Analysis of the Bmg Entertainment

BMG entertainment, the worlds fourth-largest media company, was a subsidiary of Bertelsmann AG, a German media conglomerate. In 1999, it was a $4.6 billion music and entertainment company with more than 200 record labels and operations in 53 countries. Its revenue was derived from North America (51%), Europe (32%), Latin America (9%), and Asia-Pacific (8%). Despite of this BMG Entertainments ability of generating huge revenue, and its operating strategies to make the company sound, the BMG Entertainment, however, is now facing severe obstacles tough to overcome.

1) Executive Summary: As new technology came out in this world, music industry was destroyed. The advent of broadcast radio as well as Internet made many record companies change their organizational structures to fit to the new technology. No one can stop technology being changed. To be a survivor in any industry, firms must be flexible to the changes of technology. Therefore, BMG also need to fully respond to this challenging environment by adopting well-structured digital distribution system and shutting down its physical production facilities. 2) Problem Identification: In the late 20th century, the global music industry faced difficulties, as new technology, specifically Internet, was prevalent among people in the world. The new technology totally changed ways in which people used to buy goods and services, especially related to the music industry. The Internet accounted for 0.3% of all music sales in 1997, 1.1% in 1998, and amazingly 10% by 2005. Music was sold out over Internet through some well-known web sites, which uploaded samples of music by genre as well as information about the music and the musicians. Then, consumers listened the samples, and chose what they most enjoyed. An order from the consumer was received, and shipped by the web sites. Another way through which music could be sold was downloading music. New technology allowed surfers to download music directly to their..

The Internet, by making free and non-free online distribution of music, has profoundly affected how business is conducted in the record industry in terms of distribution channels, copyright and the economic structure of the major players in the global market. Initially, the Internet was viewed as an opportunity by some of the major players as a new channel of promotion. However, after the existence of Napster and few others, the majority considered it as threat because of the increase in the free file sharing. Consequently, for the Internet to be an opportunity for the major players, they had to adopt new business model in terms of distribution for online customers while keeping their conventional distribution channels. Early response to this threat was searching for technological solution in order to prevent piracy, going to court to sue for copyright infringement, the five major players and others offered their own authorized online distribution joint venture, all in attempt to keep their power in the market.
Why have a handful of major record companies dominated the music industry through most of the last century?

The world market of record music in 1990s was dominated by only five big corporations: BMG Entertainment, EMI, Sony Music Entertainment, Warner Music Group and Universal Music Group. ough vertical integration, the recording companies could reduce costs and raised the entry barrier to the industry. As the big companies got more and more market share, they diversified their investments and produced all kinds of genres. They secured all the valuable shelfspace in the retail stores, making it extremely difficult for other newly competitors to compete with them.

2. How does the advent of the Internet change the structure and economics of the music industry? Will major record companies continue to dominate the business?

The advent of the Internet is a disruptive technology for music industries like BMG and other major recording companies. The statistic shows the impact of the Internet. Online sales accounted for

SWOT Analysis and Recommendation if Music Industry Strengths: *First major record label to create websites branded towards different music genres. First major record label to use downloading technology to promote sales of CD's and cassettes. *Merged with AOL--AOL has the largest internet service provider in the industry. *BMG was the largest music club in the world, and arguably the leader of the five major labels. *BMG set up a series of websites dedicated to specific genres of music. These sites linked fans to the artist's websites, where they could download or purchase CD's. (Another innovative move from BMG) Weaknesses: * Through sites like CDNow and Amazon.com customers had the option of having CD's or cassettes mailed to them. Consumers may not want to "deal" with downloading music from the net. They may just stick with what they have. Many sites had illegal downloads, so the conventional consumer may not want to bother with this new type of technology. * Although BMG was the first company to create branded websites for specific music genres, they only focused on promotional aspects here, rather than focusing on selling music and in turn making money. Opportunities: * The innovativeness and newness of the digital era could spark a surge of consumer interest in the music industry. For instance, the CD had a big impact on industry revenue; owners of tapes simply replaced their collections with CD's. * ;BMG is arguably the leader in the music industry, and consequently has the influence to take its existing customers with them into the digital mp3 era.

* BMG had close relationships with all the players involved in setting tech standards for downloadable music. This could give BMG the heads up on newest technology, and an advantage for market entry. * If BMG begins to sell music on...
a) Why have a handful of major record companies dominate the music industry throughout most of last century? Major record companies were able to dominate the music industry throughout most of the last century for the following reasons: With the key development of patented music recording technology, Edison, Columbia, and Victor created and maintained an oligopoly in the recording market for years. Through early alliances and partnerships with smaller companies, the three record companies soon became global. The advance of radio technology caused industry-wide reorganization and allowed for the rise of RCA, EMI, and CBS as core record companies that dominated the industry in 1999. One reason why the three major labels were able to maintain high entry barriers was by developing new formats for distributing music and setting the standard for recording playback (discontinued EP and agreed to sell players for 33-rpm and 45-rpm discs). Another barrier to entry existed in the fact that large record labels like RCA were able to sign on popular music artists such as Elvis Presley to dominate the music industry. Moreover, they were able to buy out contracts of smaller record companies with music arti BMG took the opportunity to use the internet as a marketing tool promoting its newest artists such as Britney Spears. By placing the website on its CD covers, BMG was able to create a large base for the success of its numerous websites promoting its artists. By providing a service that updated customers on their favorite artists, the customers also knew when to expect new products. The greatest effect of the websites is to create a relationship with the customers so that they continue to purchase CDs from BMG. Using the internet as a means to maintain market share without actually taking the operations online was a great strategy employed by BMG. The company has also established relationships with all the major companies involved in digital music downloading technology such as AT&T, IBM, etc. While not committing to any large deals with any of these companies, BMG, has primed itself for having a stake in the market if the digital download industry if it ever takes off, which they presume it will at some point. At the same time, the resources used to maintain this position are also being used to continue promoting retail sales for their artists. BMG has placed itself in a safe position maintaining strength and flexibility in its marketing strategies. From a structural standpoint, the changes that will be brought out include lower barrier to entry, reorganization of the supply chain, and subjecting the public to a different point of service. The first idea stipulates that entrepenurs will no longer have to invest as much money as before into such things as vertical integration and developing a retail distributor center. As for supply chain reorganization, digital music will be available, eliminating the need to manufacture and distribute records. Inventory levels can also be minimized due to

the possibility of storing music data (data storage vs. inventory storage). The third idea stipulates that people will no longer need to go to retail stores to buy music, as websites are available as a convenient substitute.
Case Analysis The music industry deals with goods that have a high fixed cost of production and a near zero marginal cost of distribution. These goods have interesting properties with regard to intellectual property rights, versioning, and pricing. Due to the nature of the goods and the industry characteristics, a small number of companies were able to dominate the industry. The characteristics that led that led to small industry were high-risk rate of four out of every five records losing money. The fact that one record alone costs a company about $300,000 to make. The low cost and ease to make copies of existing records. The high risk that a record would not be a hit and the ability and pressure to pick songs, and artists that will produce hit records. In addition, the industry has very high barriers to entry and low success rates. For example, artists only want to sign with a label that already has successful artists associated with it. Therefore, in order to get a successful artist to sign you need to leverage an existing star making it difficult for newcomers. The chances of a label to produce a hit record are difficult when there are about one thousand new songs released every week and only three or four get any airtime on the radio or video, which are the two most popular means of exposing an artist. Most importantly, the history of the record industry lead to the dominance of a small number of companies dominating the industry. A few individuals developed the industry as they introduced new technology. Record companies were instrumental in introducing complementary technologies and working on establishing a standard, consequently the industry as a whole offered few substitutes. During the early stages, the industry was experiencing growth due only to technological advancements. The early technology required high investments and acted as a high barrier to entry for small participants. The industries consolidation in the 1980s allowed..