1. GROUP 1

2. BACKGROUND

3. Music Industry
 SDMI (founded 1998): forum for music industry to develop open
framework for digital music.
 Participants included IT companies, Consumer Electronic,
telecommunication, Internet Companies, security providers, etc.
 RIAA: main body for intellectual property rights in American record
music industry. It’s members included Record Companies.
 Technological developments
New Audio
CDs Mp3 format Mp3 Devices compression
technologies

4. • SDMI strategy Phase I Phase II
NAPSTER
• Napster was created in 1999 by Shawn Fanning
• It was designed as a peer to peer file sharing site.
• Had approximately 60 million users by 2001.
• Napster is nothing but a “Giant Online Pirate Bazaar.” (Recording
Industry Association of America (RIAA))
• Acquired by Roxio and eventually has become part of Rhapsody in
Dec,2011.

5. MUSIC INDUSTRY

6. Political
Factors
Technological Music Economic
Factors Industry Factors
Social
Factors

7. POLITICAL
 Copyright infringement policy
 Permitted copying of musical works for personal use
 Gaps in policy
 File sharing law “unclear”
 No proper law for online distribution of music
 Court was forced to take decision.
 Technological challenge in implementation

8. ECONOMIC
 Huge market for digital music products
 Low cost due to competition

9. SOCIAL
 More technological awareness and willingness to
adopt
 Rapid adoption of digital music specially by college
goers who constituted a key demographic
 Youth culture was free exchange of ideas over internet:
“No fee”

10. TECHNOLOGICAL
 High Growth in
number of
internet users.
 New technological advancements
 New formats such as .mp3
 Digital recording
 Emergence of new products to enrich online experience
 online distribution network

11. DISTRIBUTION CHAIN
SDMI
`
Traditional
Retailer
Online Retailer
Artist
Record Company Distributors (Amazon.com) Consumer Retailer Distributor
Manufact
Mass Production urer
Online Source
(MP3.com)
RIAA

13. New Entrants
 Not an easy entry for Record Companies: High cost
for signing, recording and promoting a potential star.
 Easy entry for Internet Companies who can sell and
distribute digital music achieving product
differentiation
 New business model to gain a competitive advantage
as low switching cost to buyers.
 Need initial capital for technical infrastructure.

14. New Entrants cont...
 Ease with digital format and easy distribution, thus a
cost advantage
 No need of a retail presence.
 No proper laws for entry into this segment.
 Open possibility for new modes of operation

15. New Substitutes
 Substitute for CDs is the new MP3 Format: Small
compressed file with good quality, can be uploaded on
internet and shared.
 Conversion of music files also possible.
 Disruptive technology. May make Music industry
undergo a rapid change.
 Buyers can buy single songs. No need to buy whole
album. Thus low price and switching cost to buyers.

16. New Substitutes cont...
 Peer to peer sharing of files can severely affect the
copyright holders.
 All this due to a rapid penetration of internet and its
new products.
 Also, development of new formats like ATRAC and
new MP3 players

17. Buyer Power
 Buyer Power increased as now they have multiple
sources to get music from.
 No need to buy CDs. Can get digital music files from
internet. Thus saves time, effort and money.
 Switching cost low. Buyer can easily switch to a
different source.
 Price sensitivity:
 No Impact on quality.
 Buyer Profit
 No need to buy whole album.
 If Phase 2 is implemented, buyer power will be limited.
Also exemption clause will become narrow in scope.

18. Industrial Rivalry
 New rivalry high due to entry of new business models
 Market Concentration has increased.
 Diversity of competitors in the present market.
 Absence of Proper Laws results in Copyright lawsuits
and thus increase in rivalry
 NO existing laws for such companies.
 NO clarity over the legality of file-swapping facilitators.

19. Supplier Power
 Earlier supplier power higher: RIAA
 But now, product differentiation has lowered the
supplier power.
 Artists can upload his album and sell it online,
bypassing the traditional hierarchy of distribution.
 Reduced dependence on record companies and
availability of supplier substitutes.
 At present, the power will depend on the outcome of
the case. Implementation of 2 phase strategy may give
back the power to RIAA.

20. NEW DISTRIBUTION CHAIN
SDMI
`
Traditional
Retailer
Online Retailer
Artist
Record Company Distributors (Amazon.com) Consumer Retailer Distributor
Manufact
Mass Production urer
Online Source
(MP3.com)
RIAA

21. SWOT ANALYSIS: Napster
Strengths :
 Huge customer base
 Advantage on the legal front as it identified itself as a
facilitator.
 Cost involved was minimal.
 Supply of the content was easy.
Weakness:
 could not capitalise on the idea

22. SWOT ANALYSIS CONTD.
Opportunities:
 Huge untapped market
 Can generate revenue in collaboration with the
recording companies.
 Can form alliances with social networking websites.
Threats:
 Vulnerable to legal attacks
 Uploading of malicious content

23. FUTURE TRENDS OF MUSIC
INDUSTRY
 The market for CD’s has reached saturation point and
with acceptance of MP3 technology trends are
changing.
 People are becoming internet savvy due to ease of
access and MP3 is now widely accepted.
 Industry must reach a consensus on how to keep a
check on piracy and simultaneously achieve
profitability.

24. THANK
YOU