Music Business Term Paper

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Music Business

MUSIC INDUSTRY

In the face of current economic slowdown, no industry is likely to survive if it sticks with its old business models and refuse to adapt to change. Besides economic problems, there are some other factors, which are forcing corporations to adopt new and better business strategies and discard old ones since they are not producing positive results. These factors include political conditions in the country, global rise in terrorist activities and rapid development of technology, most specifically the Internet. With American households and corporations getting wired at lightening speed, it is only logical to incorporate this technology in a new business model to make business strategies produce desired results.

Apart from technological change, companies are also required to focus more on pricing models. It has been noticed that with consumer spending shrinking, only those corporations that have a viable pricing model are likely to stay afloat. In other words, we can no longer offer products at old prices since money supply has decreased considerably in the past two years. Now we are left with two options, either reduce prices or offer more at current prices. Value addition is therefore no longer an option.

These are some of the strategies that airlines and software industries are rapidly incorporating in their business model to increase revenues during this economically tough period. We have noticed that despite all problems and deep financial troubles, airline industry has not only managed to stay afloat but is gradually recovering too. Similarly software industry has also managed to drag itself out of its miserable financial state to finally make a profit. But while these industries have been able to emerge out of trouble, music industry with relatively fewer problems has not recovered as yet and appears uncertain of its future. In this paper, we shall focus on the strategies that helped both airline and software industries adapt to change and improve their performance. The paper will also take into account the causes of music industry's miserable performance and suggest strategies that might help music industry recover. These strategies are based on the lessons learnt from the response of airline and software industry to various kinds of problems that they faced recently and are still encountering.

After September 11 most industries were hit badly and many of them ran for Chapter 11 protection. While every business suffered, it was the airline and tourism industry that was hit the hardest. Many major airlines in the country were either forced to cut their flights schedules to half or operate as per the old schedule but with lesser passengers per flight.. The hardest hit was of course the American airline, which was the primary player in the attacks. The company then announced huge cuts in its flight schedules and also laid-off many of its workers. But it is not just the American Airlines, all other airline companies in the industry faced similar problems with the exception of Southwest. Many were of the view that the airline industry would not be able to recover even after the government announced a $15 billion bailout package for the industry.

But airline and travel industry has not only managed to stay afloat by winning back consumer confidence and is also clearly headed in the right direction. Recovery is now imminent with airlines witnessing a rise in load factors. How did this industry manage to attract passengers and persuade them to travel despite security fears is an open secret. By reducing its profit margin, airlines were able to make generous offers to their passengers and lower their prices per ticket. The load factor has not yet reached the pre-September 11 level, still FAA and major airlines are hopeful that aggressive price cuts would help put a halt to losses and negative performance. This Business model has so far worked better than expected even though full recovery would take at least three more years.

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However it is clear that lower prices have enabled airlines to successfully entice travelers to fly more frequently. The report on financial condition submitted by Aviation Subcommittee acknowledged this recovery noting, "There are some signs that traffic levels are gradually recovering. Airlines have been slowly restoring capacity and recalling furloughed employees..." (See reference 6)

With extensive price reduction, most airlines across the globe reported a rise in the number of travelers. According to Birmingham Post (2003), "EasyJet, Europe's largest no-frills carrier, said it carried 1,433, 400 passengers in December, 2002, compared with 1,034,100 in December, 2001." Similarly Southwest and many other low-cost airlines managed to increase load factors thereby minimizing the losses. FAA recent report, "anticipated that all of the major airlines would continue to operate over the long-term" and predicted that passenger traffic would increase "3.5% a year domestically and 4.7% annually on international routes" till 2014. (Jon Hilkevitch, Chicago Tribune, 2003)

Software Industry has similarly taken desperate measures to bring itself back on track. Piracy is as major a concern for software industry as it is for music and recording companies, yet instead of fighting against technology, it has decided to utilize its power to enhance sales. In other words, software industry no longer views Internet as the hostile factor and is trying to beat the enemy at its own game. By utilizing this latest technology and acknowledging its ability to reach a wider market, software industry is gradually coming out of its piracy-related problems. Many software giants are now willingly offering trial version of their software free of cost to halt piracy. This trial version helps in previewing the software before the consumer actually purchases its CD. Apart from that, these companies are also placing some extra software on the CD version to attract buyers. This value-addition system has had a profound impact on sales. Richman (2002) notes, "The Washington Software Alliance, which counts many of the state's program makers among its 1,150 members, agrees that the industry is fundamentally healthy." President and Chief Executive Kathy Wilcox of WSA agrees "Boeing has always been the most significant revenue-producing entity in this state, but now software exceeds it," she said. "These are good times." (Richman, 2002) And this is mainly due to value-addition, price reduction and internet-friendly strategies that software companies are experiencing healthy growth.

Following these examples, Music industry could come out of the perpetual shadows of piracy. It needs to bear in mind that Internet is always going to be around and people will find some way to download free music, therefore instead of fighting against it, they should utilize this technology to reach global markets and increase revenues. Free music has thus become a perpetual threat as The Economist reports "File-sharing on KaZaa was 1,491% higher in June 2002 than in June 2001, according to ComScore Media Metrix, a research group. The industry is suing this and other file-sharing services, but new ones emerge as fast as old ones are shut down." Therefore, instead of bringing lawsuits against Internet-based companies like Napster, it is more important to create a product that offers more value at a reasonable price. New technologies should be used to replace MP3 format in order to improve sound quality and this would help in making CD music more attractive than cheap online tracks..

But for some odd reason, record companies are not paying much attention to their current pricing model. Frank Rose (2003) argues that among the obstacles being faced music companies, "...pricing is one of the biggest. When the labels offer downloads or burns, they effectively set the price at $1 per song - about the cost on a CD. User surveys show that something like 50 cents would be more realistic." (WIRED Magazine, 2003)

Record companies should become more Internet-friendly if they truly want to increase CD.....

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