NAPSTER and MP3: REDEFINING THE MUSIC INDUSTRY
GROUP 1
BACKGROUND
Music IndustrySDMI (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 CDs
Mp3
format
Mp3
Devices
New Audio compressio
n technologi
es
• SDMI strategy
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.
Phase I Phase II
PEST ANALYSISMUSIC INDUSTRY
Music Industry
POLITICALCopyright infringement policy
Permitted copying of musical works for personal use
Gaps in policyFile sharing law “unclear”No proper law for online distribution of musicCourt was forced to take decision.
Technological challenge in implementation
ECONOMICHuge market for digital music products
Low cost due to competition
SOCIALMore 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”
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
`
Artist
Record CompanyMass
Production
Distributors
Traditional Retailer
Online Retailer
(Amazon.com)
Online Source
(MP3.com)
Retailer
Distributor
Manufacturer
Consumer
SDMI
RIAA
DISTRIBUTION CHAIN
New EntrantsNot 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.
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
New SubstitutesSubstitute 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.
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
Buyer PowerBuyer 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.
Industrial RivalryNew 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.
Earlier supplier power higher: RIAABut 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.
Supplier Power
`
Artist
Record CompanyMass
Production
Distributors
Traditional Retailer
Online Retailer
(Amazon.com)
Online Source
(MP3.com)
Retailer
Distributor
Manufacturer
Consumer
SDMI
RIAA
NEW DISTRIBUTION CHAIN
SWOT ANALYSIS: NapsterStrengths :Huge customer baseAdvantage 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
SWOT ANALYSIS CONTD. Opportunities:Huge untapped marketCan generate revenue in collaboration with
the recording companies.Can form alliances with social networking
websites.Threats:Vulnerable to legal attacksUploading of malicious content
FUTURE TRENDS OF MUSIC INDUSTRYThe 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.
THANK YOU