Documente Academic
Documente Profesional
Documente Cultură
GBA 490-006
Dr. Marino
2/26/2015
Executive Summary
Sony Music Corporation is the American based daughter company of Sony Corporation,
a Japanese company. It was founded in 1929 under the name American Record Corporation and
was later changed to Columbia Broadcasting Company in 1938 after an acquisition. It later
started a joint venture with CBS and formed CBS/Sony Records Inc. By 1988 the company
introduced the compact disc or CD. Later in 1991, Sony absorbed CBS Records Inc. and became
Sony Music Entertainment Inc. In 2004, they created a new joint venture with Bertelsmann AG
and became Sony BMG Music Entertainment. However, four years later they bought back the 50
percent stake from BMG and went back to the name Sony Music Entertainment. In 2012, they
once again established a new joint venture with the Michael Jackson Family Trust forming
Sony/ATV Music Publishing and together acquired EMI Group, making it the largest music
Originally the music industry was primarily focused on physical performances by artists,
however, as technology has improved artists now focus primarily on recordings. Over time, the
Internet and technology has allowed these recordings to be shared and downloaded for free
through the use of piracy and digital distribution. With the introduction of Napster and iTunes,
people began using online sources for their music instead of purchasing physical albums at retail
stores. Music retail stores started to see a decline and large companies like Warehouse Music,
Tower Records, Virgin, and Circuit City were forced to file for bankruptcy and later shut down.
Through the use of new self-publishing technologies, artists are straying away from
record labels to produce more income for themselves. This has decreased the growth of large
label producers like Sony Music Entertainment. Digital distribution channels such as digital
downloads (e.g. iTunes), Internet radio (e.g. Pandora), and interactive streaming (e.g. Spotify)
are becoming extremely popular among consumers causing declining market share for record
label companies and publishing companies like Sony Music Entertainment. While the company
has attempted to combat these digital distribution channels by creating Music Unlimited, it has
had little success in competing with other popular streaming services. By establishing a joint
venture with Universal Music Group and Abu Dhabi Media to produce VEVO, Sony Music
After assessing factors in the music industry as well as factors in Sony Music
recommendations that will allow the company to compete long-term and increase its market
Recommendation 1: Use digital mediums such as VEVO and Music Unlimited to form
Recommendation 2: Establish a joint venture with leaders in the music industry to create
Due to the fact that self-publishing technologies have created low switching costs for the
record label industry, artists have begun bypassing middleman companies like Sony. Artists have
started to realize that it is often less costly and more efficient to record and publish music
themselves. If Sony doesnt establish more benefits to their artists then eventually there will be
no need for record label and publishing companies. To combat this trend, Sony should enter into
contracts with new upcoming artists and give them the added benefit of marketing their music
through VEVO and Music Unlimited. This would be mutually beneficial for both parties and
Recommendation 2: Establish a joint venture with leaders in the music industry to create a new
the introduction of the Internet and digital age. Downloading music digitally is becoming more
and more popular, and the efficiency of illegally downloading music on the Internet is becoming
easier and easier with very few likely legal repercussions. According to the Institute for Policy
Innovation, global music piracy causes $12.5 billion of economic losses every year, 71,060 U.S.
jobs lost, a loss of $2.7 billion in workers earnings, and a loss of $422 million in tax revenues,
$291 million in personal income tax and $131 million in lost corporate income and tax
production taxes. This has become a large threat to Sony as well as the music industry itself. In
order to prevent these crimes from destroying the music industry, Sony should pair up with other
industry leaders to invest in technology that will prevent the illegal downloading and sharing of
After analyzing the five forces Sony is facing within the music industry, I have concluded that
the competitive forces in the music industry are moderate to strong. Rivalry and the threat of
substitutes in among the highest of these forces, while supplier bargaining power is the weakest.
The threat of new entrants and buyer bargaining power are moderate competitive forces in this
industry. Overall, the music industry has room for massive growth and profitability and Sony
Music Entertainment has the power to overcome these outside forces through the implementation
of new technologies and innovations.
Rivalry: Strong
Big four producers (+): Large established brands and companies must compete against
each other for market share as well as new upcoming artists. They are also competing
with new mediums of digital distribution.
Self publishing (-): Many artists are using new technologies to bypass record label and
publishing companies since it is typically cheaper and more efficient for the artist.
Other digital distribution channels (+): Digital mediums and innovations such as
digital downloads, Internet radio, and interactive streaming are growing increasingly.
Increasing Globalization
Through use of the Internet and other mediums of digital distribution, consumers can now be
reached faster and gain access to more digital music around the globe.
Profitable Artists:
Competing amongst other record labels and publishers for popular artists is essential to success
in the industry. Gaining profitable and popular artists will make other upcoming artists want to
sign as well and will create value for that company in the overall market.
Brand Equity:
In the artists and consumers eyes, having a strong, well-known, and trusted brand it extremely
valuable. Customers are more likely to purchase and be loyal to a company that is well respected
in the industry by other consumers.
Technology Expertise:
Consumers in this day and age are accustomed to working with technology and have become
experts at using and working with it. It is important that companies have up-to-date technology
and realize opportunities arising in other industries as well (e.g. smartphone capabilities) Ability
to be compatible with new devices reaching the market is extremely important to the consumer.
Product Innovation:
The digital distribution industry is extremely fast paced in its advancements and improvements.
It is crucial that companies in the industry realize future opportunities and implement them first
in the market in order to stay ahead of competitors.Exhibit 5: Competitor Analysis
Sonys strongest competitors are types of digital distribution channels. It is clear that digital
music is the way of the future and it is vital that Sony is able to combat the following
competitors to grow profitability in the long-run.
iTunes:
iTunes accounts for 77.4% of digital music revenues and is expected to grow by 39% over the
next three years. They were first to market when consumers began turning to online sources of
music and as a result they have experienced tremendous growth and revenue. The company has
also created an Internet radio and self-publishing system in order to compete with companies like
Pandora and Spotify as well as the publishing companies.
Pandora:
Internet radio has become increasingly popular amongst consumers and consumers with
smartphones since it is accessible and can be used as a free service or paid for with a
subscription. By 2014 smartphone users had reached 58% of cell phone owners in America. As
of 2013 Pandora had 73.6% of the Internet radio market share with 250 million users and a
revenue of $194.3 million.
YouTube:
While YouTube was originally designed for video sharing, it has become very popular in the
music sharing community. The company gained use of copyrights by allowing users to hear the
song and then provided a link so they could purchase it legally. YouTube is likely to compete
heavily with Spotify in the future as it is rumored that YouTube will come out with a similar
subscription service for interactive music.
Exhibit 6: Strategic Group Map
Sony, Rhapsody, and CD Baby are sectioned in the limited, low price category. This is because
they each offer a selection of fewer variety than its competitors with a price that is also higher
than its competitors since each service requires some sort of purchase or monthly subscription
that it more expensive than other alternatives. Additionally, these services are not available on
smartphones making their use limited to computers and other sources. Pandora, Spotify, and
YouTube are positioned as extreme low price competitors with much accessibility. Each can be
used for free with limitations or with a subscription for full access. Each service can also be
accessed through the use of a smartphone, computer, or other Internet capable device. Lastly,
iTunes is in a central location with great accessibility and a wide variety of music. While iTunes
users are required to purchase the music, iTunes also offers a free Internet radio. Much like
iTunes, Amazon is a market share leader in digital distribution. This is primarily because of their
competitive prices and success with their self-publishing system Create Space. Each company
varies in certain characteristics, however, price and variety seem to be some of the most
important factors to consumers in this industry.
Music Industry
Operating
Profit 5.36% -2.95% .44% 2.78%
Margin
Sonys operating profit margin plummeted in 2009 most likely from the introduction of new
cheaper and innovative services and from the companys failure to compete in new market
opportunities. It slowly increased from 2010 to 2011, however, it has not been able to reach the
profit margin it produced in 2008. Sony also reported a loss of 9.9% on music sales while
producing an increase in operating income of 6.6%. This increase was primarily due to the
decrease in costs such as marketing, restructuring, and overhead.
Exhibit 8: Business Level Strategy
In the past Sony has been extremely successful and has gone through many acquisitions and
business deals in order to remain a leader in the music industry. Currently Sony is a large
industry leader in record labels and publishing, however, they have begun to make changes in
their previous strategy to adjust to the market conditions and trend of digital distribution. They
are competing with top performers such as iTunes, Amazon, Spotify, Pandora, and YouTube.
Sony has positioned themselves well in the record label and publishing industry but with the
increase in self-publishing, they are at risk for a major loss unless they find success in the digital
distribution market. While Sonys business level strategy has created tremendous profits and
success for them in the past, they must alter it to compete with digital music companies and
arising technologies and opportunities.
Exhibit 9: SWOT Analysis
Strengths:
Brand Name: Sony is known for creating valuable, innovative products and continually
pleasing their customers.
Awareness: They understand that digital distribution is growing rapidly and they must
enter that market to compete. They are also aware of who they must compete with.
Instead of competing with the big four, they must compete with innovators in the digital
distribution industry.
Significant Market Share: They have a large share of the record label and publishing
market. This will allow them to work with their current loyal customers to create valuable
business opportunities in the future.
Well respected: Their customers have been loyal to the company and respect their
business decisions. Ultimately, this will keep the customers coming back.
Recognized Globally: Sony is known around the world allowing them to reach
consumers easily and faster than ever.
Weaknesses:
Ability to adapt to trends in the market: Sony has struggling significantly to keep up
with the new digital age of music. Their creation of Music Unlimited has been somewhat
unsuccessful and is falling way behind other rivals.
Decline in financial performance: Sony has experienced extreme loss in revenues and
growth in their recording and publishing sectors.
Market share in digital music: They have very limited market share in the digital
distribution industry. Music Unlimited has not been able to compete with companies like
iTunes, Pandora, and Spotify.
Opportunities:
Rapidly growing market for digital distribution channels: The market for services
such as Internet radio and interactive streaming are growing increasingly. Sony has the
opportunity to get into this market and produce large and growing profits.
Availability to market artists through subscription based music services: While
recording and publishing companies are seeing a decline in growth, through the ability to
market their clients through a subscription based music service, they would be able to
offer them a benefit that self-publishing services could not.
Threats:
Piracy and copyright infringements: Consumers are able to get access to virtually any
music they could possibly want through the use of illegal downloads. This is a threat for
the entire music industry since consumers are bypassing their services altogether with
little to no legal punishment.
Self-publishing services: Self-publishing services like Amazons Create Space as well as
CD Baby have made it possible for artists to record and publish music themselves
cheaper and more efficiently. This is a threat to current recorders and publisher since
artists may began to deem their services unnecessary.