MIT Sloan School November 14, 2000 BITS, BYTES & BLUES The Digital Delivery of Music Paul Fenaroli...
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Transcript of MIT Sloan School November 14, 2000 BITS, BYTES & BLUES The Digital Delivery of Music Paul Fenaroli...
MIT Sloan School MIT Sloan School November 14, 2000November 14, 2000
BITS, BYTES & BLUESBITS, BYTES & BLUESThe Digital Delivery of MusicThe Digital Delivery of Music
Paul FenaroliPaul FenaroliManager, BostonManager, Boston
BCG IN THE NEW ECONOMYBCG IN THE NEW ECONOMY Assignments in the Public Domain (A Shameless Plug) Assignments in the Public Domain (A Shameless Plug)
.fr
.com
.com
Music and the New MediaMusic and the New Media
Changing music landscapeChanging music landscape
Meeting the new media challengeMeeting the new media challenge
Summary/lessons learnedSummary/lessons learned
UNTIL A FEW YEARS AGO THE MUSIC INDUSTRY UNTIL A FEW YEARS AGO THE MUSIC INDUSTRY WAS RELATIVELY SIMPLE WAS RELATIVELY SIMPLE
Source: Business Wire; Billboard; RIAA; BCG analysis
Majors controlled biggest labelsMajors controlled biggest labels Products were straightforwardProducts were straightforward
0
10
20
30
40
Growth was steadyGrowth was steady
$B$B
YearYear
Compact Compact discsdiscs
CEMACEMA
WEAWEA
PolyGramPolyGramCassettesCassettes
CAGRCAGR~5%~5%
Changing music Changing music landscapelandscape
Changing music Changing music landscapelandscape
99998686
BMGBMG$3.4$3.4
BB
OtherOther$6.4B$6.4B
Warner-EMIWarner-EMI$8.0B$8.0B
SonySony$4.1B$4.1B
UMG/PolygramUMG/Polygram$6.3B$6.3B
A FEW (FEWER) NUMBER OF BIG PLAYERSA FEW (FEWER) NUMBER OF BIG PLAYERS
Source: IFPI; annual reports; BCG music industry prime; 1998 Revenuer
Changing music Changing music landscapelandscape
Changing music Changing music landscapelandscape
14.5%14.5% 12.1%
28.4%28.4% 22.7%22.7%
22.3%22.3%
ON-LINE DISTRIBUTION HAS CHANGED THE BUSINESS ON-LINE DISTRIBUTION HAS CHANGED THE BUSINESS AND IS THE HOTTEST TOPIC IN THE INDUSTRYAND IS THE HOTTEST TOPIC IN THE INDUSTRY
No matter how this plays out, the implicationsNo matter how this plays out, the implicationsfor sale of digital content are hugefor sale of digital content are huge
Press is watchingPress is watching Even the popular mediaEven the popular mediaBroad, indelible Broad, indelible
mark on e-businessmark on e-business
Changing music Changing music landscapelandscape
Changing music Changing music landscapelandscape
SIGNIFICANT ON-LINE COMPETITION IS EMERGING SIGNIFICANT ON-LINE COMPETITION IS EMERGING ACROSS THE ENTERTAINMENT INDUSTRYACROSS THE ENTERTAINMENT INDUSTRY
AttackersAttackers
IncumbentsIncumbents
Music contentMusic contentprovidersproviders
Non-musicNon-musiccontentcontent
providersproviders
RepackagersRepackagers
Changing music Changing music landscapelandscape
Changing music Changing music landscapelandscape
MANY DOWNLOAD OPTIONS HAVE EMERGEDMANY DOWNLOAD OPTIONS HAVE EMERGEDPlayersPlayers Cool featuresCool features
Changing music Changing music landscapelandscape
Changing music Changing music landscapelandscape
THE FUTURE IS UNCERTAIN—JOCKEYING FOR THE FUTURE IS UNCERTAIN—JOCKEYING FOR POSITION—LEGAL BATTLESPOSITION—LEGAL BATTLES
““We will fight for our rights and those of our artists, whose work, whose creations, whose property We will fight for our rights and those of our artists, whose work, whose creations, whose property are being stolen and exploited. We will take our fight to every territory, in every court in every are being stolen and exploited. We will take our fight to every territory, in every court in every venue, wherever our fundamental rights are being assaulted and attacked.”venue, wherever our fundamental rights are being assaulted and attacked.”
- Edgar Bronfman, Jr., Seagram CEOEdgar Bronfman, Jr., Seagram CEO
““We will fight for our rights and those of our artists, whose work, whose creations, whose property We will fight for our rights and those of our artists, whose work, whose creations, whose property are being stolen and exploited. We will take our fight to every territory, in every court in every are being stolen and exploited. We will take our fight to every territory, in every court in every venue, wherever our fundamental rights are being assaulted and attacked.”venue, wherever our fundamental rights are being assaulted and attacked.”
- Edgar Bronfman, Jr., Seagram CEOEdgar Bronfman, Jr., Seagram CEO
““It’s good that these guys are beginning to think beyond the ‘product’ format that they’ve been It’s good that these guys are beginning to think beyond the ‘product’ format that they’ve been locked into since the dawn of the recorded music industry.”locked into since the dawn of the recorded music industry.”
- Aram Sinnreich, Jupiter Communications media analystAram Sinnreich, Jupiter Communications media analyst
““It’s good that these guys are beginning to think beyond the ‘product’ format that they’ve been It’s good that these guys are beginning to think beyond the ‘product’ format that they’ve been locked into since the dawn of the recorded music industry.”locked into since the dawn of the recorded music industry.”
- Aram Sinnreich, Jupiter Communications media analystAram Sinnreich, Jupiter Communications media analyst
““Napster has taken extraordinary steps to comply with Metallica’s demands to block hundreds of Napster has taken extraordinary steps to comply with Metallica’s demands to block hundreds of thousands of its fans from using the Napster system. Napster has always stated that it would act in thousands of its fans from using the Napster system. Napster has always stated that it would act in response to notice from copyright holders and it has lived up to that commitment in good faith.”response to notice from copyright holders and it has lived up to that commitment in good faith.”
- Laurence Pulgram, Napster attorneyLaurence Pulgram, Napster attorney
““Napster has taken extraordinary steps to comply with Metallica’s demands to block hundreds of Napster has taken extraordinary steps to comply with Metallica’s demands to block hundreds of thousands of its fans from using the Napster system. Napster has always stated that it would act in thousands of its fans from using the Napster system. Napster has always stated that it would act in response to notice from copyright holders and it has lived up to that commitment in good faith.”response to notice from copyright holders and it has lived up to that commitment in good faith.”
- Laurence Pulgram, Napster attorneyLaurence Pulgram, Napster attorney
““It’s really important to enter the space with more than one partner.”It’s really important to enter the space with more than one partner.”- Kevin Conroy, SVP worldwide marketing and new technology BMGKevin Conroy, SVP worldwide marketing and new technology BMG
““It’s really important to enter the space with more than one partner.”It’s really important to enter the space with more than one partner.”- Kevin Conroy, SVP worldwide marketing and new technology BMGKevin Conroy, SVP worldwide marketing and new technology BMG
Most Majors settle with MP3.com--one(Universal) soldiers on and wins bigMost Majors settle with MP3.com--one(Universal) soldiers on and wins bigNapster loses and is faced with (stayed) shut down--one (BMG) signs and LOINapster loses and is faced with (stayed) shut down--one (BMG) signs and LOI
Source: Daily Variety; Business Wire; Wall Street Journal; New York Times
Changing music Changing music landscapelandscape
Changing music Changing music landscapelandscape
AGENDAAGENDA
Changing music landscapeChanging music landscape
Meeting the new media challengeMeeting the new media challenge
Summary/lessons learnedSummary/lessons learned
CONSUMERS UNDERSTAND AND LIKE THE IDEA OF DDDCONSUMERS UNDERSTAND AND LIKE THE IDEA OF DDD
Stimulus Learn Locate Decide Pay Delivery Use Discuss Repurchase
Instant gratification:“Great! I can learn a song on the radio and buy it right away downstairs at the computer! I won’t forget what I want”
“I’d use this at night, when the stores are closed”
Ease of location:“I’d use it for music that’s rare and hard to find”
Learn about new music:“This would be a great way to sample music”
“This will be good for artists in the free jazz scene who want to distribute their stuff”
Convenience:“How convenient! Why would I ever go to the store again?”
“I could take this [the Rio Player] with me anywhere”
“What a space savings if I never had to buy CDs”
Customization and control:“It’s like custom CDs only I do it myself so I know they won’t mess it up”
“I could buy parts of the album instead of the whole thing”
Digital downloading not too far-flung a concept for consumers to graspDigital downloading not too far-flung a concept for consumers to grasp
CONSUMERS HAVE AN IDEALIZED VISION CONSUMERS HAVE AN IDEALIZED VISION OF THE DDD PROCESS...OF THE DDD PROCESS...
Search for song/album
SampleAdd to cart,
pay
Download to
computer
Write to audio CD/ dig. player
ListenGo to online store
Boot PC, Log on
5 min 5 min 5 min 30 min / album
(passive time)
5 min / CD5 min
Ideally, search by artist, album, song, or lyrics
Must have complete selection: “Will all music be available this way?”
Must be able to sample all songs
Should sound as good as a CD on sampling
Ideally be able to skip through entire tracks, especially for Classical and Jazz
“I expect to pay less ($8-10) since I’m doing all the work, and it’s not the official version since I’m making it”
“I won’t have to pay for shipping and handling”
Needs• 1-800 hot line in case of download errors• Ability to download in background while working on
computer• Ability to leave computer to download without
supervision: “If I didn’t have to worry about download errors, I’d do it”
Wishes• Download album art and lyrics with music• Download entire album in minutes, one song in
seconds• Download directly to CD to save hard drive space
Must be portable: “I don’t want to listen to music only on my computer”
“I need a money-back guarantee that this will be CD quality”
“Ideally, I won’t need to buy new equipment, but if I do, it has to be compatible with my stereo system”
55 min per CD
Write to audio CD/ dig. player
Listen
……BUT TODAY’S PROCESS IS FAR FROM THEIR IDEALBUT TODAY’S PROCESS IS FAR FROM THEIR IDEALTechnology Remains the Largest BarrierTechnology Remains the Largest Barrier
Search for song/album
(Sample)(Add to
cart, pay)
Download to
computer
Search for and go to DDD site
Boot PC, Log on
Search for song/album
SampleAdd to cart,
pay
Download to
computer
Write to audio CD/ dig. player
ListenGo to online store
Boot PC, Log on
55 min Per CD
5 min 5 min 5 min 30 min / album
(passive time)
5 min / CD5 min
~5 hours Per CD
10 min 5 min 5 min1-4 hrs/ album
20 min - 2 hrs / CD
5 min
“It’s a hassle when I can’t find a MP3 link that
works”
“Sometimes I can’t find an MP3 at all”
“I don’t want to wait 1 minute
for a 30 second sample to download”
“There’s no point if it takes
4 hours. I could just go to the
store”
“I can’t tie up my phone line”
“There’s no way I’d do it at 20
minutes a song
“I don’t want to replace my
stereo with new
equipment”
“It [Rio Player] would have to
store at least 10 CDs before I’d
use it”
“I don’t want to listen on a walkman
(referring to the Rio)”
“I’m not too good with
technology – hooking up
wires sounds too
complicated”
Write MP3 to WAV format
30 min
(1) Numbers for U.S. onlySource: RIAA/NARM Consumer Survey; RIAA; BCG analysis
DIGITAL MUSIC OFFERS SEVERAL OPPORTUNITIESDIGITAL MUSIC OFFERS SEVERAL OPPORTUNITIES
% music vol(1):
% music pop(1) :
Money barrier
Heavy addict/ obsessive
Moderate purchase/
usageTime
barrierInfo
barrier
Low involve-
ment
No involve-
ment
Moderate user, barrier to purchase
43
12
23
18
20
35
8
19
6
16
$12.2B
67M
Totals (U.S.)
Opportunity to add +20% to market size if barriers removed, but..Opportunity to add +20% to market size if barriers removed, but..• Depends on penetrationDepends on penetration• Some benefit captured by online CD salesSome benefit captured by online CD sales
Demand for still more music?Demand for still more music? A lower cost option?A lower cost option?
A QUICK LOOK AT THE VALUE CHAIN (OF SORTS)A QUICK LOOK AT THE VALUE CHAIN (OF SORTS)
Artiste & Repertoire
MarketingManufacturing,
selling and logisticsRetail distribution
Administration & Overhead
$15$15$5$5$1.5$1.5$2.5$2.5$2.5$2.5$2.5$2.5$2$2
Ear for talentEar for talentFinancingFinancingTeamingTeaming
Connections/ Connections/ cloutclout
Mfg scaleMfg scaleSales force sizeSales force size
N.W.I.Y.C.G.I.N.W.I.Y.C.G.I. FragmentedFragmentedLow value addLow value add
KEY COMPONENTS OF THE BUSINESS MODELKEY COMPONENTS OF THE BUSINESS MODEL
ChannelChannel
ProductProduct
PricePrice
Technology platformTechnology platform
CostsCosts
HOW DO YOU GO TO MARKET?HOW DO YOU GO TO MARKET?
Through existing retailers DTC
ProsPros
ConsCons
ChannelsChannels
HOW DO YOU GO TO MARKET?HOW DO YOU GO TO MARKET?
Through existing retailers DTC
ProsPros
ConsCons
• Need aggregator/navigatorNeed aggregator/navigator• Can make low margin, agent Can make low margin, agent
modelmodel• No disruption to existing No disruption to existing
channelchannel
• Hold power over channelHold power over channel• Quick to marketQuick to market• Unfettered access use of Unfettered access use of
data data • Capture other add-on sales Capture other add-on sales
yourselfyourself
ChannelsChannels
WHAT PRODUCTS DO YOU OFFER?WHAT PRODUCTS DO YOU OFFER?
ProductsProducts
WHAT PRODUCTS DO YOU OFFER?WHAT PRODUCTS DO YOU OFFER?
Currently envisaged offeringsCurrently envisaged offerings
eSingleseSingles eAlbumseAlbums eAlbum+eAlbum+ Locked content--bonus tracks, Locked content--bonus tracks, stowaway catalogstowaway catalog
Jukebox (rental)Jukebox (rental) SubscriptionSubscription Kiosk delivery system(s)Kiosk delivery system(s)
Key challengesKey challenges
Album cannibalization; economicsAlbum cannibalization; economics Long downloadsLong downloads
What value “+”What value “+” What added value; retailer irritationWhat added value; retailer irritation
Download timesDownload times Adverse selectionAdverse selection
Investment/valueInvestment/value
ProductsProducts
AND AT WHAT PRICE?AND AT WHAT PRICE?
Album
Single
Physical
$10 - $18 actual retail
$2 - $4 actual retail
Digital
?
?
PricingPricing
HIGH PRICES WILL SUBSTANTIALLY INCREASE RETURNSHIGH PRICES WILL SUBSTANTIALLY INCREASE RETURNSBut Tradeoff May Be Adoption Rates and Standards InfluenceBut Tradeoff May Be Adoption Rates and Standards Influence
ProductProduct
eSingle eSingle eAlbumseAlbums eAlbums+ eAlbums+
DescriptionDescription
Current hitsCurrent hits Basic albumBasic album With extra contentWith extra content
Parity viewParity view
$4$4 $15$15 $18$18
+18%+18%
Pessimistic viewPessimistic view
$2$2 $10$10 $16$16
-2% -2% (2)(2)
Incremental DDD Incremental DDD contribution FY’05 contribution FY’05 (1)(1)
20%20% SensitivitySensitivity
(1) net of fixed / allocated costs(2) assumes 1/5% volume change for each 1% change in price
PricingPricing
ARGUMENTS APPEAR IN FAVOR OF ADOPTING A HIGH ARGUMENTS APPEAR IN FAVOR OF ADOPTING A HIGH PRICE STRATEGY INITIALLYPRICE STRATEGY INITIALLY
High pricesHigh prices
Protect near term profitability of DDD and the core Protect near term profitability of DDD and the core businessbusiness Capture a price premium from DDD early adoptersCapture a price premium from DDD early adopters
• The typical new technology rollout strategyThe typical new technology rollout strategy Moving down prices easier than moving them upMoving down prices easier than moving them up
• Do so only as market forces dictateDo so only as market forces dictate Avoid cheapening the musicAvoid cheapening the music Music sales not extremely price elastic in generalMusic sales not extremely price elastic in general
• Although channel choice is more price Although channel choice is more price sensitivesensitive
Protect “rest of world pricing”Protect “rest of world pricing”
• Keep low US street prices from leaking outKeep low US street prices from leaking out Slow the growth of a technology currently offering Slow the growth of a technology currently offering as much threat as opportunity as much threat as opportunity
Low pricesLow prices
Manage the buzz: be perceived as aggressive Manage the buzz: be perceived as aggressive leader in an important emerging marketleader in an important emerging market Maximize the adoption of a new technology to Maximize the adoption of a new technology to affect adoption of MusiCo standardaffect adoption of MusiCo standard
• Direct consumer contactDirect consumer contact
• Robust rights protectionRobust rights protection Crowd out piracy from unprotected music formatsCrowd out piracy from unprotected music formats Build chart position among the 5% of the market Build chart position among the 5% of the market using DDDusing DDD
Absent goal of standards adoption, high price strategy would be dominant• Balance of argument shifts when/if other majors join MusiCo
Absent goal of standards adoption, high price strategy would be dominant• Balance of argument shifts when/if other majors join MusiCo
PricingPricing
HOW MUCH DO YOU FIGHT FOR YOUR STANDARD?HOW MUCH DO YOU FIGHT FOR YOUR STANDARD?
Persistently protected contentPersistently protected content
• Better than CDsBetter than CDs
• vs. open standards now existingvs. open standards now existing
A royalty-generating opportunity if you winA royalty-generating opportunity if you win
But software and appliance providers have different objectives and But software and appliance providers have different objectives and greater resources greater resources
TechnologyTechnology
DDD COULD ENABLE (REQUIRE) COST RATIONALIZATIONDDD COULD ENABLE (REQUIRE) COST RATIONALIZATIONStill to Be ExploredStill to Be Explored
Near term, consider only narrowly defined incremental cost savings offered Near term, consider only narrowly defined incremental cost savings offered by DDDby DDD
• Especially prudent given 7% penetration expected in 2005Especially prudent given 7% penetration expected in 2005
However, large scale adoption of DDD may provide opportunities to realign However, large scale adoption of DDD may provide opportunities to realign cost structure, e.g., cost structure, e.g.,
• Shift/reduction of marketing dollars via direct-to-consumerShift/reduction of marketing dollars via direct-to-consumer
• B2B applications for delivering content globallyB2B applications for delivering content globally
• M&D cost reduction, given new channelM&D cost reduction, given new channel
• A&R changesA&R changes
Rationalization may move from opportunity to mandate if low price scenario Rationalization may move from opportunity to mandate if low price scenario emergesemerges
Cost structureCost structure
AGENDAAGENDA
Changing music landscapeChanging music landscape
Meeting the new media challengeMeeting the new media challenge
Summary/lessons learnedSummary/lessons learned
THERE ARE A SET OF OBJECTIVES FOR DDD…THERE ARE A SET OF OBJECTIVES FOR DDD…Largely AspirationalLargely Aspirational
Maintain/extend client’s market leadershipMaintain/extend client’s market leadership
Preserve advantage of being a majorPreserve advantage of being a major
Maintain/enhance the value of intellectual propertyMaintain/enhance the value of intellectual property
Take costs out of the value chain and capture the savingsTake costs out of the value chain and capture the savings
Maintain/raise barriers to entryMaintain/raise barriers to entry
Grow the market for musicGrow the market for music
Change economics, lowering breakeven, to broaden accessible marketChange economics, lowering breakeven, to broaden accessible market
SummarySummary
...BUT THERE ARE CRITICAL TRADEOFFS TO MANAGE...BUT THERE ARE CRITICAL TRADEOFFS TO MANAGE
Growing DDD (fast and large) as a Growing DDD (fast and large) as a new line of business...new line of business...
Garnering market share and Garnering market share and developing a standard...developing a standard...
Preserving current economics...Preserving current economics...
Building direct access to Building direct access to consumers...consumers...
...Protecting the core business...Protecting the core business
...Maximizing near term profitability...Maximizing near term profitability
...Preventing artist disintermediation...Preventing artist disintermediation
……Maintaining brick and mortar retail Maintaining brick and mortar retail distribution networkdistribution network
DDD strategy must choose between these tradeoffs• Recognizing inherent uncertainty in the future• But trying to shape that uncertain future in a favorable way
DDD strategy must choose between these tradeoffs• Recognizing inherent uncertainty in the future• But trying to shape that uncertain future in a favorable way
SummarySummary
ORGANIZATION CAN BE DIVIDED ACROSS TWO ORGANIZATION CAN BE DIVIDED ACROSS TWO OBJECTIVESOBJECTIVES
Either Justified, Depending on Either Justified, Depending on BeliefsBeliefs
Land GrabLand Grab
Maximize penetrationMaximize penetration
• Low prices, some freeLow prices, some free
• Quick product developmentQuick product development
• Broad contentBroad content
Profit BedrockProfit Bedrock
Ensure positive contribution Ensure positive contribution on every saleon every sale
• Moderate pricingModerate pricing
• Careful product designCareful product design
• Content targeted for most Content targeted for most profitable segmentsprofitable segments
SummarySummary
DISCUSSION/Q&ADISCUSSION/Q&A
MIT Sloan School MIT Sloan School November 14, 2000November 14, 2000
BITS, BYTES & BLUESBITS, BYTES & BLUESThe Digital Delivery of MusicThe Digital Delivery of Music
Paul FenaroliPaul FenaroliManager, BostonManager, Boston
CHALLENGESCHALLENGES
Source: NY Times; BCG analysis
AssetsAssets ChallengesChallenges UncertaintyUncertainty
Channels?Channels?
Business models?Business models?
Partners?Partners?
Consumers?Consumers?
MAKING IT HAPPENMAKING IT HAPPEN
Traditional businessTraditional business
Valuable catalog
Artists (?)““Stealing an artist's musicStealing an artist's musicwithout paying for it is without paying for it is absolute piracy . . . and absolute piracy . . . and I’m talking about major-I’m talking about major-label recording contracts, label recording contracts, not Napster.”not Napster.”
- Courtney LoveCourtney Love
Meeting the challengeMeeting the challengeMeeting the challengeMeeting the challenge
PC: sales of digital PC: sales of digital downloads of music over downloads of music over the Internetthe Internet
Kiosk: purchase access Kiosk: purchase access to music catalog through to music catalog through ATM-like machines at ATM-like machines at retailersretailers
Broadband/wireless: Broadband/wireless: purchase downloaded purchase downloaded music through cable music through cable modems or wireless modems or wireless remote devicesremote devices
POTENTIAL TO SPAN MULTIPLE POTENTIAL TO SPAN MULTIPLE MODELS AND CHANNELSMODELS AND CHANNELS
ChannelsChannels PartnersPartners Business modelsBusiness models
Sale
Sale
• T
racksT
racks•
Titles
Titles
Sale
Sale
• T
racksT
racks•
Titles
Titles
Su
bscrip
tion
Su
bscrip
tion
Su
bscrip
tion
Su
bscrip
tion
New
Talen
t On
line
New
Talen
t On
line
New
Talen
t On
line
New
Talen
t On
line
How to do it?How to do it?
Meeting the challengeMeeting the challengeMeeting the challengeMeeting the challenge
BCG ENGAGED TO HELP CONSIDER INTERNET BUSINESSBCG ENGAGED TO HELP CONSIDER INTERNET BUSINESSChallenges Common With Other Established CompaniesChallenges Common With Other Established Companies
Meeting the challengeMeeting the challengeMeeting the challengeMeeting the challenge
• Determine productsDetermine products• Identify customersIdentify customers• Identify pricing strategyIdentify pricing strategy• Identify competitive issues and roll out planIdentify competitive issues and roll out plan
• Determine productsDetermine products• Identify customersIdentify customers• Identify pricing strategyIdentify pricing strategy• Identify competitive issues and roll out planIdentify competitive issues and roll out plan
ContinuousContinuousrefinementrefinement
ContinuousContinuousrefinementrefinement
• Identify partnering approachIdentify partnering approach• Determine value of specific joint venturesDetermine value of specific joint ventures• Identify partnering approachIdentify partnering approach• Determine value of specific joint venturesDetermine value of specific joint ventures
Define offerDefine offer
Select partnersSelect partners
Get it doneGet it doneGet it Done!Get it Done!• Design optimal organizational structureDesign optimal organizational structure
• Identify what capabilities partners offerIdentify what capabilities partners offer• Identify which existing systems and processes can be leveragedIdentify which existing systems and processes can be leveraged
• Identify what else can be outsourced, e.g., distribution, paymentIdentify what else can be outsourced, e.g., distribution, payment • • Identify what needs to be built nowIdentify what needs to be built now • • Define plan to meet aggressive timeline and measure resultsDefine plan to meet aggressive timeline and measure results
Get it Done!Get it Done!• Design optimal organizational structureDesign optimal organizational structure
• Identify what capabilities partners offerIdentify what capabilities partners offer• Identify which existing systems and processes can be leveragedIdentify which existing systems and processes can be leveraged
• Identify what else can be outsourced, e.g., distribution, paymentIdentify what else can be outsourced, e.g., distribution, payment • • Identify what needs to be built nowIdentify what needs to be built now • • Define plan to meet aggressive timeline and measure resultsDefine plan to meet aggressive timeline and measure results
Source: interviews
Report salesReport sales and pay royaltiesand pay royalties
Distribute andDistribute and record salesrecord sales
Market to Market to customerscustomers
ManufactureManufacture Create contentCreate contentDevelop andDevelop and
manage pipelinemanage pipeline
BUSINESS PROCESS ANALYSIS PROVIDED BASIS FOR BUSINESS PROCESS ANALYSIS PROVIDED BASIS FOR PLANNING CHANGES ACROSS DOMAINSPLANNING CHANGES ACROSS DOMAINS
Consumer Download and Distribution ProcessConsumer Download and Distribution Process
Meeting the challengeMeeting the challengeMeeting the challengeMeeting the challenge
Customer Customer requests requests
specific music specific music downloaddownload
Digibox Digibox downloaded downloaded
without playing without playing rightsrights
Player Player installed?installed?
Customer Customer downloads downloads
playerplayer
Customer Customer installs and installs and
registers playerregisters player
Player connects to Player connects to account mgmt account mgmt
partnerspartners
AccountAccountsetup?setup?
Credit inCredit inaccount?account?
Customer plays Customer plays musicmusic
Clearinghouse Clearinghouse executes monetary executes monetary
transaction and transaction and reports salesreports sales
Customer sets up Customer sets up accountaccount
Customer deposits Customer deposits in accountin account
NoNo
YesYes YesYes YesYes
NoNo NoNo
Customer Customer requests songrequests song
Player searches Player searches for an up to date for an up to date
keykey
UpdatedUpdatedKey?Key?
User plays music/ User plays music/ contentcontent User on-line?User on-line?
YesYes
Use denied by Use denied by player, purchase player, purchase
initiatedinitiated
Player archives use Player archives use statistics until user statistics until user
on-lineon-line
Use stats reported Use stats reported to clearinghouseto clearinghouse
NoNo
NoNo
YesYes
New purchaseNew purchase
Repeat useRepeat use
Current viewCurrent view Two to three years outTwo to three years out
GlobalGlobal
RegionalRegional
LocalLocal
Manual Manual process process
Report salesReport sales and pay and pay royaltiesroyalties
Distribute Distribute and record and record
salessales
Market to Market to customerscustomers
ManufactureManufactureCreate Create contentcontent
Develop andDevelop andmanage pipelinemanage pipeline
U.S.U.S.
JapanJapan
CanadaCanada
Tracs Tracs EuropeEurope
Royalties, repertoire and publishingRoyalties, repertoire and publishing
AIFAIF
E-MusicE-Music Interface MgrInterface Mgr
Digital infrastructureDigital infrastructure
PIPSPIPSCarlosCarlos
PIPSPIPSEuropeEurope
value value chainchain
E-MusicE-Music Interface MgrInterface Mgr
Digital infrastructureDigital infrastructure
CONTENTCONTENT
Royalties, repertoire and publishingRoyalties, repertoire and publishing
ON-LINE SALES ON-LINE SALES ITIT SOLUTION HAD TO FIT A FLEXIBLE, SOLUTION HAD TO FIT A FLEXIBLE, CONSOLIDATED AND GLOBAL VIEW CONSOLIDATED AND GLOBAL VIEW
Need results now!Need results now!
Meeting the challengeMeeting the challengeMeeting the challengeMeeting the challenge
value value chainchain
Report salesReport sales and pay and pay royaltiesroyalties
Distribute Distribute and record and record
salessales
Market to Market to customerscustomers
ManufactureManufacture Create contentCreate contentDevelop andDevelop and
manage pipelinemanage pipeline
CONSTANT CHANGE AND AMBIGUITY PRESENT CONSTANT CHANGE AND AMBIGUITY PRESENT MAJOR CHALLENGE TO MAJOR CHALLENGE TO ITIT
Pay royalties and evaluate Pay royalties and evaluate financial performance financial performance
Accommodate requirements of Accommodate requirements of multiple business models, multiple business models, channels, partnerschannels, partners
Do not disrupt the existing Do not disrupt the existing businessbusiness
• Mapped business processes and Mapped business processes and IT systems to understand needed IT systems to understand needed changeschanges
• Served as bridge between “let’s Served as bridge between “let’s make a deal” and requirements make a deal” and requirements for implementationfor implementation
• Proposed system to leverage the Proposed system to leverage the legacy base and manage risklegacy base and manage risk
• Identified process and technology Identified process and technology to prepare digital content for saleto prepare digital content for sale
Keeping in MindKeeping in MindActionsActions
Ready to launchReady to launch
Meeting the challengeMeeting the challengeMeeting the challengeMeeting the challenge
Royalty/GL Royalty/GL interfaceinterface
Royalty/GL Royalty/GL reportsreports
InterfaceInterfaceManagerManager
Product # Product # translationtranslation
Data acceptanceData acceptanceand storageand storage
Audit Audit calculator calculator
Sales DWSales DWfeedfeed
Reporting Reporting capabilitycapability
Royalty/GLRoyalty/GLreportsreports
ConsumerConsumerDW feedDW feed
Royalty/GLRoyalty/GLFeedFeed
PaymentsPayments
RegistrationRegistrationDistributionDistribution
Consumer Consumer DWDW
Initial DEMD Initial DEMD reportsreports
SalesSalesDWDW
Product Product mastermaster
Label copyLabel copy
OtherOther
FalconFalcon
Complete DEMD Complete DEMD reportsreports
= To be completed FY X= To be completed FY X
= To be completed FY Y= To be completed FY Y
GATEWAY SOLUTION PROVIDED NEEDED FLEXIBILITY GATEWAY SOLUTION PROVIDED NEEDED FLEXIBILITY AND A WAY TO ACCOMMODATE NEW CHANNELS AND A WAY TO ACCOMMODATE NEW CHANNELS
External partnersExternal partners
Meeting the challengeMeeting the challengeMeeting the challengeMeeting the challenge
RIGHT CONTENT AT THE RIGHT TIME IN THE RIGHT CONTENT AT THE RIGHT TIME IN THE RIGHT MARKET MEANS WE MUST PRIORITIZERIGHT MARKET MEANS WE MUST PRIORITIZE
Type of titleType of title
• New releasesNew releases
• Active catalogActive catalog
• Inactive catalogInactive catalog
• Preservation targetsPreservation targets
Number of titles (worldwide)Number of titles (worldwide)
• ~XK new releases per year~XK new releases per year
• ~100XK titles in catalog~100XK titles in catalog
• ~10XK active catalog titles~10XK active catalog titles
Where are the titles/moneyWhere are the titles/money
• Tier one—top five countries/75% of revenueTier one—top five countries/75% of revenue
• Tier two—next 10 countries/20% of revenueTier two—next 10 countries/20% of revenue
• Tier three—bottom 30 countries/5% of revenueTier three—bottom 30 countries/5% of revenue
Number of elementsNumber of elements
• CD audio, CD front and back cover, photos, CD audio, CD front and back cover, photos, Web-quality music videoWeb-quality music video
• CD package graphics, photos, tv-quality music CD package graphics, photos, tv-quality music video, artist bio, lyricsvideo, artist bio, lyrics
• Bonus tracks and promo graphics, multiple Bonus tracks and promo graphics, multiple videos in uncompressed format, all photos, bio, videos in uncompressed format, all photos, bio, lyrics, music sheetslyrics, music sheets
Quality of elementsQuality of elements
• StandardStandard: Compressed audio, package scans, : Compressed audio, package scans, flatbed photo scans, one video formatflatbed photo scans, one video format
• DeluxeDeluxe: Master and compressed audio, original : Master and compressed audio, original CD graphics, drum-scanned photos, multiple CD graphics, drum-scanned photos, multiple video formatsvideo formats
ReachReach RichnessRichness
Meeting the challengeMeeting the challengeMeeting the challengeMeeting the challenge
From IT perspective, the solution needs to From IT perspective, the solution needs to identify and manage full variety of contentidentify and manage full variety of content
AddAdd
AddAdd
LAUNCHED!LAUNCHED!
Meeting the challengeMeeting the challengeMeeting the challengeMeeting the challenge
OrganizationOrganization
PartnersPartners
CustomersCustomers
Content managementContent management
SystemsSystems
PlayerPlayer
Launch PlanLaunch Plan
Key components must be in placeKey components must be in place
AGENDAAGENDA
Changing music landscapeChanging music landscape
Meeting the new media challengeMeeting the new media challenge
Lessons learnedLessons learned
LESSONS LEARNEDLESSONS LEARNED
Use 80/20 Use 80/20 • On importance to consumersOn importance to consumers• RevenueRevenue• SourcesSources
Outsource new parts of the business (consumer)Outsource new parts of the business (consumer)
Carefully structure deal terms, iterate with strategyCarefully structure deal terms, iterate with strategy
Identify technology deal pointsIdentify technology deal points
What do I want to know and why?What do I want to know and why?• Focuses the strategyFocuses the strategy• Guides technology decisions and cost Guides technology decisions and cost
estimatesestimates
Outsource talent if resources scarceOutsource talent if resources scarce
Use manual processesUse manual processes
Leverage legacy systems through middlewareLeverage legacy systems through middleware
1.1. Managing digital content is a Managing digital content is a big dealbig deal• IdentifyIdentify• DigitizeDigitize
2.2. Partner thoughtfullyPartner thoughtfully
3.3. Don’t gorge on data—think Don’t gorge on data—think valuevalue
4.4. Be creative and realistic when Be creative and realistic when thinking about technology thinking about technology solutionssolutions
EXTENDING OUR OWN BUSINESS MODELEXTENDING OUR OWN BUSINESS MODELTHROUGH iFormationTHROUGH iFormation
• World's largest private equity World's largest private equity investment firm focused investment firm focused exclusively on Internet and exclusively on Internet and information technology information technology investments - over $10b of investments - over $10b of capital under managementcapital under management
• Focus on active strategic Focus on active strategic assistance and building assistance and building strong partnerships with strong partnerships with portfolio companiesportfolio companies
• Premiere global investment bankPremiere global investment bank• Advisory and financial expertiseAdvisory and financial expertise• Deep relationships with Global 2000Deep relationships with Global 2000• Over $10b under management in private Over $10b under management in private
equityequity
ii FormationFormationii FormationFormation
• Leading business strategy Leading business strategy and e-commerce practiceand e-commerce practice
• Business development and Business development and operational expertiseoperational expertise
• Deep relationships with Deep relationships with Global 2000Global 2000