EMI, Music Industry in UK

Identify an organisation of your choice and briefly explain its background, the type of business it is in, the product/services offered by this organisation

Choice of an organization: EMI, Music Industry in UK

Background

In every culture and level of society, music pervades. In OECD countries, music contributes to significant contribution to the industry in terms of revenue and export. United States, Japan and the United Kingdom accounted for 94 percent, which is the major contribution of the total value of global recorded music sales of USD 32 billion and in terms of per capita spending Norway and the United Kingdom being the largest market (OECD, 2001).

It is estimated that 25 percent to US$ 3.7 billion in trade value in the year 2008, digital music business internationally saw a sixth year of expansion by accounting to 20 percent of the recorded sales in music. Compared to other industries such as newspaper, magazine and film, recorded music generating more revenue in percentage terms and it is at the forefront of the online and mobile revolution (DMR, 2009)

Figure 1. Global digital revenue Industry, 2008

Sources: PWC Global Entertainment and Media Report (2008), IFPI

The above figure shows the global revenue gaining by industries and it can be found that almost 20 percent of the share is contributed by the recorded music and which ranked second.Thomas Hesse, President, Global digital business, Sony Music Entertainment says: “Music has never been more important to the consumer today. Every year we are seeing increased use of music and what we are doing as music companies are finding new ways of playing into that interest”.

Moreover music companies are also working in many ways for the explosion of consumer choice, where it ranged from iTunes and Amazon MP3 from a-la-carte download stores to the service like subscriptions, brand partnerships, merchandising, Social networking sites, YouTube and MySpace which are ad-supporting video streaming sites, in games and films where music has been licensed and also through broadband and public performance revenue has been generated. The recent deal of Apple in January 2009, with leading record companies to offer free of eight million digital right management (DRM) free tracks at price which are flexible and this all in turn increase significantly the download sales. Consumers are also given new opportunity to acquire music legally through new sophisticated commercial landscape. Apart from the music companies working with the consumers, music companies are also working on arrangements with reference to licensing with above partnership companies as a part of the rightfulness of the music economy which respects the incentivizes the creation of new music, content owners rights, and recompenses creators for their work.

The executive vice president Michael Nash, digital strategy and business development, from Warner Group, believed that for the growth of music industry, partnerships would play an important role and further he says that “There is a multi-trillion dollar economy of digital connectivity, made up of digital networks, wireless, broadband and hardware. Music is extremely important to this economy and is also the driver of a wide range of larger industries. These industries are thinking about how to partner with the music industry in new ways. The health of the music industry is going to contribute significantly to the health of this trillion-dollar economy.” However, today, due to increased access to the internet with high bandwidth speed up rate of 2 – 5 MB compared to slow dial-up connections, more content rich applications which all together made people to spend more time to unlimited download of software, music and images (OECD, 2004). The internet has drastically altered the production, consumption of music and distribution since 1999 (Molteni & Ordanini, 2003) Compared to reading a newspaper on a screen (OECD, 2001), downloading music through online using the computers has less drastic change for the consumers (OECD, 2001). The effect on online music has created unauthorized downloads through networks of file-sharing such as consumer peer to peer file trading, which made the music companies to raise the issue on enforcement of intellectual property rights including digital rights management (Digital Music Report, 2009) and other issues related to regulations.

Piracy – Digital Music Industry in UK

Due to the piracy there was a huge damage on the economic and employment damage. The loss to the digital music industry as done by the Jupiter Research of UK in the year 2008 was pound 180 million, with pound 1.1 billion cumulative loss to the industry in the year 2012 is projected if nothing has been done to the industry. In the UK, as estimated by European Commission, it is estimated that almost 30,000 potential employment losses due to the piracy to the music, film and TV sectors (December, 2008).

In British, there is a massive damage in music industry and there was also huge lost to the artists careers, where in the year 2008, there was an issue in the parliament about the Pendragon Company, where they sold about 50 copies during the first week and at the same year there was 3000 copies have been downloaded illegally. According to the research by Jupiter, almost 16% of users swap music on P2P network through internet in Europe and internet traffic and file swapping of copyrighted music accounted for 80% for a major part of P2P activity and this unlawful distribution of music through the network of peer to peer (P2P) remained a major piracy problem (IFPI, 2008).

Figure 2. Top Five digital music markets in the year 2008.

Source: IFPI. Figures reflect digital shares for the period of Jan-Jun 2008. (IFPI, 2008).

Hence, there is an urgent need for a Digital music industry to bring up the new technologies and laws that prevent unauthorized downloading from the site to increase the overall growth sales of the industry. There are about five companies which nowadays control approximately 80% of global record selling which includes Universal, Sony Music, Bertelsmann, Time Warner Music and EMI. The present assignment focuses on EMI Music Company and its strength and weakness.

EMI Music Company

Among the world leading music companies, British music company EMI leads with the two divisions which includes EMI Music where own set of catalogues are prepared using world famous recording artists and EMI Music Publishing Company which has the songs with largest catalogue comprising more than a million contemporary and classic titles. With reference to the digital music content, EMI is positioned well where the strategy of the company is to delivering music in any form to consumers, in any place at any time (“EMI”, 2009). EMI Music partners with number of companies for free and unlimited downloading such as with social networking website, MySpace, Sony Ericsson, MEDIA Anywhere’s download kiosks, TDC’s new Danish mobile and broadband digital music service play, QTrax, Ricall, ChristianDigitalStore.com and mobile deal content with Send Me (“EMI”, 2009).

This is also the first company to support downloads and subscription models such as free-to-the consumer ad-support peer to peer and service through mobile video and DRM free MP3s. EMI, digital music sales in the year 2007 reached around $2.9 billion from $2.1 billion in the year 2006 and legal track downloads have reached 1.7 billion have increased to 53% in 2006. About 500 online music have been downloaded in all over 40 countries and about 23% in 2007 to reach 350 million in broadband connections. Similarly, subscriptions of mobile phones, increased to 2.5 billion (11%) in the year 2007. (“EMI”, 2009) Despite a substantial growth in the digital music sales, however, due to the unlicensed music spread on ISP network, EMI is facing the challenges and terrified with decreasing revenue through decline in CD sales not only to the music companies and also to the music artists. In the year 2007, the company is facing the pre-tax losses of 26.3 million in 2007 (“EMI”, 2009). The present strategy of the company is to focus on the marketing enhancement and technology advancement to compete in the digital music industry, which could help in the diversification, divestment and resource allocation. Hence, the present marketing assignment specifically focuses on EMI Music Company, analyze its macro, micro and further more strength and weakness have been identified and further recommendation, justification and appropriate market strategies are provided in to enhance the company’s strength with respect to present UK market.

Figure 3: Market Share of major music industries by values (in percentage), 2003, UK

The above figure shows the major share in music industry and from the figure it is clear that EMI ranked second with the share of 19.6% compared to Universal which has 25.9% share.

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Task 1: – Planning principles and range of tools and techniques

As a marketing Strategist, you have been invited by a failing firm to provide enterprise reengineering consultancy services to the firm. Preliminary investigations carried out by you and your tem of market strategist reveals that part of the challenges which this enterprise faces is the issue of a coherent marketing planning strategy. This week you expected to report your preliminary findings to the board of directors.

1. As part of your presentations, prepare a clear and accurate outline of the planning principles and processes involved in developing a marketing strategy which you think the enterprise must adopt on the part of recovery. Your are expected to provide appropriate supporting examples.Also as part of your presentation to the board of directors, accurately describe and critically evaluate the range of tools and techniques which this enterprise can use to produce a strategic marketing plan which will give the firm a leveraged position in the market place

Capabilities

1. Research & Development:

• In the form of artist & Repertoire, EMI constantly engage in the research and development.
• Ring tones, subscriptions and digital right management to protect their intellectual property are also continuously explored.
• Around 13% of the R&D is invested by the company

2. Corporate Functions

• Strategic Innovation: Without the restriction of the DRM, company has launched a new premium download in the year 2007 with higher sound quality.
• Between service and devices EMI is the first major record label to this by enabling the interoperatibility of digital music.
• From EMIs music catalogue, free music downloads are offered to the various digital music platforms like yahoo, Napster in Germany or New York Daily news and this is one of the innovations done by the EMI group.
• Multidivisional Coordination: Through Microsoft technology, it can able to coordinate efficiently with their division.
• Financial controls: Strong orientation was lack due to the improper financial management by the policies of the company like unwanted gifts and parties, fruits and flowers and now company is planned to restructure its activities.
• Marketing: With the help of Avanade Company, EMI is planned to restructure its marketing by focusing on innovative business opportunities by launching cutting-edge web marketing infrastructure.
• Digital Distribution: BY entering into agreement with partners like Apple or Amazon in U.S, EMI is continue to broaden their digital distribution channels and making available on the platforms of Apple and Amazon. Through online and mobile channels, now the company could approach using the digital technology for instance through Web 2.0 technology, EMI music could be downloaded within 30 seconds.

2. Define the Marketing Mix. Briefly describe each element of the mix for your chosen organisation.

The 4Ps of marketing and marketing mix are often used synonymously. In a general phase it is used to describe the choices which are different in order to make the product or service to reach the market. EJ Mc Carthy was the first person to described the marketing mix in the year 1960 and the 4ps of marketing mix are product (or service), place, price and promotion. Debt is the main funding source of the EMI and moreover the equity funding is not weighted heavily and company is maximizing the investing with funding related to debt. If not handled carefully, this would be potentially dangerous.Intellectual property: Many copyrights and trademarks are possessed by the EMI group of company and in the entertainment industry; this is one of the strongest and most recognizable brands. Location: Operation of EMI is throughout the world. Two recording studios are present in UK which is owned by EMI, with three geographic divisions which includes Ireland, UK, and North America. Manufacturing operations : all operations related to manufacturing are outsourced by the firm. Distribution: In a number of territories like UK, Ireland, US, Hong Kong, Thailad and Singapore, EMI carry out their own physical distribution activities.Human Resources: At both local and industrial level, EMI group has an experienced and talented management team with business minded and creative executives. To understand and realize the full potential of EMI, there are very good teams of digital talent are employed in the firm and they are the key resources for the group of EMI’s (EMI group, 2009).

Task 2: – Marketing strategy options

Identify a particular company which you know and state what competitive advantage your chosen the company has over its competitors in its given market.

• To identify the emerging trends and their implications for the industry, firm needs to continually monitor the business environment.
• Customer changing demands and preferences are need to identified and satisfied
• In terms of product development and distribution channels, innovation must be introduced
• Through online music services, value added benefits to the consumers should be provided
• To achieve competitive advantage, emphasis the points of parity with the competitor and differentiate the services to provide value added benefits.

Explain how your chosen company can develop its Marketing Strategy by using Portfolio Analysis Techniques.

Strength

• Intellectual property: EMI has most recognizable and strongest brands in the industry with important archives in the world and music catalogues with the various artists includes David Bowie, Queen and The Beatles and others. Moreover it has over 1m copyrights owned, a catalogue of over 3m track with largest world catalogue.
• The global sales team also ensured that the resources mentioned above reached the audience through widest possible ways.
• Human Resources: Human resources such as artists and songwriters are the major strength of the company
• Company is also identifying, artists and song writers and signing and retaining those artists who are talented to increase the revenue to the company through investing a great deal of money.
• Marketing Know-how: Company’s success is also based on the marketing efforts and therefore it invests more resources for the promotion and marketing.

Weakness

• Management system: The good policies which are currently in place are not considered properly due to the management system and this is one of the major weaknesses of the company which is right now experiencing. However, a major restructuring is going to happen to the internal structure by Terra Firma, in future, this would certainly bring new changes to the company
• EMI company is exposed to change in global economy
• Problems like liquidity and gearing could take the firm to bankruptcy.
• Problems related to management – Policies are not implemented properly though it has been placed very well
• Due to decline in the CD sales, gaining low revenue.
• Cost control has been so inefficiency, where the company is spending unnecessarily in order to impress the artists and shareholders.
• Marketing methods which are being currently followed are traditional and this is no longer effective due to the growth in technology
• There appears a lack of coherent direction due to the highly qualified and experienced personnel’s are present within the music industry.

Threats

• The threat of substitutes is extremely high within the music industry and in the form of digital music and digital delivery; the internet has created an emerging source of substitute. This will help the consumers to option for switch to download music. Today, there are more chances in downloading and further enable the customers to substitute switch. With better value alternatives, the company is being threatened in terms of profitability of the record company.
• Due to the growth of the intent, the threat from new entrants has increased substantially. For the new independent record companies has entered due to the lower capital investments and operational costs for distribution through online and this has threaten the EMI who mostly relied upon the traditional marketing distribution. Still involves the risk in staring up the new music industry due to the high cost of artists, establishing network contacts and it is difficult for the new industry to survive.
• The strength of buyers bargaining power has been increased substantially due the emergence of digital music market mainly due to the network communities through online. Moreover, today’s consumers are more aware about the price and know the information about the delivery and format of the music and this made the companies to reinvest their business models.
• There is a decrease the bargaining power and through the internet now the artist has more free to set up their own label and promotion of music and this made the artist to earn and market substantially their music (EMI group, 2009).

a. Identifying the Consumer need :

• Choice : music is consumed in what ways
• Price – Money value
• Access – To suit the lifestyle, music should be appropriate
• Convenience – at the own leisure, they should able to purchase and consume the music
• Value added – Premium products and online services

For global music industry, key success factors are

• Capitalize must be based on the emerging business opportunities with flexibility and
• Speed of response must be captured through continual monitoring of the broad environment
• Delivery of digital music is the main capability and this need to be focused.
• Offering premium quality products and value added services through legal to attract more consumers for the online music service
• In the form of merchandise, advertising, concerts and sponsorship, business scope should be expanded to hunt for the new revenue streams.
• Copyright protection within the digital domain must be enforced with the co-operation with other record companies.
• In innovation of online music services and advertising should be invested.

Task 3: – Implications of changes in the marketing environment

Due to rapid globalization company has to adopt many strategies and other new technologies to adapt with the current and future threats. In order to adapt with the current environmental changes, company has to adopt the different strategies, such as

• In the fiscal year 2007, EMI group revenue has gone down to 15.79%, which has led it to decreased gross profit, ROCE ratios, decreased net profits and also the EPS figures which are undesirable.
• Adapt the changes in the environment and also to attract the artists and investors.
• It is essential for EMI to offset the decline in CD sales.
• E-commerce marketing should be the first priority to the consumers with the vast growing power of technologies and internet and management should first preference to this type of marketing strategy compared to the traditional method which is also expensive.
• Digital music which is gaining high market share in the musical industry due to the increasing technological and internet should be prioritized highly.
• The serious issue in the industry is related to piracy problem due to the rapid increase in the internet technology, therefore EMI must target piracy, by cooperating with its competitors. Moreover, it’s very high with the dominant power to achieve satisfactory result against piracy
• In this scenario it is necessary to work with the rivals in order to protect revenues.
• There are many other ways to generate income such as concerts, sponsorship and merchandise, apart from the sales of record music.

Hence, it is very important to adjust to the changing environment by continually developing its key strengths. The core of the business is the music quality produces; therefore the company should identify new artists and also try to adhere the artists who are successful in the industry.

References