Piracy in the Music Label Industry - Essay Example

?Industry background The music label industry is a dynamic and ever changing experience. Owing to the years of decline in revenues in the main labelsand the buzz in the press concerning the state of the music industry, one would be forgiven to think that music is on its deathbed. On the contrary, people are listening to more music than ever although they are not necessarily paying for it. Increase in digital music is the major challenge facing both the big and small players in the industry. There are four major players in the industry globally which are Universal Music Group, EMI Group, Sony Music Entertainment and Warner Music Group. The labels are demanding a revolution from their trade unions and they have dropped DRM to keep up with the changes in the contemporary world by engaging in innovative operations. The competition among the key players in this industry is not as aggressive as in other industries. Analysis of internal resources and culture Sony record label is a renowned company in the entertainment industry offering diverse products and services to its wide market as explained by Hanson et al. (2001). Their productions are highly refreshing and entertaining (Sony United 2007). This is achieved by efficiently combining and managing its resources, competencies and abilities. This results in a strong competitive advantage. Resources are the features owned and managed by a company to create value for customers as stipulated by Hill et al. (2007). The discussion below analyses the different resources owned and managed by the company. Financial resources These are described as the tangible resources that have physical properties and are financial in nature (Hill et al. 2007). The company recorded an increase in sales of 10% in the year 2007 (Sony United 2007). The company owns other forms of tangible resources in form of land, buildings, machinery and equipment valued at nearly 14 million dollars (Sony United 2007). Recent consolidated financial statements how that the company’s annual sales had increased to 78 billion dollars as at 31st March 2010 (Sony Corporation of America 2011). The company has a variety of assets that form a substantial part of the financial assets that have been increasing over the years. Intangible resources The company has intangible resources that have prospective benefits as stated by Hill et al. (2007). The company is linked to quality and is among the top enterprises globally. This reputation has led to increased sales over the years (Singh et. al. 2005). The company’s brand is recognized worldwide and it is among the most trusted music labels. Once an artiste has been signed to the record label, they are guaranteed of superstardom and this has led to increased revenues. The company employs high technology in its production processes and this offers high quality music. The record label has big stars signed to it including Pink, Shakira, Avril Lavigne, and Celine Deon among other international stars. With such talent and stardom the company has been recording high sales for many years. The company produces different genres of music through the labels that are under the main organization. These include the Columbia/Epic label group, Provident label group, RCA/Jive label group, Sony Music Latin, Sony Music Commercial Music group and Provident label (Sony Corporation of America 2011). The company activities are spread across 44 nations and this describes its vast market base. Customer loyalty has remained the main contributing factor to its success. Despite the decline in sales of CDs, a specific segment has remained loyal to buying their music. The company’s experience in the music production business has been a valuable asset since the company understands the market, the artists and the music industry. This helps the company to produce quality products and to adapt to any changes in future. Physical resources This refers to the structures, property and machinery owned by the company. The company has modern music equipment for production purposes. The company has a wide assortment of musical instruments that are available to be used by the artistes in their studios. Sony music has many record labels that are located in different places and that handle different types of music. The company has its offices in the 44 countries where it operated in (Sony Corporation of America 2011). These resources enable the company to operate in its various locations and produce quality music for the customers. Human resources The company has a large number of employees to carry out its various activities. These employees have diverse skills and experiences that are utilized to deliver quality output. Team work is a notable organizational culture and employees work in cohesion for the success of the organization. In 2007, the company had approximately 163,000 employees globally and this number has grown immensely over the years (Sony United 2007). The company has successfully managed its staff over the years and this can be proven by the quality of services offered to their customers. The staff is exposed to a competitive environment and they are constantly trained to improve their skills. The staff is highly valued in the organization since their suggestions and contributions are considered in the decision making processes. Employees at Sony record label play an important role in the success of the company. The company’s recruitment ensures that only the best qualified employees are hired. The employees possess diverse skills and experiences that they apply in their job. Employees are highly innovative and are able to come up with exciting ideas that are used in music production. The management works in cohesion with the employees to support the artistes signed to the label. Sony record label is a global company with operations worldwide as such their employees have a broad cultural perspective and can work in different parts of the world. Above all, employees follow the company’s organizational culture and keep up the team spirit in all operations. Organizational culture This refers to the basic values and beliefs in a company that provide guideline for the employees’ perception, attitudes and norms. The company has a strong corporate culture that has led to its current success. This fosters loyalty to the company and promotes its mission. Its culture acts as a support tool by offering a sense of direction, competitive advantage and distinctive competence. Sony’s culture is technology and industry oriented in order to maintain market orientation and to keep up with changes in technology. The company is cost conscious and customer oriented in order to efficiently cater to the needs of their customers. The organizational culture in major record label companies is determined by the management and employees. The environment in the company encourages open mindedness and freedom to invent (Sony Corporation of America 2011). The company focuses on technological advances and takes risks in new ventures. Employees are given positions based on their skills and experience. They are encouraged to maintain team spirit in order to achieve the company’s goal and objectives. The company emphasizes on quality production of music that enriches the lives of people. Their corporate responsibility is outstanding since they are dedicated to employee volunteerism, funding medical research, helping local communities and fostering improved education systems (Sony Corporation of America 2011). Organizational structure forms the backbone of the company, and Sony record label has a strong one that has helped it to maintain its position among the top four companies in the industry. Analysis of threats from online competitors and online substitutes It is quite important to understand the complexities of the music industry, its structure and content. The industry comprises of businesses that record, produce, market, publish and distribute music. The music industry is a multibillion dollar industry that has been doing well over the years. The growth of the digital revolution has led to significant changes in the music label business. This has been a driving force of changes in operations and structures of major music labels including Sony. Improved technology has resulted to innovation in the production of music. In the past, CDs were widely used in the sale and distribution of music but the internet has led to decreased sales by record labels (The International Law Review 2011). People are able to enjoy music by downloading it hence the companies receive less loyalties. This has led to competition from the online businesses and the record label category needs to up its game to compete accordingly. Online music stores have been the major threat to the four major music labels. They lose nearly 40% of their profits to the online as explained by The International Law Review (2011). Many consumers opt for digital music as the best medium. There are many advantages associated with this including decreased size, easier distribution, improved choice in the medium of sound reproduction and the ability to include artistic detail and graphic art work. Online music offers an interactive feature platform that increases the customers’ choices. Online purchasing is associated with efficiency in purchasing and this has posed a major threat to the major record labels still relying on CD sales. Online music stores including Apple’s iTunes Store have become the most widespread form of commercial distribution. Apple and other music online music stores have introduced iTunes software applications that are used by music listeners to browse music, play digital media and organize music. This was followed by the launch of iTunes store in 2008, resulting to immense sales in the US and other parts of the world. This made it the leading music vendor and other competitors followed this trend. Currently, the iTunes store constitutes 70% of the digital market in the global market. Recent studies show that the store had made 10$ million through download of songs (The International Law Review 2011). The iTunes music record has over 12 million songs for customers to choose from (The International Law Review 2011). Later in 2009, Apple restricted the iTunes software and iTunes store to be compatible to specified iPod only. The reason is that it could play specific files that were embedded with their DRM. These downloads we referred to as ‘FairPlay’ and could only play on an iPod. The other competitor in the online music business is RealNetworks. The company offers a wide range of services for its customers. SuperPass is the other that has a wide range of music while Rinse is a clean up facility that cleans up the music files (RealNetwork 2011). P2P is the other major competitor in the online music business as suggested by AfterDawn (2011). In 2005, Apple took legal action against network to stop the use of Harmony and succeeded (The International Law Review 2011). The other online competitor is MOG which is a large network of music blogs and offers music on demand. The company made $9.5 million in 2010 as stated by Tech Crunch (2010). The use of MOG music blogs has increased over the years to 13.2 million per month in the US and 23.7 million worldwide (Tech Crunch 2011). The graph below illustrates MOG sales in comparison to other online stores. Competition of among online music stores (Tech Crunch 2011) The music market as earlier indicated is dominated by the four major record labels. These labels are known to produce quality music to their customers and are rand names recognized by customers globally. They have taken full advantage of their market strength to downstream supply channels. Sony music label was the last among the major record labels to adopt online selling of music (Wired.com 2011). The company started selling its wide array of music DRM at no cost on Amazon.com. This was a major blow to the other music stores including Apple iTunes that had dominated the market since its start in 2003. EMI is the major record label to be DRM-free. The company recorded increased sales by establishing its own online store. The online music market has remained quite competitive since its inception owing to the increase in number of online music stores and the changing technological landscape. Sony record label should always be one step ahead of its competitors strategically so as to remain at the top of the game. Analysis of emerging markets Sony’s success has been experienced globally and in the emerging markets in Africa, India, Brazil and China. This is most evident in India where there is a strong penetration of film, music and the entertainment industry at large. The company plans to venture into other new markets by adopting the same policies to achieve a wider market base and increased profit margins. Sony being one of the four giants in the music industry, it aims to conquer the emerging markets through diversification. Africa is one of the emerging markets which have proven to have a ready market for international music. The main target for the company is South Africa which has higher economic stability and a well developed music industry. The company has been successful in selling its music in this continent. Sony has signed some of the biggest names in South Africa including Freshly Ground and Lira to its record label and subsequently turning them into international stars. The road to success has not been easy as the music label faced obstacles while establishing itself in this region. In Africa, some parts tend to be remote and may not understand what the music label is all about. Sony faced lack of information about the music industry in Africa. The culture and traditions of the people were a major challenge to acceptability of the international music as explained by Venzin (2009). The company has since learnt the African market and has come up with strategies to operate profitably. The Indian music market is quite promising and Sony can make high profits owing to the growing population and improving economic status. Social sites have made it easy for the company to venture and expand its activities as there has been increased awareness among the people especially the youth leading to increased demand for international music. The music industry has evolved over the years and has kept up with upcoming trends such as online music stores. Sony has a profound impact on the music industry in India as it has a wide network of distributors and has signed some local artistes into the record label. The company has encountered many problems in establishing its operations in this country. Indians have a strict culture in regards to morality and some genres have been classified as culturally unacceptable leading to lower than expected sales. Lack of understanding and acceptability has also hindered the growth and development of Sony music label in India. Bollywood has dominated the entertainment industry over the years making it difficult for other firms to enter the market as sated by Billboard biz (2008). The company is willing to take the risk since a healthy market is characterized by diversity of products and services as explained by Reinhold (2011). Despite these challenges, the company has established itself in India as a major competitor and has been making increasing sales over the years. China is an important emerging market for Sony music label and the company distributes its music using various channels. Mobile phones have proven to be the best channel and this has been licensed by the global music accord. China’s level of technology in comparison to other emerging markets has led to better distribution of music. Sony music has been paying special attention to the Chinese market and has thus invested in a mobile company (Access Media Solutions) in a move to increase the availability of music in China as stipulated by Billboard.com (2008). The major global supplier of music in China is Bethel and Conn and they have millions of subscribers seeking to download music and videos onto their phones (Billboard. com 2008). Sony offers a variety of music to their customers in China from local and international artistes. On the other hand, the market in China has posed many threats to the record label. This is evident from the case in 2005 where Sony and Warner music group took legal action against Yahoo China for supposedly violating copyrights by offering links to subscribers for unlicensed music content (Cnet 2007). Illegal music is the major challenge facing the music industry to the local labels as well as international labels. In 2005, the figures of sales from pirated music were a staggering $10 million as stipulated by Cnet (2007). This not withstanding, the market in China has huge prospects and the record label makes high profits there. The company’s relationship with Global Music International is the best strategy to survive in such a volatile market. . Conclusion and recommendations The record label has powerful allies with established companies including IBM and Microsoft and should continue collaborating with them for increased levels of success. The label should embrace the internet as a tool for distributing its music by making a music database whereby users can buy music. The company’s recent partnership with VEVO, which is a new form of online entertainment with customers globally, will ensure that the company has a competitive edge. This incorporates the highest level of technology and the best music. The company has also entered into partnership with Syco whereby it can collaborate with popular music reality shows including The X Factor and Got Talent. This has placed the company in a position to compete on a higher platform with the major record labels. Piracy is a major problem facing the company and the music industry in general leading the decreased sales and poor growth of the artistes signed to various labels. It can be noted that consumer loyalty to CDs has remained dominant among the older generations. This is a major strength of the label and they should stay focused on the ventures that have succeeded in the past. In order to survive the current crises in the music industry, the company should modify itself into intermediaries and review the way contracts are handled in order to maintain the most popular and profitable artistes. Radio and TV have proven to be the most effective medium in advancing the music industry but it should not overlook the potential that internet will have in the near future. References AfterDawn 2011, P2P is iTunes' biggest competitor?, viewed 22 May, 2011, . Billboard. biz 2008, Sony BMG launches Columbia Records India, viewed 22 May, 2011, . Cnet, 2007, Sony BMG pushing mobile music in China, viewed 22 May, 2011, . Hanson, D, Dowling, P, Hitt, M.A, Ireland, RD & Hoskisson, RE 2001, Strategic management: Competitiveness and globalization, Cengage Learning. Hill, C, Jones, GR, Galvin, P & Haidar, A 2007, Strategic management: An integrated approach, 2nd edn, John Wiley and Sons. RealNetworks 2011, Products & services, viewed 22 May, 2011, . Reinhold, L 2011, Age diversity – A management approach against the background of demographic changes, GRIN Verlag. Singh, K, Nitin, P, Loizos, H &Singh, A 2005, Sony corporation: The vision of tomorrow, Thomson Learning. Sony Corporation of America 2011, Corporate philanthropy, viewed 22 May, 2011, . Sony United 2007), Annual report 2007: For the year ended March 31, 2007, viewed 22 May, 2011, . Tech Crunch 2011, MOG’s music network gaining fast on competitors, still has a way to go, viewed 22 May, 2011, . The National Law Review 2011, Antitrust, intellectual property rights, and the online music industry: An antitrust analysis of apple’s combination of services and products, viewed 22 May, 2011, . Venzin, M 2009, Building an international financial services firm: How successful firms design and execute cross-border strategies in an uneven world, Oxford University Press. Wired.com 2010, Threat level, viewed 22 May, 2011, . Read More