Porter’s Five Forces Model and The Music Industry
Here we are going to apply various models of industry analysis and will be able to explain how the music industry has managed to evolve from physical sales right to digital downloads. In particular, we are going to apply Porter’s Five Forces model and will be able to examine the attractiveness of the music industry from the perspective and conception of recording companies and firms both before and after Napster’s entry.
No doubt, the music industry has evolved from physical sales to digital downloads. Here we are going to apply Porter’s Five Forces Model and will be able to examine the attractiveness of the industry from the perspective of recording companies both before and after Napster’s entry.
What are the elements of Porter’s five forces model for industry competitiveness?
Bargaining Power of Customers
Before Napster’s entry, the bargaining power of customers was high. They had limited options in their hands. That is why customers had a strong influence on the industry. For listening to music, they relied on CDs, Walkman and MP3 players only. Half of all Americans used to purchase CDs for music listening.
After Napster’s entry, the bargaining power of customers became low. This happened because of the developments in technology and resources. Customers started getting a range of choices in the form of music available online and also on mobile phones as well as other digital devices. As mentioned in the case study, Apple uses to distribute downloadable music from its iTunes store. Spotify, Amazon, Youtube Music and Sound Cloud made an entry.
Before Napster’s entry, limited numbers of record labels were there like Universal and Warner Bros, Sony Music Group Company and EMI limited. They used to distribute 88% of all music recorded. The competition scale was low and these major record labels used to get profited from economies of scale.
After Napster entry, we saw the arrival of the digital era. It affected the revenues of recording labels. We came to see and noticed that a large number of artists started to produce under their label and record companies. And eventually, the market share for each recording company consequently falls. Hence, after Napster’s entry, the music industry turned out to be more competitive at a surprising and alarming rate. This was possible because of inexpensive recording media, advanced music recording software and encouragement shown by budding artists.
Threat of Substitutes
Before the Napster entry, no one thought about the substitutes and consumers relied on CDs, Walkman and MPS players. They could not think of listening to and downloading music from an online platform.
But after Napster’s entry and with the arrival of the internet, consumers look for opportunities to purchase and stream music from several locations. Moreover, record companies had to work hard to keep their competitive advantage.
Threat of New Entrants
Before the Napster entry, consumers were used to and highly dependent on listening to music from CDs and Walkman and also MP3 players. They had a capacity of storing around and about 16 songs and their playing run time was up to 5 hours.
But after the Napster entry, we saw variations in the music streaming industry. Artists focused on making singles, they made their online channels. We see online music distribution stores. We have now Spotify, Sound Cloud, Amazon, and YouTube music for listening to and downloading music.
Bargaining Power of Suppliers
Before Napster’s entry, record labels used to have a large influence on any of the artist’s careers. A limited number of record labels was there and music artists relied on those labels so that their work can be released. In addition, mass merchandisers for distributing music, it was only Walmart and Target.
But after Napster’s entry, supplier power got reduced because of the arrival of the digital era. This way, it gave more control to the artists regarding the distribution of their music. On the other hand, the record labels had less power or control over the artist. The mass merchandising category included speciality and online stores as well for distributing music.
Examining The Industry Value Chain, And Identifying The Winners And Losers In The Music Industry As It Has Managed To Evolved
- Digital downloads in the music industry have turn out to be a winner.
- All digital formats that allow consumers to stream and own music, were winners.
- We have Apple Music and Spotify who are the true leaders in this music streaming industry.
- We have Amazon Music, Sound Cloud and YouTube who are taking this online streaming music industry by storm.
- We have other top players as well like Tencent holdings limited.
- Recorded music in the form of CDs and physical music units turned out to be losers. While buying a CD, a consumer had no choice but to buy a whole CD even if they wanted to hear a single song.
- Sony cassette tape playing Walkman was a failure and MP3 players were marked as a failure too as they had limited storage. These devices could only store 16 songs and their running time was 5 hours.
- Two major alliances happened in the music industry and they were a failure. Music consumers dismissed this alliance, it was about online music distribution sites.
Apple and the Music Industry Before streaming
Apple has changed the music industry on positive and strong notes. They created this hard drive music player iPod and beat all physical music units. iPod storing capacity was up to 1024 digital songs and this storing capacity was 21 times greater than MP3 players. They had their Apple iPod lounge website so that they can make a stronger connection with their customers. They kept on bringing variations in their iPod so that consumers’ music listening experience can get further enhanced like the iPod nano, iPod shuffle, and iPod mini. Hence, they widened their consumer choice and changed the music industry on great notes.
As we have also seen that iTunes has turned the whole and the entire world into focusing on cheap singles. They have allowed the consumers to get the songs that they only want. Furthermore, they have given this golden opportunity to consumers instantaneously by a single. For the reason that artists have started to focus and concentrate on creating hit singles as compared to the fact of making full albums.
That is all we have in this analysis based on Porter’s five forces model and the music industry.
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About the Author
Huma completed her MBA in marketing and finance from the Lahore School of Economics and MS in Management Sciences from the University of Lahore. She is in the content writing field since 2010 and writing lots of interesting pieces.