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Sony Corporation the Recorded MusicTerm Paper

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[. . .] Computer technology combined with the Internet now takes 'music sharing' to a whole new level. Where once a person may have shared an album with a couple of friends or family members, now, thanks to the connectivity of the Internet, one person can literally share their album with millions of people worldwide. These illegal music downloads are the most significant substitute threat to Sony BMG and others in the industry.

The bargaining power of the end users is also quite significant, in the industry, thanks primarily to the technological advancements noted above. Despite the shutting down of many of the illegal peer-to-peer file sharing services, and even the prosecution some of the users, consumers have found ways to continue to share music via the Internet. This has given them significant power and has led the industry to respond with the creation of more cost friendly, download services such as: Apple's iTunes Music Service, Napster 2.0, Listen.com, and more.

The bargaining power of suppliers is another strong influence on the recorded music industry. Although actual material suppliers are quite abundant, and do not have that much influence, the artists themselves are quite significant. Multi-million dollar record deals for mega-artists are not uncommon. And, should these contracts not be to the artist's liking, they are certain to find a home with a rival competitor. In addition to the primary artists, the behind the scenes artists, such as the producers have significant bargaining power as well. A good producer can mean the difference between platinum albums and not.

Lastly, perhaps the least significant influence in the industry is the barriers to entry for new competition. General entry into the recorded music industry is quite easy. Anyone with a small amount of capital can lease a recording studio and record music, make copies and distribute them. However, the mass marketing that companies, such as Sony BMG, undertake requires considerably more capital to be competitive. Although there are thousands of small, unheard of record labels that exist, these are not true competition to the likes of Sony BMG.

Threats:

There is one significant threat to the recorded music industry, and that is the failed attempt to stem the piracy of their music. If music piracy continues to increase and costs of music production also continue to increase, Sony BMG, along with its fellow competitors, will be faced to continue to raise the prices of their CDs, making the honest consumer pay for the dishonesty of others. However, this will tend to have a snowball effect. As CD prices rise beyond what consumers find acceptable, more and more will turn to illegal music sharing, thus causing the prices to rise even higher, which will encourage more illegal downloading, and continue until the music industry is in shambles.

Opportunities

Despite the threats new technology presents for Sony BMG, there are also new opportunities as well. This includes the cost efficient means of downloading music, from entire albums to single songs. Virtual libraries of music can be browsed by consumers, allowing them to pick and choose exactly which songs they would like to purchase, creating their own personal compilation album. This type of service provides a win-win opportunity for both Sony BMG and consumers.

Obviously, consumers will appreciate the lower costs of purchasing downloaded music. They will also appreciate the convenience of being able to make their purchase instantly any time, day or night. In addition, the flexibility of being able to choose even a single song, is certain to be attractive to consumers.

For Sony BMG, a download music store offers reduced costs of doing business. Physical costs of CD duplication, cover printing, and shipping are eliminated in this virtual music store scenario. In addition, they can reach consumers around the globe without the expense and difficulties of exporting to foreign countries. Plus, there will never be a time when a popular album is sold out as the number of downloads is limitless. Lastly, if priced competitively and advertised effectively, downloadable music stores should prevent many consumers from turning to piracy.

In addition, the Internet offers a plethora of new marketing opportunities. Ancillary products, such as posters, t-shirts, books, dolls, lunchboxes, concert tickets, and more can all be promoted online efficiently and effectively. Even offering the free download of one song from an artist's new album can be a powerful marketing tool. Not only will the consumer who has downloaded the free song be more likely to purchase the album, if they like the song, but Sony BMG can use the data collected from the download to market specific complimentary products, as mentioned above.

Internal analysis

Strengths

Sony BMG has several strengths that have led them to become the second largest recorded music organization in the world. First and foremost is their ability to be innovative. It was innovation that led Sony to merge with Bertelsmann AG as opposed to simply continuing to try to streamline their processes and cut costs to meet the challenges that they were faced with.

Another Sony BMG strength lies in their dedication. Just as any Sony organization under the global Sony umbrella, Sony BMG is dedicated to doing what it takes to be successful. As mentioned, this of course involves innovation, but also developing relationships with their employees (in this case artists) and their consumers.

In addition, Sony BMG has their brand name, as well as their individual label names, as a significant strength. From Columbia Records to RCA to Sony Classical to the Sony BMG name itself, these are standards in the industry, and as such garner some respect and power. Artists want to be associated with a well-known label and may be more willing to negotiate a better contract, then if the label was unknown.

Lastly, Sony BMG's biggest strength is their artists. Sony BMG is home to some of the biggest names in the music industry. Crossing genres from Pop to Rap to Classical, Sony BMG has cultivated contracts with the top talent available. Developing new artists and retaining those who are already successful is key to Sony BMG's competitiveness.

Weaknesses

Sony BMG's primary weakness lies in its new relationship with Bertelsmann AG. Their plans include reducing their workforce by 20%, this is certain to cause considerable turmoil, not only due to the increased workload remaining employees will have to face, but also in employee morale. As this relationship is so new, the two companies are still trying to figure out how best to work as one seamless unit. The reduction in workforce will make this even more difficult.

In addition, as the merger is recent, they have no past successes to build upon. Certainly Sony Music has been successful, as has Bertelsmann AG, however, the unified organization that is Sony BMG is still a fledgling enterprise. For this reason, a weakness will be the uncertainty their future as a merged unit holds. This may lead to second-guessing and delayed strategic action when necessary.

Value Chain Analysis:

In a value chain analysis, one should look at Sony, and more specifically Sony BMG, as a chain of activities that Sony BMG takes in order to take raw materials and produce their products, which their customers value. The first basic source of this value comes in the form of differentiation of their product.

Sony BMG's differentiation strategy involves several facets. First, they continually strive to attract and retain the best musicians available. Of course this includes the most popular artists, such as Britney Spears, Jessica Simpson and Christina Aguillera, but it also includes those who are truly gifted musicians, such as John Williams.

In addition, their differentiation strategy involves the variety of artists. As mentioned, Sony BMG has a host of popular music artists under contract. Their artists often hold top positions on the American Billboard Top 40. They have top artists in all genres, including: alternative, Christian, children's, classical, country, dance, gospel, hip hop, jazz, Latin, R & B, rap, reggae, and hard rock.

The second source of customer value at Sony BMG is their activities that have helped them in lowering costs. Sony's merger with Bertelsmann AG was motivated to fulfill this source. Their hopes in merging is to take advantage of a program of cost savings, by combining the two music powerhouses and utilizing economies of scale to their advantage, rather than simply streamlining their activities to foster cost savings.

The third source of customer value in a value chain analysis is the ability for Sony BMG to meet their customer's needs quickly. For this, Sony BMG has enlisted the use of technology, and specifically, the Internet. Customers can easily purchase their favorite Sony artists on a variety of media via the Sony Music Store, online, 24 hours a day, 7 days a week. In addition, they can get ringtones for their mobile phone through the Music… [END OF PREVIEW]

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