Sony vs iTunes: digital transformation strategies
This diagnosis was prepared based on the Competitive Value Train Analysis, a model created by Prof. David L. Rogers?(Columbia Business School Publishing) - For more information, please visit www.digitaltransformationplaybook.com .
After you read it, tell me: what′s SONY′s next move? What′s APPLE′s next move? Are SONY and APPLE enemies? Friends? Do they collaborate? Will they collaborate in the future?
And your company? Your business sector? Are they already influenced by DIGITAL TRANSFORMATION?
1. The Music Industry
I have identified many groups of payers in the music industry. Each group shows specific dynamics when their member′s role within the music industry is closely observed.
The first group is formed by the artists, including composers, lyricists, performing artists hired by record labels and independent artists. This is the only group the ORIGINATORS train.
The second group includes the record labels (Universal, Sony BMC, EMI and others), the independent producers, the mastering studios and the mixing engineers. This is the group that represents the PRODUCER train. The record labels partner with their hired performing artists for the royalties associated to the sound recording copyrights.
The third group are the MUSIC PUBLISHING COMPANIES (MPC), with three types of players: the majors (Sony, Warner and Universal), the major affiliates (smaller publishing companies associated to the majors) and the independent publishing companies. [i] ?[ii]
The MPCs represent the composers and lyricists’ interests associated to the musical composition copyright. Being primarily representants of originators’ interests (composers and lyricists), I assume MPC companies are also in the ORIGINATORS train.
Therefore, although four players form the ARTISTS group, their members address their demand differently. While hired performing artists and record labels collaborate in one side, the composers, lyricists and MPC join forces in the other side. The in dependent artists will use independent producers or, eventually, try self-promoting initiatives. See image 02.
There are five different groups coexisting in the DITRIBUTOR train: the traditional promotional channel members (radio, print, video, retail and public relations), the traditional sales structure members (distributor sales representative, retail chains, independent stores, writer publisher and the touring merchandizing), the digital distribution members (YouTube, Facebook and other social networks, internet radio, podcasts and blogs), non-interactive streaming online retail (Pandora, SiriusXM, AM/FM broadcasting stations) and interactive streaming online retail (Spotify, Apple Music, Google Play, iTunes). See image 03.
To illustrate the intensity of correlations within all members of the music industry, I created the table shown on image 04. The color code indicates strong positive correlation (dark green), positive correlation (light green), relative indifference (grey), some conflict (light red) and strong conflict (dark red). The area indicated as Model Transitions represents the interaction of traditional music groups (Promotional Channels and Sales Structure) and recent digital groups (Digital Distributors, Interactive and Non-Interactive Online Retail).
Although traditional structures have virtually disappeared, this matrix illustrates the existing members of the music industry. Given the goal of this analysis is to discuss specifically the roles of SONY and iTunes, I am not detailing the aspects of each interactions.
2. Sony Corporation of America
While Sony/ATV Music Publishing LLC?is an American?music publishing?company, Sony Music Entertainment?is “a global recorded music?company with a roster of current artists that includes a broad array of both local artists and international superstars, as well as a vast catalog that comprises some of the most important recordings in history”. [iii] Both companies are owned by?Sony Corporation of America. Therefore, today SONY has roles in the PRODUCER train (as Record Label) and in the ORIGINATOR train (Music Publishing).
According to Billboard, in 2017 recorded music generated US$4.03 billion (+14.9% vs. 2016); while music publishing Sony/ATV totaled US$ 670.5 million (+11.8%). Back to digital, downloads fell to US$449 million (-16.1%), but overall when combining revenue from streaming and downloads, revenue grew 23.6%. Breaking out formats and product lines by percentage of total revenue, streaming accounted for 44.4%; physical for 30.2 %; downloads 11.2% and other 11.4%. [v]
The Orchard is another company wholly owned by Sony Music. It offers distribution services to independent artists and labels in various markets, including physical distribution to indie labels, but subsequently expanded the services they offer and started working with artists directly as well.
Brad Navin, The Orchard CEO said “Our newly merged company is unique in structure, scale and reach. Coming together as one company that is both truly global and locally-focused will allow us to take the service we provide to our artist and label partners to the next level. The Orchard is the only global comprehensive digital and physical distribution platform with its own delivery, sales, distribution and reporting systems built specifically for independent clients. With a single deal, clients have the ability to deliver their music to every leading global and local digital and physical retailer and reach music fans around the world”. vii
With The Orchard, SONY assumes relevant roles in the DISTRIBUTOR train and strategically expands its influence on independent performance artists. The importance of the relationship with the independent artists is explored in section 4.
3. The distributor train
As mentioned in section 01, in the DISTRIBUTOR train coexist five different groups. According to this assignments orientation, the focus relies on iTunes (interactive streaming online retail group). The business model for this group focuses on building direct relationship with the performing artists and selling the access service to the customer.
According to Apple [viii] , iTunes organizes the music and movies you already have an environment where it is possible to buy the ones you want. It allows uses (consumers) to stream over 45 million songs, ad-free. Or download albums and tracks to listen to offline.?The iTunes Store is available on all devices, which means you can buy that catchy song you just heard or rent that movie you’ve been meaning to see, anytime you want. And since your entire library of music and movies lives in iCloud, everything you buy is immediately available, no matter how you want to play it.
The iTunes, as well as Spotify, Apple Music, Google Music Play are interactive streaming online retail. According to HFA[ix] , interactive streaming is when a digital file is transmitted electronically to a computer or other device at the specific request of the end user in order to allow the end user to listen to a recording or a playlist contemporaneously with the user's request. Interactive streams are sometimes referred to as on-demand streams. Streaming already represents the mais revenue segment in the American music industry.
Naturally, traditional Record Label companies resisted to this movement as they prefer to promote their own hired artists. When online retail offers interactive streaming with a huge amount of yet unknown independent artists, and this platform gains scale, the Record Label companies – therefore their hired artists – lose money.
While in the previous traditional music industry the customer only had access to those vinyl records from the artists that the Record Label decided to produce, now the options incomparable. Having eliminated the cost of physical distribution and reduced the intermediaries cost, the final price to consumer has also reduced. Additionally, single tracks are available, and consumers do not need to pay for the complete album. For a fixed price, iTunes and similar platforms offers unlimited access any artist in the globe.
Companies such as Record Union[xi] offers the service of digitally distributing any music, from any artist, located anywhere in the world, and make it available o interactive and non-interactive streaming online retail. It is important to notice that SONY′s The Orcharde is offering this very same service!
The Orchard business plays two roles in the DISTRIBUTOR train: as a channel distributor and as a channel promoter. As channel promoter, The Orchard may privilege efforts towards any online retail and influence which streaming service the consumer acquires.
4. SONY′s strategy
It is possible to identify the four strategic movements SONY did since iTunes was launched in 2003.
The first movement SONY made was towards the left value train extreme, reinforcing its relevance with the artistic class (composers, lyricists, hired performing artists and independent performing artists). This represents a wider approach compared to traditional behavior to represent only the hired artists (as any Record Label would do).
According to its website [xii] , “Sony/ATV Music Publishing is the world’s No.1 music publishing company … and now owns or administers more than 3 million copyrights …. It became a solely-owned Sony company in 2016. Since 2012 Sony/ATV has administered EMI Music Publishing, further extending the reach of the songs, songwriters and artists it represents. ?
The company is a full-service music publisher with its interests including not only a world-class roster of songs and songwriters, but an industry-leading synchronization operation and production music businesses Extreme and EMI Production Music.”
Sony/ATV represents artists interests related to musical composition copyrights (composers and lyricists) and round recording copyrights (performing artists, mixing engineers, mastering studios and record labels).
The second strategic movement became more visible then The Orcharde was structured as a digital distributor, not only for SONY hired artists, bur for the entire artistic class, including the independent performers. With a global structure, The Orchade has the capacity to capture the products (music) from artists virtually anywhere.
According to its website [xiii] , The Orchard “is the industry’s leading independent distributor and label services company and comprises of digital natives specialized in marketing, advertising, sync licensing, video monetization and performance rights services.”
Therefore, within the same corporate group (SONY Corporation of America), different companies execute similar services.
The third strategic movement used The Orcharde again. SONY intensified its presence in the DISTRIBUTORS train by expanding its services to become a promotional channel. In its website, The Orchard states that it “empowers artists and labels to connect with fans across the globe. From digital retailers and physical stores to performance rights societies and mobile outlets, our partnerships help amplifies your reach and revenue across multiple business verticals. The Orchard Workstation offers robust content management, marketing and business intelligence tools to drive release strategy and provide real time insights.”
The last strategic movement is a discrete activity executed by The Orcharde as a promotional channel. It influences the consumer to acquire music from selected services. Depending on the business interests of SONY, it may emphasize the acquisition of interactive or non-interactive services. And within these services, The Orchade may promote specific companies. For example, it may incentivize consumers to buy from Amazon Music instead of iTunes. Therefore, with this fourth strategic movement, SONY encases iTunes within its digital distribution, ots promotional channels and the influenced consumers.
5. Competition analysis
In this section I address the specific questions proposed for the diagnosis. The firm I focused my analysis was Sony (described in section 2) and its interaction with Apple′s iTunes (described in section 3)
5.2 Symmetric competitors
Originator car
As I mentioned in section 1, the members of the originator car may be organized in three groups. The composers and lyricists, who receive the musical composition copyrights. The performing artists, who receive the sound recording copyrights. And the Music Publishing Companies (MPC), which offer the service of managing the musical composition copyrights to composers and lyricists.
I decided not to include composers, lyricists and performing artists in this competition analysis as I have considered they are no companies. Therefore, there is the MPC, such as Sony/ATV, that symmetrically compete with each other. The major competitors are: Sony/ATV Music Publishing, Universal Music Publishing Group, Warner/Chappell Music, BMG, Kobalt Music Group, Round Hill Music, SONGS Music Publishing. Imagem Music, Black River Entertainment and Words & Music.
Producer car
In the producer car, the symmetric competition occurs within the record labels. The biggest competitors are: Sony Music Entertainment (Sony Music), Universal Music Publishing Group, Warner Music Group (including Warner Bros. Records and Atlantic Records), Island Records, (a division of the Universal Music Group), BMG Rights Management, ABC-Paramount Records, Virgin Records, Red Hill Records, Atlantic Records and Def Jam Recordings.
Distributor car
O mentioned in the first section of this assignment that there are five different groups coexisting in the distributor train: 1) the traditional promotional channel members; 2) the traditional sales structure members; 3) the digital distribution members; 4) non-interactive streaming online retail; 5) interactive streaming online retail
Symmetric competition occurs within the members of groups 2, 4 and 5.
. Symmetric competitors in the traditional sales structure members: retail chains vs. independent stores;
. Symmetric competitors in non-interactive streaming online retail: Pandora, SiriusXM, AM/FM broadcasting stations
·?Symmetric competitors in interactive streaming online retail: Spotify, Apple Music, Google Play, iTunes
From the perspective of this work, focusing on SONY and iTunes, the only symmetric competition identified occurs within the players that offer interactive streaming service.
5.2 Asymmetric competitors
Originator car: I could not identify asymmetric competitors in this car, as there is only one group od companies (MPC).
Producer car: I could not identify asymmetric competitors in this car, as there is only one group of companies (Record Label).
Distributor car
Again, let′s consider the five different groups coexisting in the distributor train: 1) the traditional promotional channel members; 2) the traditional sales structure members; 3) the digital distribution members; 4) non-interactive streaming online retail; 5) interactive streaming online retail
Asymmetric competition occurs between the members of groups 2, 4 and 5: the traditional sales structure members vs. non-interactive streaming online retail (Pandora, SiriusXM, AM/FM broadcasting stations) vs. interactive streaming online retail (Spotify, Apple Music, Google Play, iTunes). They all compete for the revenue from consumers.
Another asymmetric competition occurs between the members of groups 1 and 3: the traditional promotional channel members (radio, print, video, retail, public relations) vs. the digital distribution members (Youtube, Facebook and other social networks, internet radio, podcasts and blogs). They compete to offer marketing services to Record Labels and Digital Distributors.
5.3 Competition between cars′members
It is possible to see some types of competition that are not restrained to one specific car. For example, record labes and music publishing companies asymmetrically compete for copyrights revenue. One example is the recent dispute between Music Publishing Association and Spotify after Spotify announced they would only pay sound recording copyrights (to Record Labels) and would stop paying music composition copyrights to composers and lyricists (through MPCs).
Another asymmetric competition between members of different cars involves the Record Labels, digital distributors and promotional channels. They all offer marketing services to performing artists.
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[iii] https://www.sonymusic.com/sonymusic/sonyatv-music-publishing-and-sony-bmg-music-entertainment-announce-ground-breaking-agreement-for-digital-products-in-asian-market-2/
[v] https://www.billboard.com/articles/business/8395354/sony-music-revenue-income-2017-streaming-physical
[vi] https://www.musicbusinessworldwide.com/in-rob-stringers-first-year-in-charge-sony-music-revenues-jumped-12-to-top-4bn/
[vii] https://www.completemusicupdate.com/article/sony-music-merges-its-distribution-units-into-the-orchard-worldwide/
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1 个月Excelente, Alexandre Oliveira, PhD, CCA . Obrigado.
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1 个月Great! Thank’s for share!