Apple iTunes: Changing the Face of Online Music Retailing Industry

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Case Details:

Case Code : BSTR070
Case Length : 16 Pages
Period : 2003
Organization : Apple Inc.
Pub Date : 2003
Teaching Note :Not Available
Countries : USA
Industry : Software

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Background Note - Emergence of Online Music Istribution

The music industry across the globe can broadly be divided into three segments: creation, marketing and distribution. Music artists create music, which is marketed and distributed by a network of record labels, distributors, retailers, broadcasters and DJs/clubs.

Labels (record companies) play an important role in all three stages by providing capital and the marketing know-how to create, promote and distribute music. Music marketing takes place through branding, community building and information dissemination. Music is sold in 'containers' like compact discs (CDs) and audio cassettes7 through distribution channels. Another form of music distribution is conducting public and private music shows. The business of music involves many intermediaries between artists (creators) and customers (end users). Each intermediary adds to the final cost of the product. Therefore, some record companies like Bertelsmann combine the roles of multiple intermediaries to reduce overall costs by selling music directly to their club members at low prices.

Another way to reduce the cost of promotion and distribution was to sell music in the form of albums containing many solos.8 Companies such as EMI, Warner and BMG have been doing this for a long time.

Record companies have always been a dominating force in this industry since they control major marketing and distribution channels. They exert their might by binding individual artists to long-term contracts. Most of the artists bound themselves to record companies lured by the latter's financial muscle, experience and marketing prowess - all of which were necessary to succeed in the business, and none of which the artists had. This also meant that emerging artists could not compete on their own as they did not have access to big companies. Therefore, they either had to be 'lucky/resourceful enough' for a record company to spot and sign them, or they had to be content with operating in niche markets. Due to the clout labels wielded on the industry, they reportedly took away a huge share (around 80%-90%) of profits...

Excerpts >>

7] The music industry evolved through adapting itself to many technological innovations over the past century. Media technologies evolved from vinyl to audio cassettes to CDs and mini discs. Technological advances in playback devices helped in this growth through gramophones and large stereo systems to portable digital audio devices.

8] Individual songs are referred to as solos - a collection of such songs forms an 'album.'


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