support of the business unit, HR Generalist, e-HR, corporate programs, and effectiveness of the organisation, staffing and diversity (Sony Electronics Inc, 2009). 2.4 Intangible Resources The intangible resources of a company consist of those non-physical assets that are utilised by the company for the purpose of producing goods and services. The intangible resources of a company are also expected to generate productive benefits for the future. The intangible benefits of Sony are helpful in determining the company’s distinctive competency that ultimately leads to the formation of competitive advantage. The possession of intangible resources of Sony is evident from the fact that the brand is considered as one of the most trusted and recognisable brands in the world (Itami & Noto, 2007). This brand was positioned in the 21st position in the record of the “World’s 100 Most Valuable Brands” published by ‘Business Week/Interbrand’. The approximate value of the brand was US$14 billion. The most valuable intangible possession of Sony Brand is the brand’s association with innovation, quality and style (Singh & Et. Al., n.d.). 2.5 Organisational Culture Sony Corporation follows a cohesive organisational culture for fulfilling its objectives designed by the implementation of the management policies. The members of the organisation are committed towards the organisation’s internal demands and they focus on gratifying those demands by working as a team. The internal culture of the organisation follows the norm of stressing a lot on innovation. This is inherited from the Japanese working culture which follows innovation as an essential idea for obtaining success. According to the perspective of Sony, the most important way of attaining success is evident from the possession of the stance of being innovative. The organisational culture working on the move towards innovation was structured during the month of April 1999. The reason for adopting this organisational structure stressed on innovation is the uprising of the era of the 21st century characterised by digitalisation (Ivythesis, 2008). 3. Analysis of the Threat of Online Competitors and Substitutes The segment of Sony Music under the Sony Corporation is indulged in production of videos and recordings through creating agreements with the artists. This segment of the business also operates with business providing service through internal protocols. The online segment of the Sony Music operated especially in Japan and their operation helped the parent organisation, i.e. Sony Corporation in enhancing its revenue up by 7.6% during the period between the years 2007 and 2008 (Technology review, 2010). There is quite low power of substitute products to those of Sony Music, i.e. video and audio recordings. The quality of the recordings published by Sony Music is also well known to the customers who spend out of their regular expenditure for investing certain portions in entertainment related activities. The quality product delivered by the Sony Music also enhances its competitive position in the music industry in Japan. Above all the traits of products that add value to the competitive advantage of the Sony Music, there lies the core competencies of Sony Corporation which has helped the company maintain its competitive position. Sony excessively focuses on economies of scope and scale in activities related to the manufacturing of the products and services. Sony also concentrates heavily on its segment of research and development and this segment has provided basis for remaining competitive for longer cycle in the music industry. The concentration of Sony on research segment for bringing on continuous pursuance of innovated products is the key ground on the basis of which it has developed its highly competitive position over the years. As a result of effective focus on the segments of research and development, Sony has succeeded in introducing differentiated products from time to time in the music industry (Jain & Et. Al., 2011). Apart from production related to music, Sony Music Entertainment Japan also deals with management of artists and production of media and video. Threat that Sony faces from the competition in the music industry is due to the economic factors affecting the industry. The adverse economic factors instigated by the prevalence of global financial crisis have acted as a strong threat for the Sony Music company in Japan. The online rivals of Sony Music worldwide are Warner, Universal, EMI, Avex and a few others. But it is fruitful to mention that Sony Music in Japan has managed to sustain its competitive position even during the period of the global economic crisis. The figure below would provide evidence to this statement. Source: (Sony Annual Report, 2009). The fact that the company has managed to sustain its competitive position even during the period of recession is a challenging issue for SMEJ. Another challenging issue for the company is related to managing its present continuous fruition from a business producing physical products to that business from which specialises on numerous rights and formats and various other business models of mobile and other digital amenities. The threat is to concentrate on these challenges at a time when the financial crisis is having its impact upon almost all industries in the world. The fact that Sony has responded well to the threat provided by the economic crisis during the year 2008-2009 is evident from its successful position with a strong list of endowed artists, various astonishing initiatives for digitalisation, committed and skilled employees and dynamic form of ownership that works with the belief that music is powerful and holds strong potentiality. Pertaining to the reasons for holding the competitive position even during the economic downturn, it was expected that is the brutal environment of the market, the assets of the Sony Music in Japan would carry on to add value towards the brand of Sony and also its bottom line (Sony Annual Report, 2009). 4. Performance of Sony Music in Emerging Markets 4.1 Sony Music’s Performance in India Sony Music India is a huge success story of the country. The company began its business in full swing during the period 1996-1997. It is noteworthy to mention that the company is the only incorporated music company within the country. Stylish process of manufacturing with effective infrastructure for distribution and marketing are a few of the company’s features that have helped the success story to evolve. The company has grown up to a complete company in the Indian music industry and over the years, for ensuring its success in India it has concentrated highly on the distribution processes along with Internet promotion (Media Watch, 2011). Since the evolution of the company in India, it has initiated growth in the music industry but during the period of recession, the company faced the crisis in terms of monetary loss. The monetary loss was visible due to the decreased market share in the Indian music industry which it lost to Warner Music Group and Universal Music Group. However, one of the company’s personnel cited the root cause to be the Sony and BMG merger during the year 2005. This is because after six months from the completion of the merger, the album share of the market of Sony BMG was decreased to 26.45% (Coolfer, 2009). Sony Music in India holds a strong competitive position in terms of producing music for entertainment activities such as music for movies, albums and many more. Indians are fond of music, be it regional or be it national or international. Thus, culturally, the company does not face any challenges within the country. For enhancing its present level of share of the market, Sony Music has aimed towards concentrating increasingly on the products such as that of mobile phones, play station, digital camcorders and walkman. Thus, the strategy followed by Sony in India is product diversification and this is a justified strategy (ICMR India, n.d.). 4.2 Sony Music’s Performance in China Sony BMG Entertainment has grown popular in China over the past few years mainly because of the reason that the company concentrates on the prevailing demands of the emerging market. Based on the demands and also consumers’ behaviour of consumption, Sony launches its products. During the year 2007, the company entered into a deal with the Global Music International with the contract of dispensing music videos of Sony Music in China along with ringing tones and songs to the Chinese mobile users. They had chosen the particular company for the purpose of distribution due to the reason that the company will be able to provide various music comprising of both the western as well as Chinese artists. The concept of undertaking the distribution towards mobile phone users was initiated by the growing number of users in China reaching the number of 300 million and still growing (Reardon, 2007). The company holds quite strong competitive position in the music industry of China, especially targeting the group of music listeners through mobile phones. In this segment of the music industry, Sony faces the strongest competition mainly from Samsung and Warner music. As far as the cultural problems are concerned, the company did not face severe problems from the Chinese as they are adaptive enough to the music of another country. As Sony was indulged in distributing international music too, the Chinese accepted the company’s prevalence without any problem (Shearman, 2010). 4.3 Sony Music’s Performance in Turkey The musical scenario in Turkey is diverse with a number of people’s preferences for variety of music. The Turkish people are fond of classical music, folk songs, military music and huge preference to the western music. The target market of Sony Music in Turkey is mainly consisted of the people who are fond of western music. With respect to the growing preferences of the Turkish people towards Turkish music, Sony also works a lot for making itself popular through promoting heavily the Turkish music within the country. Sony has thus released various albums with Turkish artists along with organisation of various festivals and concerts within the country (Scribd, 2011). At the same time, Sony has also organised various concerts with the western bands and individual artists. The popularity of “The Pentagon Funk Band” is an example of such aspect of the Sony Music. The music industry in Turkey faced problems when publication of Kurdish language music was banned in the country due to certain political reasons. However, it was the Sony Music company in Turkey that took the initiative of establishing the subsidiary at that juncture without the fear of low performance level due to the political unrest. The subsidiary company of Sony had helped several Turkish music artists to become popular, even during the period when political unrest hampered the Turkish music industry (Utku, 2011). The Turkish music industry is all set to experience the period of boom after the adverse impact of the global economic crisis had grown moderate. Sony Music holds a strong competitive position in the Turkish music industry due to the holding of the trait that it never had compromised with its product and service quality, even not during the period of crisis (Gurav, 2009). 5. Conclusion and Recommendation From the discussion related to the performance analysis of Sony Music, it has been found out that although the company faced crisis during the period of the global economic downturn, at the present point of time, the company has geared itself to be in a strong competitive position within the world music industry. The company holds strong internal attributes of its business environment in terms of resource holdings and their effective allocation. Regarding the external threats that the company faces within the global music industry, it is worth mentioning that the competitive threat has been due to the advantageous factors of the globalisation. The political and legal norms have grown liberal and this has added greatly towards the enhancement of competition in every industry all over the world. Music industry is also not detached from these global consequences as a result of which Sony Music gets bound to compete with the same competitors all over the world, for example, Universal music and Warner music. It can be recommended to the music company that greater focus on the internal strengths would help to remain competitive in the music industry irrespective of the country and competitors. Internal strengths determine mainly the effective financial, human and physical resources. These resources help a company in remaining competitive with innovative concepts and implementation of effective strategies. Innovative promotion of music published by the company such as through internet and provision of free download option would be effective strategies to fight in the global music industry. A valuable market survey towards the assessment of needs and demands prevailing within the music industry of each country would be extremely helpful for Sony Music to remain competitive. This would provide the basis of need identification of the people. The best aspect for the music industry is that normal people love listening to music and for targeting each and every people within a particular industry, the music companies are required to identify the likings of the people. Based on the varied likings among the people, the music company must strive for designing varied collection of music. Provision of music CDs consisting of all types of songs, for example, classical, folk and western song in the same album for the Turkish market would attract more buyers of the CDs in the market. 6. 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