Saturday, December 29, 2012

the impact of technology on the recording industry

jakobgoesblogging | Enablers are the development of advanced hardware and software products as well as the increased importance of internet and especially social networks. During my research, I found a number of interesting statistics about recent changes in the music industry. Based on this data I will try to analyze each step of the value chain to explore how new technologies and the change in customer behavior affect the companies’ business models as well as the music industry as a whole.

Approach: After a short description of the music industry as it was some years ago, I will have a look at the most recent trends. Based on that I will point out the changes in the business model of record labels and identify some important areas in which companies have to act in order to stay competitive. To make this analysis more practical, I want to include the income statement of Warner Music Group, a leading record label to show how it is affected by recent industry chances.

The typical value chain in the music industry shows five steps. It starts with creation of the content by the artist. Traditionally, the artist tried to raise awareness by sending demo tapes to the record companies and participate in band contests. The artist and repertoire (A&R) unit is the division of a record label that is responsible for talent scouting, contracting and overseeing the artistic development. Once the contract is signed, the record company takes care of the financing and records the songs. The next step is the promotion and PR of the album done by the record company. The distribution traditionally was done through merchants and retail stores. Most of them were independent but there were also big retail chains, owned by the major record labels.