Sony Music Case Questions

Sony Music Questions:

1. Describe the music industry and the trends leading up to the present competitive environment in the industry.

• Media industry evolved from strong emphasis on performance (before 1900s) and then moved to ownership-driven in the beginning of the 20th century and recently with advancement in technology and Internet, streaming and digital downloads.
• Beginning of 20th century- ownership driven with emphasis still in live performances but with advancement in recording technology, artists began to produce recordings of their music.
• 1993- Release of MP3 algorithm enabled reduction of song files to a size that made Internet broadcasting and uploading and downloading feasible.
• 1998- Gracenote: music database to retain information associated with song files
• 1999- Napster: Illegal file-sharing service
• 2001- iTunes: legal online music store launched
• 2003- A few brick and mortar music store selling physical albums declared bankruptcy due to decline in album sales and increase in digital media even though they tended to blame piracy for the financial downturn
• Early 2000s- huge increase in copyright infringement in the music world. Duplication of music was easy and likelihood of being help responsible for the crime was quite low. Sharing music also became socially acceptable
• 2014-

• Stop Online Piracy Act (SOPA) and Protec IP Act (PIPA) aimed to stop copyright infringement bills were under consideration by the U.S. Congress
• Three main methods of digital music distribution: digital download, internet radio, and interactive streaming
• Self-publishing in music industry where creator has control over creation, higher profit margin and getting paid monthly, contrast to annual royalty remuneration typical to labels, and whole process completed much faster.
• Interactive streaming and internet radio subscriptions becoming more popular, but have low profit margins

1. Describe the competitive environment in digital music as the industry moved into 2014.

• Competitive environment in the digital music as industry moved into 2014 were made up of interactive streaming and internet radio subscriptions such as Music Unlimited (Sony), Pandora, Spotify, YouTube, etc.

1. What is Sony Music Entertainment’s business model and strategy? Assess the overall attractiveness of that strategy.

• In 2007, SME’s focus was on 1) finding promising new talent and 2) collecting more fans for its stars
• In 2009, change in strategy after SME became a wholly owned subsidiary of Sony Corporation. Focus was on lowering costs through increased efficiency, which the acquisition was envisioned to allow the company to work more effectively with the electronics, game and picture businesses.
• Creation of VEVO (music video licensor and aggregator) and Music Unlimited (cloud-based music streaming service)
• 2012: new CEO wanted to focus the company on its core business which was gaming, mobile products, digital imaging and curtailing the company’s diverse business portfolio and exiting the LCD TV market.
• Sony’s strategy to lower costs was effective in keeping the company afloat. At a time where the music industry was losing sales due to the decrease in physical album sales and shift to digital content and streaming services, Sony successfully followed the shift in the external environment and has their own streaming service and music video provider to ensure continuity and profitability of their business

1. Using the information provided in case Exhibits 3 and 4, what is your assessment of Sony Corporation’s financial condition in fiscal 2013? What would you report to Sony’s Board about the company’s financial condition from information provided in the case?
2. What are the driving forces in the digital music industry?

• The driving forces in the digital music industry is the new emerging Internet capabilities and applications, technological change and the changing buyer lifestyles and attitudes. The advancement of the Internet and technology changed how music is delivered to consumers and the forms of delivery available (i.e. portability of music and streaming through data and phones, digital download, streaming music and music videos, internet radios, live pay for performance through skype or facetime, etc.). Changes in the consumers’ attitudes and lifestyles is also a major driving force in the music industry as it moved the industry to provide access to music in a convenient and easy to access form. The move towards streaming music is due to consumers wanting more access to a large database of music on-the-go.

1. Identify in descending priority order, the top priority issues that Sony Music Entertainment’s Board should address?
2. What can you recommend to Sony’s Board to address the priorities that you have identified in Question 6 above?