Over the last several months, global music industry had witnessed significant change in market structure and consumer preferences. Increased utilization of internet has helped bringing consumers closer to the product manufacturer and has impacted the role and structure of middleman/distribution networks. Availability of cheaper digital music has adversely impacted the sale of recorded music album. This has further intensified the need for BMG to expand into digital music distribution.
To be able to respond to the needs of digital music market, BMG will have to establish a dedicated division with a tailored distribution and promotional strategy. While the current ‘centralized” distribution channel could continue as a link between BMG (as a record company) and ...view middle of the document...
Since the variable costs relative to fixed costs are more important for music downloads, there will a significant change in the business model for digital distribution unit. Reduced fixed cost to produce music will also enable more music diversity (lower entry barrier for musicians) and a less skewed distribution of sales among artists. This will expand the promotional needs and would require a tailored marketing and distribution strategy.
Digital division will also have to focus on selection of appropriate technology platform with built-in security (digital right management) to prevent illegal copying. This is critical to avoid any negative impact on publishing division’s copyright inventory and overall profitability.
Another alternative of strengthening the existing “central distribution division” with phased transition to digital music format would loose the critical first mover advantage.
In one of the similar business case, sales organization at Encyclopedia Britannica was among the most successful commission-oriented door-to-door distribution channel. However, it had a difficult time transitioning to selling electronic-based encyclopedias. This contributed to the loss of early advantage and caused significant market erosion
To enable gain the early market share, BMG cannot afford to wait for a matured technology market. BMG’s digital division will have to forge alliances with major technology leaders for broad music format compatibility. At the same time it should continue monitor consumer response and music technology market developments and accordingly adjust its business model for music format support.