The purpose of this report is to conduct a strategic analysis on the British music group, EMI. For this the broad environment will be appraised to identify the major trends impacting the industry and the factors affecting its structure. Following this EMI’s current strategy will be identified and its financial performance evaluated. In order to highlight EMI’s strengths and weaknesses the firm’s key resources and capabilities will be appraised.
The effectiveness of the firm’s current strategy will then be assessed to determine whether this strategy is exploiting strengths in terms of resources and capabilities. Recommendations will be offered to enhance the company’s strategy with suggestions made for possible organizational change.For this analysis it is important to understand the concept of the music industry’s content and structure.
The Standard Industrial Classification (SIC) offers a description of the music industry as involving “businesses and organizations that record, produce, publish, distribute and market recorded music.”1In addition to these, four main stakeholders characterizes the music industry-the artist, the consumers, the music agents and the distributors. However, in seeking to define the industry it is acknowledged that no one definition can capture its diverse nature in terms of musical activity and commerce.
”2In commercial terms the global music industry “is a multibillion dollar segment of the media industries” and has reached a stage of maturity in its lifecycle. However with the rise of the digital era, it is undergoing significant transformation. With a core business sector comprising the record companies and music publishers, the global music industry transcends national boundaries and “pervades virtually every culture and every society.”
How EMI Group, PLC has to access and response to the likely impact of UMG's pricing initiative action on the recorded music industry.
Strength EMI’s key strengths are: Intellectual Property EMI possesses one of the strongest and most recognizable brands in the entertainment industry and also has one of the most important music catalogues and archives in the world, with the artists that include The Beatles, David Bowie, Queen and many others.EMI Music Publishing has a catalogue of over 3m track and the world’s largest catalogue of musical arrangements with over 1m copyrights owned, controlled or administered. It is imperative that Global Sales team continue to ensure that this fantastic resource is brought to the widest possible audience.
Human Resources the vast pool of artist and songwriters, who are found and nurtured by the A&R, represent another key strength of the company. Guy Moot, former EMI Music Publishing managing director commented,’ Music and great songs remain the foundation on which everything is built in this rapidly changing digital world.’32 EMI Group independent on identifying, signing and retaining talented artists and songwriters whose music helps to generate great revenues.
Therefore, the company continues to invest a great deal of money in discovering the very best musical talent from around the world. Marketing Know-how .31Please refer to appendix for the analysis of the resources and capabilities.32Article entitled EMI Music Publishing songwriters win top honors at the 52nd Ivory Novello Awards’ Published on the 24thof May 2007 on EMI Group website. Http://www.emigroup.com/Press/2007/press36.htmcited 7/3/0813 Weaknesses
Management System Management system is one of the weaknesses that company is experiencing right now. Whilst the company has good policies in place they are very often ignored by a number of employees through the whole management system. However, Terra Firma is planning a major restructuring of company’s internal structure which will hopefully lead to some great changes in the near future. Having identified resources and capabilities that are important and where EMI is strong, the key task is to ensure that these resources are deployed in their restructuring initiatives to the greatest effect.
One of key strengths of EMI is artist, so it is important for the company to seek diversification advantage through merchandising, corporate sponsorship and touring in order to achieve the competitive advantage. EMI’s current business strategy identifies diversification as one of the key strategies. On the other hand management systems that had been developed over a long period of time have important implications for firm’s capacity for change.
That’s where EMI’s management systems could benefit from Terra Firma’s experience in strategically transforming business and driving operational change. However, both companies have to watch for culture clashes, personality clashes between senior managers, or incompatibility of management systems that could result in the degradation or destruction. Opportunities
Joint Venture / collaboration-With recent merger attempts being stopped, EMI consolidation within the industry is becoming more difficult. EMI has often enjoyed success with joint venture with other large company such as Apple Computer (I tunes) and Yahoo! In joint project for mutual gain. Internet sales-Internet has become the fastest growing media for music distribution and many analysts expect that the downloading trends will continue to grow in a future.
The success of Apple I tunes has show it is possible to sell download music over the internet with many customers willing to pay rather than download the music for free from such sources as KazaA, Morpheus and many more where legality is still a rather grey area. Selling music by internet download may be an area EMI may try to enter directly or through collaborations and increase market share.More Open M&A regulatory-More open or liberalization of M&A in music industry may increase EMI Group opportunity to acquire or merge with other music company.
This will give EMI added market share and resources to compete with other major music companies. Focus on market where it has a strong market share and growth-Although North America especially US is the biggest market for recorded music, however it seem that EMI having trouble to keep competing to gain more market share. Maybe EMI has to give more focus or gaining more in the market that it has a strong share such as UK & Ireland, Australasia and Continental Europe.EMI also has to focus more in growing market region such as Japan and Asia. Threats
Limited growth potential for recorded music-The worldwide recorded music industry posted sales of $32 billion in 2002. The figure represent a 7% decline in Dollar sales and an 8% decrease in unit volume from 2001. Compared to 2001, sales of CD albums fell globally by 6% and there more continued declines in the sales of CD singles (down 16%) and cassettes (down 36%).
These show that is very difficult to find growth opportunities in the market. Poor economics condition and exchange rate fluctuation-As a global company operating in many countries worldwide, EMI Group, LTC is easily be vulnerable to the deteriorating economic condition worldwide and fluctuation in exchange rates and interest rates. These can often adversely affect both revenues and profits for the company. Impact of piracy (CD burning and mass downloading)-Piracy in the music industry, particularly the burning of CD and mass downloading of free music from the internet has increased recently.
The industry analysis estimate that unauthorized file sharing alone has accounted for $700million in lost sales to industry in 2002. Predicted the CD album sales globally will drop almost 30% from their 2000 peak by 2007 if present pace of unauthorized downloading continued. Filling low-In early September 2003, RIAA filed 261 separate lawsuits in US against individuals engaged in unauthorized file sharing. Industry analysts expected that litigation would have a short-run dampening effect on unauthorized CD downloading and burning. However it was viewed as having a minima long-run effect on this practice.
Aggressive Competition-The recorded music industry is very competitive which dominates by five larger companies which included Universal Music Group, Sony Music Entertainment, Warner Music Group, BMG Entertainment and EMI Group, PLC. EMI has to always consider any action from competitors which may affect the company competitive position. Solution
Alternatives There were two alternatives that can be evaluated in order to come out with the best solution to solve the EMI problem. The first alternative is EMI should follow the UMG pricing strategy. The second alternative is EMI decrease small portion of the price for the MSRP (manufacturer’s suggested retail list price), create a new market based on internet medium, increase the promotion using the new medium and focus on the other region such as Asia and Japan. Alternative 1:
EMI should follow the Universal Music Group’s (UMG) Pricing Strategy. UMG’s pricing initiative included a suggested retail price reduction retailer display space requirements and abolishment of retailer cooperative advertising allowance and discounts. The most publicized element of UMG’s pricing initiative was the price reduction. UMG reduce its CD prices to retailers. Retail prices of $16.98 to $18.98 reduce to $12.98.
Except for superstar artist titles, UMG would lower the wholesale CD price it charges retailers to $9.09. With this new pricing policy, UMG may attract a lot of customers to buy those CDs.UMG also have ‘Jump Start’ sales plan, which offer $9.09 to $10.10 prices to retailers if retailers would guarantee to give about 27 percent of a store’s display space, or 33 percent of the display space retailers used to promote major music company’s release.
But if some retailers elected not to guarantee display space under UMG’s terms, they did not have to participate in the Jump Start program. Whether or not retailers participated in UMG’ Jump Start program, the company stated that it would eliminate all retailer cooperative advertising allowances and discounts. If the elimination of these advertising allowance and discounts turns into an industry-wide trend, would turn barely profitable stores into money losers and could bury those already in trouble.
UMG spent $4.7 million for advertising, while EMI only spent$734,000 for advertising. EMI should spend more budgets in advertising, because with advertisements customers may known about EMI and also known about the artist who’s published by EMI.PROCONS1.Attract more customers2.Increase retailers demand3.Increase sales of CDs4.Compete with competitors1.Lower artist royalties2.Decline in profit3.Change customers’ perspectives. Pro| Cons|
1. Attract More Customers 2. Increase Retailers Demand 3. Increase Sales of CDs 4. Compete With Competitors| 1. Lower Artist Royalties 2. Decline In Profit 3. Change Customers’ perspectives|
EMI must consider these advantages and disadvantages that state above. EMI should follow this strategy to attract more customers. With the price cut, EMI might gain the loyalty from customers to buy the CDs. Lower price of CDs should boost adaptation. “High price” is one of reasons why customers do not want to buy CDs. The price reduction can increase the demand from retailers. Price cut also would allow retailers to increase their profit. With the same strategy, EMI can compete with competitors, especially UMG.EMI should concern that lower prices would also lower the artist royalties.
The artists might not want to extend their contract with EMI because they do not get enough royalties from EMI. From the sales of CDs, EMI might not get a lot of profit, because of the low price that EMI give. This strategy also might change the customers’ perspective. Customers might think why some major music companies give the price cut for their CDs or they might think the artist may not as good as they hope because of the price cut. With the less market share from UMG, EMI really need some courage to do this strategy.EMI must ready to take the risk if the strategy failed. Alternatives 2:
The following recommendations are provided in light of the key issues facing the company.33EMI Group revenue has gone down 15.79% in the 2007 fiscal year and led it to low gross profit, net profit and ROCE ratios, as well as undesirable EPS figures. It is vital for EMI to offset the decline in CD sales and adapt to the changes in the environment to remain being attractive to investors and artists.
With the growing power of the internet and technologies, the top management may consider to put weight into effective e-commerce marketing instead of continuing with traditional expensive marketing methods. It is also essential to understand that gaining market share in the digital music area should be highly prioritized as the trend of the music industry is clearly moving towards the technological side. Piracy has nonetheless become a serious issue in the industry with the rapid development of technology. It is highly advisable for EMI to cooperate with its competitors to target piracy34.
The possibility of achieving a satisfactory result against piracy is high with their dominant power in the industry. By bringing in game theory logic, it would be more sensible to work with the rivals in this scenario to protect revenues in the future. In addition to sales of record music, there are many other income generating activities such as concerts, merchandise and sponsorship. It is, of course, important that EMI continue developing its key strengths whiles adjusting its strategy to the changing environment. The quality of music produced is the core of the business; EMI should definitely try to keep successful artist as well as continuing to identify new artists with potential to growth.
The Key Issues Facing EMI Liquidity and gearing problems could potentially lead to bankruptcy. Management problems- where policies are in place but are not being implemented with great effect. • Not maximizing the efficiency of each functional department, with overlaps of responsibilities occurring. Inefficient cost control- unnecessary spending to impress shareholders and artists. Low revenue- as a result of declining CD sales. Artists by passing record companies Lack of leadership- whilst management are highly qualified and experienced within the music industry there appears a lack of coherent direction. Traditional marketing methods no longer as effective because of the rise of e-commerce marketing.