Whether the Internet is an Ppportunity or a Threat for Recording Industry

A case study in eBiz class in Sauder Business School.

Industry analysis: The recording industry is one part of the value chain of music industry. Basically, the revenue is generated from the wholesale price of the CD or cassette. Meanwhile, the record companies play a role as a centralized value distribution centers, they collect money from retails and then pay royalty fee to artists and the publishers. Although they have some contracts protect its own profit ex. a system of “recoupable costs”, they still bare lots lose while the consumers behaviour shift to downloading digital music rather than buy physical CDs. However, the Internet is not the only disruptive technology that music industry encountered; the point is how to turn the threat to the opportunity.

Recommendation: The need of human to enjoy the music is never changing. The variability comes from the way people enjoy music or the cost they willing to pay. To solve this discrepancy, we should consider the relationship between cost and effect in music industry and consumers behaviour. The Internet is a great platform for companies to reduce their cost from many perspectives, for example, reducing cost by delivering music in digital format, reducing expenditures of marketing event by hosting virtual activities rather than the physical campaigns. The costs that record companies save can return to compensate the retail price for consumers. Once the record industry can offer a reasonable retail price to consumers and provide more benefit for them, the competitive advantages emerge and definitely take the piracy down.

Moreover, as mentioned above, the record companies are the central role of whole music industry, involving with different functional segments, for example, they have their own staff of marketing, distribution, manufactures, and even artists. Therefore, they can broaden their product lines, generate income from other part of the industry value chain. For instance, gaining low margin but high reputation online in order to gaining high margin in physical show performances, or develop by-products of famous singers. This movement may change the business model significantly, either moving to upstream of music industry to play the role as publishing companies, recruiting artists and musicians, taking advantages of feedback from the retails, utilizing the analysis of sales, trying to cooperate with artists and musicians then designing the exactly preference needs for customers. On the other hand, record companies can also build their own online contribution channels, both for the physical CDs and the digital format songs. Although there are burdens on the way to success, the very successful case regarding to collect real payment from internet just happened: iPod and iTunes (one product line of Apple. Inc.).

The business model is selling the mp3 players then extending their service through online music database. By providing the very reasonable price and friendly user interface of online digital music purchasing, Apple Inc. overcome the burdens on the way to make consumers used to pay the copyright music online. Apple experience should bring some idea to deal with this case; thinking out of box, the solution may not lay on the industry itself rather it may come from other innovations.