Audio and Music Sector

Team SBC-Shilpa Gautam (09BM8085)-Sujit Singh (09BM8054)

From Phonographs to Mp3

• Until the 90’s the development of music industry and its innovation was guided by the industry itself.

• In 1935 magnetic tape started to be used for recording , while in 1963 Philips introduced the first music cassette and standardized the first 8 track’s music players

• 1983 Sony and Philips joined forces and created the Compact Disk( CD ) Player , which became the standard for physical music storage

From Phonographs to Mp3

• The release of the first sound cards for the consumer market in 1991 , changed the attitude of people towards the use of computers to listen to music.

• The commercialization of the internet was becoming more and more evident at this time.

• In 1996 was the official release of the first popular compressed format MP3. That was the turning point of the music industry , which took it to the new age of digital distribution of music.

Old Music Industry Model

Digital Music Industry Model

Old Vs Digital Music Industry Model

The Industry in Numbers• Global digital music trade revenues reach US$4.6 billion, up 9.5% in 2010

with 400 services licensed worldwide by music companies with ISPs, mobile and other partners.

• Digital music, as defined by the Recording Industry Association of America (RIAA), includes mostly music downloaded over the Internet for a fee, music downloaded from subscription sites, and music downloaded to cellular phones and other mobile devices.

• There is almost 33 % decline in the profits of the record studios , while online distribution channels have a growth of more than 1000% in 2004-10

The Industry in Numbers• 95% of the music downloaded online is not legally obtained.• The digital supply chain for music Is becoming dominant in the music industry.• Sales of music downloads, the dominant revenue stream in digital music, are

seeing steady growth. Single track download sales increased by an estimated 10%, while digital albums rose an estimated 20% in 2009

• The report shows that, while the music industry has increased its digital revenues by 940% since 2004, piracy has been the major factor behind the overall global market decline of around 30% in the same period

Source: IFPI publishes Digital Music Report 2010

What has changed in music industry in recent years?

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Revenue in music industry in mln USD

Big Players

Types of Online Music business

• Subscription services (Rhapsody, Online Radios)

• Ad-Revenue (Grooveshark)

• Pay-per-song (ITunes)

• Streaming services with application

on mobile

• Artist Communities Online (MySpace)

• Music Tax (ISP taxing)

About Players

•Apple iTunes▫ biggest selection of music tracks on the planet▫ over 6 million collections available▫  biggest downside is that the vast majority of the music is in

the .MP4/.AAC format, and that means it will only play on the provided digital player or an iPod

▫ Prices: $0.99/track, ~$9.99/album

•Napster▫ become one of the powerhouse download destinations.▫  download individual tracks and entire albums from the service at

$0.99 and $9.99, respectively▫  once your subscription lapses, they’ll no longer play on computer ▫ $0.99/track, $9.99/album, Subscriptions: $9.99 and $14.95.

About Players•Rhapsody

▫ currently has the second-largest catalogue of any download service, with around four million tracks.

▫ the application includes an excellent search facility▫ program also allows you to listen to a number of songs completely for

free▫ $12.99 and $14.99, respectively. With the former, you can only play

tracks on your computer, but the latter allows you to transfer them to your portable player

▫ $0.99/track, ~$9.99/album. Subscription rates are $12.99 and $14.99

•Amazon.com Music▫ Amazon’s a late entrant to the music download market▫  Downloads are simple too▫ Allows dumping to and playing it on compatible devices like the iPod▫  $0.89/$0.99/track, albums from $4.95

About Players•eMusic

▫ Catalogue now approaching three million track▫ Everything is in MP3 format, with no copy restrictions▫  If your subscription lapses the tracks you’ve already bought remain

yours▫ $9.99/month for 30 songs

•Yahoo Music Unlimited▫ The service is doing a lot of things right and trying hard

▫ Downloads in  WMA format, which means iPod won’t handle them▫ To listen subscriptions are dirt at $5.99 a month▫ The subscription lapse, you can’t listen to them anymore▫ $0.99/track, albums $8.00 and up. Subscriptions cost $5.99/month,

which allows users to download tracks for $0.79/tune.

Digital rights management (DRM)• DRM, often referred to as copy protection, limits what functions

a user may perform with digital media.• It provides a way to control if and how many times a digital

music file can be copied.• Apple, for example, reserves the right to change at any time

what you can do with the music you purchase at the iTunes Music Store. For instance, in April 2004, Apple decided to modify the DRM so people could burn the same playlist only 7 times, down from 10.

• Microsoft, similarly, utilizes Microsoft's Windows Media Audio (WMA) DRM.

• The future: Sony has announced that it plans on shipping CDs with DRM built-in.

• DRM has become and will continue to be an essential element to control access of downloadable music.

StoreSelection (approximately)

Geographic restrictions Platform DRM Preview Trial

7digital 11,000,000 songs SomePlatform Independent for MP3 songs No 30 seconds None

Amazon MP3 14,815,786 songsUS, UK, and Germany only

Platform independent for individual tracks and browsing the store, Amazon MP3 Downloader is required for downloading albums (Windows 98 or later, Mac OS X or Linux)7 No 30 seconds None

BuyMusic 1,000,000 songs United StatesWindows 98 or above, IE 5.01 or above10 Yes,PlaysForSure Unknown None

eMusic

6,000,000 songs, 100,000 artists, 200,000 albums, 40,000 labels Varies by track

Windows 98 or later;Linux; Mac OS 9/X11 No 30 seconds 25 downloads

iTunes Store 14,000,000 songs Some

Mac OS X 10.4.11 or later; Windows XP Service Pack 2 or later. No 90 seconds None

Rhapsody 10,000,000 songs United StatesWindows 98 or later, Mac OS X, Linux30

Partial, Real DNA31, has DRM-free MP3s 30 seconds 14 days

Walmart Music 1,000,000 songs United States Windows 98 or above No, since Feb. 2008 30 seconds None

Napster 12,000,000 songs

United States, Canada, Germany, or United Kingdom

Napster Web application (Windows/Mac/Linux), Internet Explorer 7.x (Recommended),

Purchase: no (DRM-free MP3 in some geographical areas); Subscription: Yes,PlaysForSure.20

Napster subscription-Entire song, unlimited; Free Napster-Entire song; Napster MP3 Store-30 seconds. 7 days

Market share•iTunes, is the largest revenue source in

the online sector and has more than 100 million accounts across 23 countries.

•Apple has greater than 85% of the market share of downloadable music, according to Nielsen SoundScan.

Subscription Cost• Subscription base music downloading

model for various company’s.

Porter’s 5 Forces Analysis

Rivalry – High

•Numerous services are popping up• Partnerships and shakeouts are prevalent

PESTEL Analysis• Political

▫ Some countries and locations may not offer ways to expose your music.

▫ Possibility of rejection due to copyright law.

• Economic▫ There should be enough disposable income with the

people to use such services.▫ Useful to new entrants to the sector, as very low initial

investment is required.

• Social ▫ Industry is very dynamic, demand will change with

changing consumer patterns and music formats.▫ The demographics, particularly age of the target

segment is very limited.▫ Action, Opinion and Interest of People are shifting

towards online form of music.

PESTEL Analysis• Technology

▫ Penetration of Internet in percentage terms is still very low.

▫ Technology is changing continuously.

• Environmental

▫ Moving towards online form of music from physical form positively affect the environment.

• Legal

• Piracy issues digital piracy is choking revenues the net effect of illegal file-sharing is reduced purchasing of

music, Overall music sales fell by around 30 per cent between2004 and 2009.

To Tap new market

• In order to take the business to the next level and capture the enormous potential that’s still untapped, we need new services to truly break through to the mass market. To do that, an attractive user interface, a strong value proposition and a clear marketing message are essential, as is an effective way of curbing piracy.

• Consumer education has a vital role to play, and the music industry is currently involved in more than 70 awareness programmes across the world.

• A graduated response model is used involving escalating warnings to infringers culminating, as a last resort for those who refuse to stop, in he sanction of temporary account suspension.

Thank You !!