The recorded music industry is currently in the decline phase of its life cycle. Sales in 2008 were approximately $9 million, down 7.7% from the previous year. Sales of recorded music are expected to decrease by 5% in 2009. In recent years, the music industry has faced many challenges from a variety of independent sources. Artists have become self sufficient, promotion has become increasingly difficult due to the diversity of consumers, illegal downloading has been said to reduce sales, the world economy has fallen into a recession, and consumers have increasingly become segmented and diversified. In order for the music industry to return to growth, new revenue streams must be defined and implemented. The recent recession has caused many other companies to face hardships, like the music industry has been facing, and has enabled other companies to thrive. Strategies, trends, and precedents in non-music industries have parallels to the music industry that can be used and adapted for the music industry’s benefit.
Business Software Intelligence Industry Overview
The Business Software Intelligence (BI) industry is part of the software publishing industry. This BI industry generated $8.5 billion in 2008 and is predicted to continue growing throughout the next few years. According to Forrester Research, the BI market is expected to generate more than $12 billion in revenue by 2014. Although many industries (like the software industry as a whole) are facing hardships, caused by the current recession, the BI industry is expected to grow (due to its ability to reduce costs and increase operational efficiencies for a variety of companies). “Expectations for increasing demand helped fuel a wave of consolidation in the BI market. Software vendors including IBM, Oracle, and Microsoft all made large BI acquisitions in recent years.”[i]
Business intelligence software is sold to large companies who want to increase their efficiency. The various kinds of software provide analytical data about company operations and processes, as well as, provide data about external factors that influence sales. The types of information services one would acquire, from implementing BI software, are: data mining, data warehousing, forecasting, querying, reporting, and data analysis. The purpose of this kind of software is to assist managers in the decision making process; by providing them with statistical information that will enable them to “develop, execute, and maintain effective business strategies.”[iv]
Some recent trends in the industry are consolidation, increased development of event driven analytical programs, development of BI software models for smaller companies, and an increased focus on improving enterprise information integration. Consolidation in the BI industry has been caused by larger software companies seeking to offer, “a more extensive and complimentary range of products in order to gain a larger consumer base.”[v] Increased development of event driven analytical programs arose out of BI firms recognizing that many consumers required custom-built applications to meet their needs. The trend of developing BI software models for smaller companies grew out of recognizing that smaller companies have limited funds available for BI software. It also grew out of the recognition that smaller companies have demonstrated an increased need for implementing it. These small company BI models are centered on enabling the companies to access BI software online (through a pay as you go subscription service) rather than through directly purchasing the software itself. Developers have also recently started to focus on improving enterprise information integration due to the recognition that all of a company’s data was not easily accessible to users. Improved enterprise information integration is focused on enabling users to access all pertinent company information in one centralized location.
Car & Automobile Manufacturing Industry Overview
The Car and Automobile Manufacturing (CAM) industry generated $96 million in 2008 and is predicted to decline by 10% in 2009. “Companies in this industry manufacture cars and automobile chassis.”[vi] This overview will not include information pertaining to the manufacture of trucks, pick-ups, SUVs, or motorcycles.
The CAM industry is currently in the decline phase of its life cycle. The decline phase of an industry’s life cycle is characterized by declining sales, market saturation, technologically obsolete products, and changes in consumer preferences. The CAM industry emerged over 120 years ago and became prevalent in 1908 through the mass production of the Ford Model T. The CAM consists of 5 dominant players: General Motors, Toyota, Ford, Cerberus Capital Management (Chrysler), and Honda. These companies primarily engage in assembling automobiles and manufacturing automobile chassis for mid-size, small, luxury, and sports cars. The primary consumers of this industry’s products are: car dealers (who sell to individual consumers), wholesalers, exporters, leasing companies, and the government. The industry’s integrated supply chain relies heavily on the sale of products to dealers and wholesalers. The credit crisis and recession have hit this industry hard and have caused sales to plunge.
Recent trends in the CAM industry are reduced consumer demand, increased development of and demand for hybrid vehicles, heightened development of smaller fuel-efficient cars, diverse model choices available to consumers, and corporate talks of share swapping to reduce component costs. The current recession combined with the credit crisis has decreased consumers’ demand for cars. The recession and credit crisis have made it harder for potential consumers to obtain loans and has also led to reduced disposable income, which has caused many to cut back on purchasing new cars. The trend towards developing hybrid cars arose out of consumers’ desire to purchase environmentally friendly vehicles, as well as, their desire to spend less on gasoline (due to recent increases). The increased development of smaller, fuel-efficient, cars also arose from consumer desires to spend less money on gasoline. The increased diversity of model choices, for consumers, arose from major automotive companies seeking to appeal to niche marketplace segments. The share-swapping trend started with discussions between BMW and Daimler. They are currently in talks about share swapping so they could reduce procurement costs of components (by buying parts and supplies in bulk together).
Parallels & Application to the Music Industry
1.) The BI industry is starting to offer lower priced software to smaller companies. Due to the recession many consumers lack discretionary income for entertainment, like many small businesses lack the income for fully purchasing and implementing BI software. The music industry could start offering lower (radio) quality digital downloads (for free) to consumers who have little discretionary income.
If the music industry started offering radio quality digital downloads to consumers, for free, demand for other music goods (concert tickets, merchandise, etc.) would be stimulated (based on Benkler’s “Scholarly Lawyer” content distribution strategy) and less money would need to be spent on promotion. The “Scholarly Lawyer” content distribution strategy focuses on making money from the production of information but not from exercising the exclusive rights of that information. By offering low quality music for free to individuals who no longer have discretionary income (or have substantially less discretionary income) fans would be able to share new music with one another. By fans being able to spread the artist’s music to other potential fans, the money an artist (and label) would make from touring, live performances, merchandising, and synch licensing would drastically increase. If the artist’s musical information were able to travel freely (without cost restrictions) they would potentially be able to attract a wider fan base and achieve greater brand awareness for themselves and their product.
This strategy of tiered quality could help to promote musicians virally, thus stimulating long-term sales and reducing the costs of promoting an album. Marketing is said to be one of the largest expenses in releasing an album (second to album creation). If lower quality downloads were made available to consumers for free, the risk of trying new music would decrease and more individuals would have a greater chance of being exposed to the music. People who might not think to listen to a certain artist could be turned on to an artist through a friend’s sharing of the low quality download, which may help to stimulate the purchase of a higher quality download or album. Rather than record companies spending exorbitant amounts of money to promote their products to potential customers, this strategy would enable consumers to do promote the products on the record company’s and artist’s behalf.
2.) The BI industry has recently started focusing on improving enterprise information integration with their software. The enhanced focus on the integration of enterprise information derived from the recognition that BI software does not centralize all of a company’s important information. Most major record companies do not centralize any of their information (excluding distribution centers). Major record companies in the music industry could focus on centralizing all of their internal information. This would cause increased efficiency and would enable any employee (with appropriate clearance) to access all information, about an artist, that they might need to do their job (instead of searching and obtaining it from a variety of places for one time use).
Time and money are wasted in the process of trying to locate items that are necessary to complete projects (like an artist’s press kit, albums, photographs, market research, Sound Scan information, etc.) because the information comes from a variety of sources (some of which are hard to find or unknown). Once the project has been completed, the information (even though now compiled and combined) is typically not shared with others (outside of those involved in the project). If all of the company’s information about their artists and releases were stored in a centralized database, efficiency would be increased because information searching processes would be streamlined. Integration of enterprise information would allow for data that one might need, about an artist or their projects, to be easily accessible.
3.) The CAM industry has started to increase their focus on niche market segments (with the release of hybrid vehicles and fuel-efficient small cars). This increased focus on niche segments has been successful in the CAM industry and could prove successful in the music industry.
Major record companies can benefit from the idea of re-focusing strictly on niche segments. Many major record labels are trying to diversify their offerings and focus on signing artists outside of their functional specialties. An example of this is that Decca Label Group, primarily an adult contemporary label, has started to focus on signing artists who are outside of their area of expertise (contemporary pop, soft rock, and folk artists). The reason this has occurred is because the label has re-adjusted its strategy to focus on appealing to mass markets.
Labels, like Decca, are decreasing their operational effectiveness and are dis-servicing their artists by over extending their brand offerings. This over extension of their brand, into new genre segments, limits them from fully understanding and servicing both their new and old consumer bases and decreases their ability to effectively market any of their artists. Focusing solely on servicing the adult contemporary community would help to carve out a niche and would increase the Company’s sustainability.
As music continues to increasingly diversify among consumer segments, labels should start focusing on appealing to niche markets (that suit their core competencies) and move away from appealing to general mass-markets. The mass-market strategy leaves room for serious errors and mis-calculations (albums that completely bomb after substantial initial investments), due to a lack of understanding the genres outside of the company’s core competencies and due to the mass-market disintegration (because of increasing consumer preference fragmentation). Appealing to niche market segments will enable labels to reduce costs (by increasing economies of scale and by focusing on the markets they know best) and will help them to grow or maintain profits in a declining industry.
4.) Select players in the CAM industry have started to talk about share swapping, in order to reduce procurement costs of components (by buying in bulk together). Share swapping (or some variation of it) could help the music industry to reduce large initial investment costs in signing artists. Major record labels could potentially enter into share swapping deals (per project) with artists.
In lieu of a recording contract with an artist directly, a record company would create a share swapping deal with an artist’s company (that would most likely be in the form of an S Corporation). The artist’s company would be an entity functioning (run by the artist’s management) on the artist’s behalf. In this situation, the record label wishing to sign the artist would swap shares of their company with shares of the artist’s company. The benefit of this arrangement is that the artist would still receive money from the label (in the form of shares that could be cashed in after a certain period of time) and the label would own shares of stock in the artist’s (and reap the benefits from their musical endeavors and success). This arrangement would reduce (if not eliminate) the need for advances and would capitalize on the industry trend of the self-sustainable artist. The artist would be responsible for the creation and delivery of commercially satisfactory recordings, as well as, responsible for grass roots promotions and the label would be responsible for the distribution and marketing of the album. This arrangement would cause each label to have a more vested interest in artist’s creating long term careers and would cause artists to be more business savvy (because they would have a vested interest in the company releasing their album). By eliminating or severely reducing the costs associated with creating an album and signing an artist, labels will be able to take more chances on new artists, new artists would be stakeholders in the company’s success (therefore driving them to promote themselves and others), and fans would have the ability to gain more access to new and different kinds of music (due to the label’s ability to take greater risks with signing new artists).
There are many lessons that can be learned from studying non-entertainment industries. Through exploring and studying these industries, one can recognize pitfalls and competencies that may be applied to one’s own industry. The analysis of pitfalls enables one to recognize what warning signs to look out for are (prior to making the same mistakes) and the analysis of competencies enables one to look at how they might be replicated in their own industry. Drawing parallels between non-entertainment industries and the music industry can bring a fresh outlook to the music industry, which could immensely benefit it.
[i]King, Rachael. “Business Intelligence Software’s Time Is Now.” Business Week 02 Mar 2009 21 Mar 2009. <http://www.businessweek.com/technology/content/mar2009/tc2009032_101762.htm>.
[ii] Kelly, Jeff. Business intelligence software market looks to hold its own during recession. 19 Feb 2009 Tech Target. 7 Apr 2009. <http://searchdatamanagement.techtarget.com/news/article/0,289142,sid91_gci1348537,00.html>.
[iii] Kelly, Jeff. Business intelligence software market looks to hold its own during recession. 19 Feb 2009 Tech Target. 7 Apr 2009. <http://searchdatamanagement.techtarget.com/news/article/0,289142,sid91_gci1348537,00.html>.
[iv] Business Intelligence software. 2009. IBS Solutions. 9 Apr 2009. <http://www.ibs.net/uk/solutions/business-intelligence-software/>.
[v] Software Publishing in the US: 51121. 13 Feb 2009. IBIS World. 7 Apr 2009 <http://ezproxy.library.nyu.edu:24809/industry/default.aspx?indid=1239>.
[vi] Car & Automobile Manufacturing in the US: 33611a. 17 Dec 2008. IBIS World. 7 Apr 2009 <http://ezproxy.library.nyu.edu:24809/industry/default.aspx?indid=816>.