BMG Entertainment

BMG Entertainment

The Internet, by making free and non-free online distribution of music, has profoundly affected how business is conducted in the record industry in terms of distribution channels, copyright and the economic structure of the major players in the global market. Initially, the Internet was viewed as an opportunity by some of the major players as a new channel of promotion. However, after the existence of Napster and few others, the majority considered it as threat because of the increase in the free file sharing. Consequently, for the Internet to be an opportunity for the major players, they had to adopt new business model in terms of distribution for online customers while keeping their conventional distribution channels. Early response to this threat was searching for technological solution in order to prevent piracy, going to court to sue for copyright infringement, the five major players and others offered their own authorized online distribution joint venture, all in attempt to keep their power in the market.

By fall 2000, there were 80 million users for Napster, and according to survey that was conducted on Napster users, there was an increase of 9% in music fans spending, among more experienced users there was an increase of 20% in their music spending, in addition to an increase of 19% among those using high speed connection. Napster and other free file sharing had caused the record sales to suffer. However, the file sharing services altered the conventional way of lessening to music for consumers. In 2001, 50% of U.S. households owned PCs; consumers spent $1.6 billion on CD burner, blank CDs and digital-audio players. 54% of PCs sales came with CD burners. More than 26% of online music users were ...

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...threats that the major companies are facing. The five major companies have to use all of their albums in the new giant venture, and in this way competing by others would be very hard. Consumers would use this channel because it has more than 85% of the albums in the market. Through online promotions, the new venture would gather information on new prospective buyers for new albums. Therefore, all the major companies can make their marketing strategies more efficient.

By following the third alternative, BMG would reduce the risk that is associated with the next move. BMG would be heading in the same direction of the industry as well as focusing on its core competence. Because of the uncertainty of how the new business model would look like, there would be new business model for the whole industry. This alternative is the lowest risk in terms of financial cost.