How Does Technological Change Affect the Music Industry in Germany?

An Analysis of Sony Music Entertainment


Seminar Paper, 2017
24 Pages, Grade: 1,0
Adam Liskar (Author)

Excerpt

Table of contents

List of figures

List of tables

1. Introduction
1.1 Aim of this work

2. Development and current situation of the German music market
2.1 Major-Label: Sony Music Entertainment (SME)

3. The digital revolution in the music industry
3.1 Increasing need for mobility
3.2 Increase in competition through digital change

4. How technological change has affected Sony Music Entertainment

5. Change in the value chain
5.1 Digital distribution

6. SWOT-Analysis of Sony Music Entertainment.
6.1 Strengths
6.2 Weaknesses
6.3 Opportunities
6.4 Threats
6.5 Important findings of the analysis

7. Conclusion

List of references

List of figures

Fig. 1: Total revenue of the music market in Germany. 1999-2008

Fig. 2: Illegal music files downloaded on the internet. 2003-2009

Fig. 3: Number of users of legal and illegal music downloads. 2005-2009

List of tables

Table 1: How challenges of technological change affected the music industry

Table 2: SWOT-Graph. Own Illustration

1. Introduction

In recent years there has been an extremely strong digital transformation. Digitization is profoundly changing society in all areas of life. Information and communication technologies connect the different areas of everyday and working life. From intelligent energy supply, to smart logistics and transport systems, to the intelligent home. Intelligent business processes are at the center of Industry 4.0 in order to make the respective companies more flexible and resistant to unforeseen events (Hermann, M., Otto, B, Pentek, T., 2015). Not only manufacturing companies, logistics and industry, but also service companies have benefited from technological advances. Being able to deal with new technologies becomes more important for every entrepreneurial existence (Hermann, M., Otto, B., Pentek, T., 2015). However, most companies find it hard to stay up to date in the digital age as development continues inexorably. Technological change influences communication, working methods and success (Hermann, M., Otto, B., Pentek, T., 2015).

In the meantime, the Internet is part of everyday life for almost every person in the world. The Internet allows worldwide networking of computers, smartphones and other mobile devices. These smart devices allow anyone to be online anytime, anywhere. The widespread use of the mobile Internet is also changing people's communication and consumer behavior (Roemer 2015). In the initial phase, the Internet served primarily to gather information, but in the meantime, it has become established as a shopping portal for all goods and services (Roemer 2015). Many companies have had, or are in the process of, adapting their traditional corporate structures to ever-evolving digital needs. In the past, a number of industries, such as banks, commerce, music, film and television, and other service providers have been able to discover and adapt to this change (Roemer 2015). On the one hand, many companies have been able to achieve higher profits, faster growth and a high level of awareness through digitization. On the other hand, just as many companies have been unable to exploit the importance of technological change for their business model and were thus unable to adapt to the current requirements of the digital age, among them are some music labels that have not recognized or exploited the trend towards digital titles (Roemer 2015). Today, streaming portals like iTunes, Spotify, Tidal, etc. are the pioneers in the music industry.

1.1 Aim of this work

The following work deals with the effects of digital change on the German music industry. For this purpose, one of the most famous and successful music labels in the world, Sony Music Entertainment. Since this is a US-American company, this elaboration refers only to the company headquarters responsible for Germany. The work should show how the music industry has changed in recent years and how a large music company like Sony Music can withstand the demands of the digital age. For this purpose, the further course of this work is presented below.

At the beginning, the development and current situation of the German music market is briefly defined and described. Then Sony Music Entertainment Germany GmbH will be presented and its position in the German music market will be documented with key figures, data and facts. It then explains the effects of digitization on the music market, such as the need for increased mobility. The ongoing transformation is also expected to increase competition. Therefore, a brief competitive analysis is described below. Afterwards, an attempt is made to gain an insight into the current corporate structure of Sony and to highlight the changes caused by digital transformation. Subsequently, business processes optimized for the technological requirements are presented and described at Sony. Furthermore, the change in the value chain in the music industry is presented. Finally, to round off the work, a conclusion is drawn in which important findings and results are compiled.

2. Development and current situation of the German music market

The music market is an oligopoly; a market where many buyers face few suppliers. So-called major labels are the market leaders in the recorded music industry and deal with the music aimed at the mass market. They are divided into three main categories. The music rulers such as authors / authors and music labels, the collecting societies such as GEMA and the music exploiters such as download platforms, radio and television stations or even music labels (Knodel, 2015). Together, they form a complicated contract network in the German music industry. Reasons for this are, for example, the music labels, who are active both as a music rights holder, and as a music exploiter. Since the beginning of its existence, the music industry has been constantly confronted with technological innovations. For about a decade, digitization has posed a threat to the recorded music market, with total revenues down from €2.6 billion in 1999 to nearly €1.5 billion.

Abbildung in dieser Leseprobe nicht enthalten

Fig. 1: Total revenue of the music market in Germany. 1999-2008.

From 2008, the music industry was able to recover very slowly from market slumps by adapting to digital change. Since then, the music market has grown slowly but consistently and has thus in the past few years strong sales growth. After the first 6 months of the previous year 2017, revenues increased by a total of 2.9 percent (Herrenbrück, 2017). The music market has undoubtedly changed a lot over the years. The traditional business models of many music labels can no longer meet the requirements of digitalization. Consumers are continually changing their habits and interests, leading to a restructuring of traditional business processes (Knodel, 2015).

2.1 Major-Label: Sony Music Entertainment (SME)

For several decades, music labels have been the bridge between creative suppliers and consumers (Knodel, 2015). The so-called record companies are still the ones that drive the core business of the industry today. One of the main tasks of such companies is to provide unknown artists with sales potential with a platform to publish their music and to support existing artists with numerous marketing measures such as promotion and distribution (Knodel, 2015). Today, three top dogs divide up the sound carrier and music publishing market. These are Universal Music, Sony Music and Warner Music (McDonald, 2017). In concrete terms, this means that 77% of sales can be attributed to just 3 companies (Masnick, 2015). Over time, numerous labels were bought by the four majors. For example, Sony Music has several sub- labels, which in turn are subdivided into genres (Sony Music website, 2018). For example, Sony Music has a whole catalog of other music labels. But not only music labels are under the roof of Sony, but also entertainment companies such as Syco Entertainment (Sony Music website, 2018). Syco has developed into a globally successful company in recent years. With international television programs such as "Das Supertalent" or "X-Factor" Syco Entertainment is always producing new stars. The history of Sony Music Entertainment goes back more than a century. The record company experienced firsthand the different stages of development and change of both the music industry and the changing world through digitization. Sony Music Entertainment has pioneered the music market with Sony's most spectacular and probably most successful artists, Elvis Presley and Michael Jackson (Sony Music website, 2018). Today, international superstars such as Justin Timberlake, Beyoncé, Daft Punk, etc., as well as successful artists such as Peter Maffay, Udo Jürgens, Tim Bendzko, etc. belong to the artist portfolio of Sony Music (Sony Music website, 2018).

3. The digital Revolution in music industry

With the advent of the Internet and the advent of data technologies, unsurpassed opportunities have arisen in every industry for every business. Digitization changed the music industry from creating and recording music to distribution and sales (Knodel, 2015). Today's big and successful labels, such as Sony Music, have survived a number of disruptions through the rise of digital transformation and have adapted to current events. But in the course of the revolution, many competitors went down as well. The music has been an entertainment medium for centuries, accompanying people worldwide on records, CD's or in modern iPods, movies and commercials. As technology evolves, listening to music has never been easier. On the other hand, the industry is undergoing a profound change due to the digital transformation, which can have far-reaching consequences for producers, artists and above all labels (Pritchard, 2014). With the introduction of the Compact Disk (CD), a successful business was established in the 1980s, which, by being able to transfer CD's to CD discs at the end of the 1990s, posed a major threat to the commercial sale of them (Bouhs, 2015). This threat was the beginning of digitization, because in the year 2000 CD sales collapsed through the other side of the digital transformation (Bouhs, 2015). Technological advances have also allowed simple households to burn a CD without paying for it. Since then, technology has developed rapidly in the world. Steve Jobs presented the digital music business iTunes, which brought many imitators from the entrepreneurial success (Bouhs, 2015).

Abbildung in dieser Leseprobe nicht enthalten

Table 1: How challenges of the technological change affected the music industry

3.1 Increasing need for mobility

The goal of the ever-advancing technology is to shrink existing data, optimize data transmission processes and shorten them. So the music should be available at any place and at any time. The ever-increasing need for mobility makes it to the task of producing CDs, especially in the music industry as far as possible. The physical CD can still prove to be the strongest sales segment. Streaming occupies second place for the first time (Herrenbrück, 2017). Mobility is also increasing with the introduction of smartphones. These devices combined the technical applications of the Internet, the mobile phone, the Mp3 player and the digital camera. Today's mobile markets allow access to music anytime, anywhere. Music albums can be purchased and listened to anytime on iTunes, Amazon Music and other portals. Through these possibilities, the music experiences a new form of ubiquity. Since online streaming platforms such as Spotify, Apple Music and Tidal are the reason for the decline of physical CD's, Sony Music has to join and partially subordinate the online services. In order to digitize the distribution of music and distribute the products on online streaming portals, Sony Music has to contract with online service providers like Spotify, iTunes etc. These changes in corporate structures and the growing need for consumer mobility mean less revenue for Sony, as music placement costs money for online streaming services.

3.2 Increase in competition through digital change

As a result of the digital change, the number of competing competitors in the music industry also increased as a lower barrier to entry prevailed. Until the change, Sony Music benefited from its strong financial and investment power as well as from its worldwide distribution network. With digitization, the hurdles for entry into the music industry and thus the power of Sony Music shrank (McDonald, 2017). The new technology has led to lower costs in distribution, production and duplication of music. These cost savings have made the music market more attractive to new companies (Pritchard, 2014). New competitors from various industries entered the music industry with new business models. These competitors were able to expand their market position very quickly due to the initial reluctance of labels such as Sony Music. For example, iTunes, Apple's online music store and the German counterpart to

Musicload use the merchant model and are very successful (BVMI 2010). In addition, there are more and more emerging competitors. These include the independent labels. With the decreasing importance of physical distribution networks - and the growing importance of online distribution - independent labels are becoming a serious competitor to Sony Music (Oderinde, 2010). Indie labels distribute their music directly to the consumers.

To control the strong increase in competitors and adapt to digitization, Sony Music licenses its music to online music retailers such as iTunes, Amazon and Spotify (Karp, 2017). Thus, Sony Music gets back some control over the distribution channel. In recent years, the formation of strategic alliances with independent labels has become increasingly interesting for Sony Music. In addition, Sony Music focuses more on its core business, including artist discovery, development and promotion, and marketing and licensing services.

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Details

Title
How Does Technological Change Affect the Music Industry in Germany?
Subtitle
An Analysis of Sony Music Entertainment
College
University of Applied Sciences München
Grade
1,0
Author
Year
2017
Pages
24
Catalog Number
V503752
ISBN (eBook)
9783346055309
ISBN (Book)
9783346055316
Language
English
Tags
music industry, digital change, industry 4.0, novelty, changemanagement, sony music, spotify, streaming, music
Quote paper
Adam Liskar (Author), 2017, How Does Technological Change Affect the Music Industry in Germany?, Munich, GRIN Verlag, https://www.grin.com/document/503752

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