Marketing management and strategy - The UK music industry - Essay Example

The UK music industry is facing dramatic changes caused by shifts in the patterns people buy music tracks and albums. Online music distribution is changing the rules of the market introducing both major threats and growth opportunities for music labels and distributors. Whereas increased download opportunities and digital format preferences are threatening traditional music specialty stores, legal music websites and music producers have to find creative ways to fight back internet piracy to achieve targeted rates of returns.

Online market demand is dominated by teenagers who have shifted their purchases from singles CDs to mostly illegal downloads of singles tracks, stimulated by continually evolving software and P2P networks. In order to survive, market players have to reconsider their strategies and value propositions – by mergers of music labels; flexible pricing and value-added offers by online distributors and active ethical campaigns, the challenge before these companies is to convert the internet medium from a threat to copyrighted material into an effective distribution channel. b. Analysing the competitive impairment using Porter's five forces Rivalry among competing sellers in the industry - rivalry among legal internet music sites is not too intensive, because the legal online download industry is underdeveloped and growing at a very high speed, which means that companies gain market share from a rising number of new customers, converting their downloads from illegal to legal.

Apple iTunes has over 70% of the market, which places it into an almost monopolistic position as a market leader. Still, rivalry is expected to increase, as the number of competitors increases, and as customers can easily switch from 1 site to the other (except for Apple and Sony that sell music in formats compatible for their own products). Competitive pressure from substitute products - substitute "products" for online distributors can be considered to be rival traditional distributors for example.

The power of substitute distributors is low, because the internet medium provides lower costs, greater flexibility, speed and value propositions as compared to traditional music retailers. Potential entry of new competitors - relatively low costs for set-up and management of web-sites for download mean low entry barriers. Entry of new competitors is likely to be attracted by the growing number of legal sales (from 100,000 to 500,000 by August 2004). The bargaining power of suppliers - suppliers for online music distributors are music producers.

Provided there are only 5 major music producers that hold the exclusive rights for famous artistes and musicians, the bargaining power of suppliers is big in terms of price settings - e.g. the music label get 65p of a typical 99 p download. Suppliers include the 5 major labels and smaller independent music labels. Consolidation among big labels (Sony and BMG) is likely to increase bargaining power of suppliers. The bargaining power of buyers of the product - the power of buyers is big in terms that surfers, using new software and P2P networks are shaping the face of the industry.

Online distributors have to find ways to attract and retain customers by stimulating them to actually make purchases and switch to legal downloads. c. The impact of the Internet on the competitive environment Internet is the trigger of the digital music revolution. It has changed the whole music industry thus forcing music companies and artistes to reconsider the way music is being sold and distributed. Internet has a number of positive influences on music companies. Through this popular and easily accessible medium artistes and companies have access to a wider global audience and have opened up new revenue streams.

Internet has also diminished the bargaining po