Lecturer The Music Industry in 2006 Introduction The music industry comprises individuals and companies who make money through creating and / or selling music. The individuals and firms operating in this industry includes; musicians responsible for composing / creating and performing music; professionals and the companies who create or sell recorded music (music publishers and producers); firms presenting live music (booking agents and promoters); music professionals like talent managers and entertainment lawyers; music broadcasters like broadcast journalists and musical instruments manufacturers. Porter five forces analysis involves strategy for music business development and music industry analysis.
The model was formulated in 1979 by Michael E. Porter of the Harvard Business School. It uses concepts from the Industrial Organization Economics to formulate the five forces that influence competitive intensity and attractiveness of the music market. Attractiveness of the industry involves the general industry profitability. Unattractive industry refers to a combination of the five forces in reducing overall profitability. The five forces of the Porter’s model comprise; the bargaining power of suppliers; the bargaining power of buyers; the barriers to entry; the threats of substitute products; and the rivalry among current competitors.
Porter’s 5 forces for the Music Industry The bargaining power of music suppliers reduced during the year 2006, due to increased competition; and this made the music industry unattractive with minimal profits. Year 2006 saw major music suppliers like; Universal Music Group, Warner Music Group, EMI Group and Sony BMG Music Entertainment; face increased competition from new entrants in music industry like; Wal-Mart and online music stores which include Apple’s iTunes Music Sore, eMusic. com, Napster and Yahoo! Music Unlimited. Technological innovation continuously creates stiff competition because it enables many music suppliers to operate in a given market.
Too much competition leads to decline in music sales revenue, hence decreased profitability. The increased bargaining power of buyers or customers has also led to an unattractive market; hence low revenues and low profits for music companies. This is because music customers have so many avenues of accessing music products, and affordably for that matter. Many internet sites offer free music downloads services; hence the sale of music in CDs, DVDs and flash drives has reduced.
Advances in technology have also led to reduction in music sales; this is because one music CD for example can be used in 100 different computers. Internet sites like YouTube have led to reduction in music sales; millions of views around the globe can follow the launch of a music video live and free through the YouTube. Technological innovations have led to minimal barriers of entry in the music industry. This has seen an influx of music services providers who increase competition by targeting the same market segment. The competition is so intense that in the year 2006; Tower Record filed for bankruptcy, and Virgin Megastores experienced financial challenges, due to reduced sales value and volume.
Minimal barriers in the market has the opposite effect of increasing players in the industry; for example by the year 2006, over 500 online music sites which are legal supplied over four million songs to customers in over 40 countries. Technology has ensured low music production budget; an upcoming music artist can just shoot a music video and upload it directly in the internet through music sites like YouTube.
Threats of substititue products are very real and intense in the music industry. This makes music providers have low sales and low profits; due to unattractiveness created by many cheaply available substitute products. Expels of music services which can substitute each other include; live music performance, music CD, internet music, wireless music, cable music, portable music, music phone ringtones and radio or television broadcasts (Wells and Kaabe, 69). For example, a customer can decide to pay for a live music performance, instead of internet music download; may be due to the originality characteristic of the live performance.
Customers have many options due to many substitute products. Rivalry among current competitors is also a factor that makes the music industry unattractive. For example there is stiff competition in the electronic music retail sector. This leads to lower sales volume; hence reduced profit margins for the music companies. For example; Zune Marketplace is a product of Microsoft which sells music online; Yahoo! Music Unlimited also sells online music; Rhapsody owned by Media Company Real Networks deals with sell of online mp3s; and eMusic. com was established in 1998, and it was the first company to provide online music downloads services.
In market mechanism; when the supply of music products increases due to increased music providers; then the price of the products must reduce. The customers therefore benefit from affordable music purchasing costs. Conclusion Music service providers should study, understand and apply the Porter five forces analysis; in determining the competitive advantage that they have over the competitor. For example internet music providers have the advantage of providing cheaper products, due to low operational costs.
This competitive advantage should increase sales volume and subsequently revenue. Works Cited Wells, John and Kaabe, Elizabeth. Update: the Music Industry in 2006, Boston: Harvard Business School, 2006. Print.