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99 Cent Store Case Study

Can the Music Industry Change its Tune?

Introduction

The music recording industry has been rocked by the peer to peer file sharing technology. The distribution of music is now available as a digital product (Blockstedt, Kauffman, Riggins 2004). The industry claims that the file sharing technology has caused a reduction in their profits. The increase in popularity of devices that play the digital music, such as the MP3 player, Apple iPod and the Dell JukeBox, are driving the demand for MP3-formatted music. The digital music format is here to stay and is fast becoming the preferred product choice for music customers (Blockstedt, Kauffman, Riggins 2004).

1. Apply the value chain and competitive forces models to the music recording industry.

U.S. retail sales of recorded music dropped from $13Billion in 1999 to $10.6Bn in 2003 (Keagan 2004), while the popularity of digital music has grown. Meanwhile, Apple ‘iTunes' customers grew from 861,000 in July 2003 to 4.9 million in March 2004 (Borland and Fried 2004), reflecting digital music's new role as a "strategic necessity" of the music industry. Analysts predict that in five years 20% to 33% of all music sales will shift from CDs to digital distribution (Keagan 2004).

With this in mind the music recording industry may have to change its value chain and business models to adapt and survive in this modern digital world. The following figure demonstrates the traditional value chain.

Figure 1: Traditional Music Industry Value Chain:



Figure 1, shows the main drivers for value in the traditional recorded music value
chain include copyright and licensing, production, distribution and inventory, and promotion and marketing costs (Blockstedt, Kauffman, Riggins 2004).
For digital music, there is no longer a physical product to manufacture. Instead the product itself is information: the digital...