Bmg Case Study Essay

CASE STUDY IV - Bmg Case Study Essay introduction. 3 BMG(A) 2824309 Which geographic market areas should be chosen for closer analysis? Introduction Bertelsmann Music Group, (BMG), is the global music division of Bertelsmann AG, a transnational media corporation founded in 1835, based in Gutersloh, Germany. Its headquarters are located in New York. BMG, established in 1987, is now one of the world’s biggest music companies with more than 200 record labels in 42 countries. It is also home to one of the industry’s foremost music distribution companies and one of the world’s largest music publishing companies.

According to Table 1 BMG is the world’s second record company in terms of global market share. Moreover Chart 1 shows that most of BMG revenues come from Europe and North America. Table 1: Global market shares of major players 2001 Vivendi Polygram Sony AOL Time Warner EMI BMG Market value % % % % % $ billion Australia 13 27 18 18 6 0. 7 Canada 20 13 24 10 8 1. 1 US 13 14 22 10 12 11. 2 Japan 13 18 7 14 8 7. 0 Germany 23 12 13 22 15 3. 0 UK 22 13 11 22 9 2. 4 France 32 25 13 19 11 2. 3 Netherlands 23 14 8 15 13 0. 7 Italy 19 16 17 15 24 0. 6

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Korea 10 5 4 5 5 0. 5 Sweden 20 19 13 26 22 0. 3 Taiwan 17 5 14 6 5 0. 3 Other countries – – – – – 5. 4 World 13 13 14 16 14 35. 5 {draw:frame} * {draw:frame} {draw:frame} {draw:frame} * {draw:frame} {draw:frame} {draw:frame} {draw:frame} {draw:frame} {draw:frame} Global Music Market Analysis {draw:frame} Table 2 – Recorded Music Sales 2008 (trade value) Chart 3 – Global digital revenue {draw:frame} Record companies are gradually changing their approach to do business as a response of a dramatic change in the way music is distributed and consumed.

Nowadays digital platforms account for around 20% of recorded music sales, up from 15% in 2007. Recorded music is facing the so called online and mobile revolution, generating more revenue in percentage terms through digital platforms than newspaper, magazine and film industries combined. Assessment of potential market After this brief analysis of the global music market it is now time to decide which geographic areas, and specifically countries, would be right to expand BMG’s business. I will therefore analyze these three countries: Brazil, China and India.

BRAZIL PEST ANALYSIS {text:list-item} {text:list-item} {text:list-item} {text:list-item} CHINA PEST ANALYSIS {text:list-item} {text:list-item} {text:list-item} {text:list-item} INDIA PEST ANALYSIS Economic Factors: The GDP (Purchasing Power Parity) is estimated at 2. 965 trillion U. S. dollars in the year 2007. The GDP per capita (PPP) was 2700 U. S. dollars as estimated in 2007. The GDP real growth rate in 2007 was 8. 7%. India has the third highest GDP in terms of purchasing power parity just ahead of Japan and behind U. S. and China.

Foreign direct investment rose in the fiscal year ended March 31 2007 to about $16 billion from just $5. 5 billion a year earlier. There is a continuous growth in per capita income; India’s per capita income is expected to reach 1000 dollars by the end of 2007-08 from 797 dollars in 2006-07. This will lead to higher buying power in the hands of Indian consumers. Social Factors: India is the second most populous nation in the world with an approximate population of over 1. 1billion people. This population is divided in the following age structure: 0-14 years – 31. %, 15-64 years – 63. 1% and 65 years and above – 5. 1%. Technological Factors: Internet adoption continues to grow in India as well as the telecom market. According to the Internet & Mobile Association of India (IAMAI), the low cost of broadband has helped increase Internet usage (3. 7% of the population in 2007). E-commerce and high demand for . in domain registrations are also factors for the increase in online users. Moreover sweeping reforms introduced by successive Indian governments over the last decade have dramatically changed the nature of telecommunications in the country.

The mobile sector has grown more than tenfold from 2001 to around 60 million subscribers by mid-2005. Music market characteristic Brazil: Sales tax 15% / 18%; import tax 16%. 75% of the market share is made by domestic repertoire. The market is characterized by many small independent record companies. Commercial piracy is still a huge problem in South America, reaching levels above 50% in every country. India: Sales tax 4% /12. 5%; import tax 17. 3%. Size of the music industry estimate at USD 149 million. On a conservative basis, the music industry has been pegged to grow at 3% over the next five years.

Till 1990, the music industry was completely dominated by film and devotional music. With the advent of satellite television and increasing consumer exposure to non-film albums and remixes have gained popularity recently. In the non-film category devotional music produced by smaller and local companies is the most popular. The Indian music industry is quite unique compared to those in other countries as it is virtually dependent on new Hindi (Bollywood) films for the lion’s share (40%) of its revenues.

In the film centric Indian Music industry, there is virtually no loyalty for labels among the segment that buys only film music. China: Sales tax 17%; import tax 17%. It is characterized by an undeveloped piracy-dominated physical market and a rapidly-developing wireless environment. Mobile music is already far advanced. For the international record companies operating in China, sales of music via mobile phones already accounts for about 15% of industry revenues. There are five legitimate digital music services in China and we forecast there will be many more setting up in the next few years.

In the past two years the volume of music made available online has increased more than six-fold to more than two million songs. Illegal sales of music are China is valued by IFPI at around US$400 million. Market Attractiveness Scaling Grid Relative Competitive Strength Scaling Grid C = China B = Brazil I = India Market Attractiveness/Competitive Strength Matrix {draw:frame} Word Counter 2. 104 References http://www. indianmi. org/ http://www. ifpi. org/ Hollensen, S. (2007), Global Marketing 4th Edition. UK: Pearson Education Limited

BMG Case Study Essay

Over the last couple of years, global music industry has witnessed a significant change in the market structure and consumer preferences - BMG Case Study Essay introduction. Rapid growth of internet era has established a new channel to access products and services online and has also redefined the role and structure of the middleman/distribution network. To be able to respond back to the digital music market (significantly different business model as compared to the traditional recorded music value chain), BMG will need a tailored distribution and promotional strategy.

Some of the key factors reflecting the unique needs of the digital music distribution model are: Reduced fixed cost to produce music will enable more music diversity (lower entry barrier for musicians) and a less skewed distribution of sales among artists. This will expand the promotional needs and would also require broader alliances with larger artist base. In case of the traditional distribution model, record companies used to off-load (or in some cases share) the consumer interfacing with brick-and-mortar retailers.

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For instance, focus area for BMG’s central distribution unit was to manage product shipments and strategic relationship with brick-and-mortar retailers. However the digital music distribution would require online advertisement models like search engine optimization and consumer behavioral tracking. Digital division will also have to focus on selection of appropriate technology platform with built-in security (digital right management) to prevent illegal copying. This is critical to avoid any negative impact on the publishing division’s copyright inventory and overall profitability.

In lieu of the above it’s critical for BMG to establish a separate distribution channel to cater to the unique demands of digital music industry. Another alternative of strengthening the existing “central distribution division” with phased transition to digital music format would loose the crucial first mover advantage. In one of the similar business situation, sales organization at Encyclopedia Britannica was among the most successful commission-oriented door-to-door distribution channel.

However, it had a difficult time transitioning to selling electronic-based encyclopedias. This had contributed to the loss of early advantage and caused significant market erosion To enable gain the early market share, BMG cannot afford to wait for a matured technology market. BMG’s digital division will have to forge alliances with major technology leaders for broad music format compatibility. At the same time it should continue monitor consumer response and music technology market developments and accordingly adjust its business model for music format support.

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