British Phonographic Industry: Structure and Competition

British Phonographic Industry: Structure and Competition Olivia Boachie Business Economics and Industrial Organisation The following analysis attempts to assess the structure and sources of competitive pressure in the British Phonographic Industry using Porters five forces framework model, and how the advent of the internet has affected the structure and performance of the industry. Michael Porter’s Five-Forces model of the music industry Michael Porter’s Five-Forces framework model recognises the economic forces that affect industry profits. The five forces are: Internal rivalry, Entry, Substitutes and complements, Supplier power and Buyer power. These forces may affect and abolish the revenues of current businesses. The five forces framework is a business study and industry strategy improvement instrument which lets marketers eventually generate stakeholder value through industry events. The key factors of appeal are the demand and supply of products in the market, quantity of entrants presently in the market and their strengths and weaknesses. In response to the essay question, the British Phonographic Industry will be examined critically through each of the five forces. A graphical representation of Porter’s Framework is shown below: British Phonographic Industry â€Å"BPI (British Phonographic Industry) represents the UK’s recorded music industry, which is one of the most exciting and thriving music sectors in the world. British artists account for one in eight albums purchased by fans around the globe† (http://www.bpi.co.uk/about-bpi.aspx). BPI co-owns the Official Charts Company in â€Å"a joint venture with the Entertainment Retails Association (ERA). The Official Charts Company is responsible for the commissioning, distribution, marketing and promotion of the UK’s industry standard music and video charts and sales data. BPI also maintains the industry standard for certifying Gold, Silver and Platinum sales awards† (http://www.bpi.co.uk/about-bpi.aspx). There are three major record companies within the British Phonographic Industry which are: Warner Music UK, Sony Music Entertainment UK and Universal Music UK. Internal Rivalry Internal Rivalry refers to the jockeying for shares by firms within a market. It is fierce if competition drives prices towards costs. This is more likely when there are many firms, products are perceived to be homogeneous, consumers are motivated and able to shop around, prices may be set secretly, sales orders are large and received infrequently and the industry has excess capacity. The UK music business has been contested for by three big recording studios for years. There is severe rivalry amongst these recording studios; their market shares continued to be steady for years as new opposition hardly went into the market due to great entry barriers. The music industry is booming when associating online and offline sales collectively. The product distinction attainable in the music business is very low due to all types of music being approximately the same. The diversity could be attained through the setups of music delivered such as CD’s and online formats such as MP3’s. Downloading is now becoming more common than the constant visits to the music stores, the music business has unremittingly decreased the amount of stores and fixated on emerging an online approach. Through doing this they have been successful at reducing high fixed costs including store rentals and incomes of a high number of store employees which has assisted with their margins. In terms of competitive pressure, the music industry can be thought to be extremely competitive due to predictions of the music boom which started in the 1990s. Due to more talent coming out through shows such as X-factor, Britain’s Got Talent and the Voice in the UK, potential performers are now being presented in the music industry. Entry The threat of entrants is another force that determines the industry’s competitive pressure. If â€Å"new entrants move into an industry they will gain market share and rivalry will intensify† (http://www.tutor2u.net/business/strategy/porter_five_forces.htm). The position of existing firms is tougher if there are barriers to entering the market. If barriers to entering the industry are low then the threat of new entrants will be high and if the barriers to entry are high then the threat of new entrants will be low. Barriers to entry are very significant in determining the threat of new entrants. An industry can have more than one barrier. The following are well-known examples of effective barriers: Access to suppliers and distribution channels Product differentiation Economies of scale available to existing firms The selection of a gifted artist and turning them into a success involves skilled use of advertising, talent supervision and investment. Recognised music labels devote a lot to undertaking appearance improvement campaigns, and experiment with advertising before the artist’s work is free for the public to see. These particular parts require professional abilities and involve having money. Substitutes and Complements Substitutes wear down profits in the same way as competitors entering the market by stealing business and increasing internal rivalry. Complements boost the demand for the product in question; thereby improving profit chances for the industry. In the music business, the alternatives for music purchases or downloads can be recognised to be plagiarised music downloads online and Radio stations that play music 24 hours. Plagiarised music websites which offer music for free are the distinguishable alternatives for the music industry. The consumer having a choice of whether or not to buy music or to download it continues to be a fight in their mind. So the risk of this alternative is very high. Music such as those on Jango or Napster allows consumers to listen to songs an unrestricted number of times without the need to purchase them. While they don’t obtain the luxury of downloading music for free and listening to the songs on the move, it can still be seen as an alternative as it permits for the entertainment of consumers. When it comes to TV and Radio music stations, the necessities for setting up those services such as TV set boxes and regular subscriptions are fairly costly in comparison to the price of an album. But with other facilities such as the ability to record channels and the choice of other stations on offer, they may have chosen the better option when compared to a music album. Supplier Power If a firms suppliers â€Å"have bargaining power they will exercise that power, sell their products at a higher price and squeeze industry profits† (http://www.tutor2u.net/business/strategy/porter_five_forces.htm). If the supplier drives up the price paid for inputs, revenues will be condensed. Suppliers find themselves in an influential position when there are only a few suppliers, the resource they supply is scarce, there are no or few substitute resources, the product is easy to differentiate and faithful consumers are unwilling to switch. The bargaining powers of performers are high as it is believed that the voice and skill of each performer is distinctive and cannot be replaced. Buyer Power Buyer power is analogous to supplier power. â€Å"It refers to the ability of individual customers to negotiate purchase prices that extract profits from sellers† (Economics of strategy 6th edition, David Besanko). â€Å"Buyers have indirect power in competitive markets, and the price they pay will depend on the forces of supply and demand. The willingness of consumers to shop for the best price could instead be considered a source of internal rivalry, not indirect buyer power. When buyers are focused, or suppliers have made relationship-specific investments, buyers may exert direct power† (Economics of strategy 6th edition, David Besanko). Buyers then demand lower prices when suppliers are thriving and accepting higher prices when suppliers are struggling. The consumers for the UK music business can be either individual or corporate. Corporate consumers in the music business contain online and offline traders who buy albums in large quantities from the music label. Stores included could be HMV and Game and online music stores which include stores such as iTunes and AmazonMP3. The negotiating power of the corporate consumers can be assumed to be low due to prices being settled amongst them and the labels at the time of signing the contract. Advent of the Internet I will now analyse how the advent of the internet has affected the structure and performance of the music industry. The Internet is â€Å"a global computer network providing a variety of information and communication facilities, consisting of interconnected networks using standardized communication protocols† (http://www.oxforddictionaries.com/definition/english/Internet). The structural attractiveness of the UK music industry is determined by five underlying forces of competition. These include: The intensity of rivalry among existing competitors, the barriers to entry for new competitors, the threat of substitute products or service, the bargaining power of suppliers, and the bargaining power of the buyers. Below are points under each of the forces on how the internet influences the music industry which are taken from Michael. E Porter’s Competitive strategy free press, 1980. Rivalry among existing competitors The Internet has enlarged the amount of competitors in the music industry and decreased the significance of geographic boundaries. â€Å"There is increased rivalry because companies have a stake to succeed with use of the Internet. Rivalry increases when there is less differentiation between products. There is highly intense competition due to the Internet becoming an online platform for commercial use† (www.ukessays.com). Barriers to entry for new competitors The internet has decreased the fixed costs needed for a business to get to their end users. Most record labels find it easier to launch online ventures since they are positive about brand loyalty and trust. Threat of substitute products or services The internet has assisted in increasing the pressure from alternative products, as it may increase the diversity of products available to consumers. This can be done by customers being able to now purchase CD’s online or download songs for free. Bargaining power of the suppliers â€Å"The internet offers a channel for suppliers to reach end users, decreasing the power of intervening companies† (Michael. E Porter’s Competitive strategy free press, 1980). Procurement and digital markets tend to give companies equal access to suppliers and to standardised products that decrease variation. Buyers bargaining power of channels and end users â€Å"Moves bargaining power to end customers† (Michael. E Porter’s Competitive strategy free press, 1980). The customers have the bargaining power as they have the choice to either purchase CD’s from a store or download the songs for free online. From the analysis above, it is assumed that the UK music business is booming. The music industry is conquered by three big companies who have been around for a number of years and who operate great shares of the market. Applying Porters five forces framework is tremendously significant in industry analysis as it allows businesses to understand the overall attractiveness of the industry itself. However, one could say that the advent of the internet has affected the sales of CD’s. The need to purchase a CD with one song on it is no longer a necessity as you can just download the song from the internet. â€Å"Music piracy online is quite widespread, which affects artists and record labels profits. Anybody that has an internet connection can find illegal music downloads anywhere. Unsurprisingly the labels lose more money than the artists since the label keeps the majority of the money and the artist only sees a small percentage. It is now easier for artists to self-promote and se lf -release nowadays with all the opportunities for advertising and promoting online. Therefore, it could be said that the advent of the internet has decreased the music industry’s performance. References About The BPI. (n.d.). Retrieved March 20th, 2014, from The British Recorded Music Industry: http://www.bpi.co.uk/about-bpi.aspx Answers. (n.d.). Retrieved March 21st, 2014, from wiki.answers.com: wiki.answers.com David Besanko, D. D. (n.d.). Economics of Strategy. John Wiley. Illangakoon, S. (2010, November 5th). Porters Five Forces analysis for music industry. Retrieved March 17th, 2014, from Assignment help series: http://assignmenthelpseries9.blogspot.co.uk/ Internet. (n.d.). Retrieved March 21st, 2014, from Oxford Dictionaries Language Matters: http://www.oxforddictionaries.com/definition/english/Internet Our Work. (n.d.). Retrieved March 20th, 2014, from British Phonographic Industry: http://www.bpi.co.uk/our-work.aspx Porter, M. (1980). Competitive Strategy. Riley, J. (2012, September 23rd). Overview of the five forces model. Retrieved March 18th, 2014, from tutor2u: http://www.tutor2u.net/business/strategy/porter_five_forces.htm The UK expert provider of custom essays. (n.d.). Retrieved March 15th, 2014, from ukessays.com: http://www.ukessays.com/essays/information-technology/the-internet-on-the-macro-environment-information-technology-essay.php Business Organisation And Environment: Mcdonalds Business Organisation And Environment: Mcdonalds There are 2 types of business environment, namely internal environment and external environment. Internal environment is also known as controllable environment. The internal environment of McDonalds includes the following: Aim The aim of McDonalds is to be the best fast service restaurant experience. Marketing The marketing of McDonalds is very large. McDonalds was one of the eight corporate sponsors of Millennium Dome Experience. It invested  £8 million in the Domes community programme and learning experience. Besides that, McDonalds is also a major sponsor of the World Cup since 1994 and the Champions League from 1996 to 2000. McDonalds also sponsors British athletics since 1993 and formed the McDonalds Young Athletes League to train 11 to 17 years old teenagers. Moreover, McDonalds sponsors Child Safety Week since 1994. Management McDonalds also has a good management for their business. Such as, they have high recruitment standards. They care about the skills, talents and performance of their staffs. They also consider gender, marital status, disability, race and nationality when recruiting. McDonalds also provides a safe and secure working environment. All staffs will have opportunities for training and development. Moreover, McDonalds provides education of staff matters for their staffs. They have a good communication with their staffs. The pay of the staffs at McDonalds reflects their working performance. Besides that, over 40% of McDonalds managers started as hourly-paid staff members in the restaurant. McDonalds motivates their staffs by giving them free meals. They will also have paid holidays. The staffs will get free life assurance and the value is dependent upon their service. Those employees that are 19 years old or older with 3 years service with get private health care from McDonalds. Besides that, McDonalds has a sponsorship programme for their staffs. The employees of McDonalds will also get an employee discount card. There are also service awards for those employees with 3, 5,10,15,20 and 25 years of service. All employees will also get a stakeholder pension from McDonalds. Production McDonalds has their production of foods. There are five main ingredients for food, like beef, chicken, bread, potatoes and milk. The Big Mac is one the basic food offered by McDonalds. Moreover, McChicken is also known as chicken sandwich and McNuggets is also known as chicken nuggets which are products of McDonalds. McDonalds also serves desserts such as the McFlurry ice-cream. Moving on, the following shows the external environment (uncontrollable environment) of McDonalds: Political McDonalds is highly influenced by the policies set by the government of the various countries it operates in. For example, in the country of India, the local religious law restricts its residents from eating beef, thus it is considered an insult to have beef in the local McDonalds menu. In order to obtain the license to open a fast food restaurant, McDonalds has to obey the business regulations implemented by the local government. To succeed in the foreign market, McDonalds has to act according to the markets rules and regulations, and create a good relationship with the government by obeying the markets tax obligations and any environmental laws. Economic The markets economy has an impact on the branches and franchises of McDonalds. A weak economy would influence the customers buying power which would in turn affect the general sales of McDonalds. McDonalds imports most of its material as the local market cannot provide materials in abundance to meet the demands of the market. Inflation or changes in the exchange rate of the market would affect the operations of the company. A rise in the exchange rate of currencies would increase the cost of purchasing. Socio-Cultural Every country has a unique culture. McDonalds has to create a menu that is suitable to the local taste and culture. For example, the Hindu residents of India do not take beef, Muslim countries do not take pork and only consume halal food, Asian countries like to eat rice, Chinese likes to associate their meals with good fortune such as prosperity, and Americans eat big-sized meals. Additionally, the development of technology creates the need for better services and convenience for customers. For instance, McDonalds should provide wireless internet services and allow credit card payments at their stores. Technological McDonalds uses technological means for a variety of things. For example, television advertisements are used for marketing. Customers can order by phone for a delivery to be made. Besides that, in Singapore, McDonalds accepts EZ-link card payments as a means of convenience for customers. Moreover, the advancement in internet technologies allows McDonalds to implement web-based ordering and online payment. Legal McDonalds has to follow many regulations in order to be legally allowed to operate its business, for example, business registration, tax requirements, and employment laws. Besides that, McDonalds also has to acquire a halal certification in order to get Muslim customers. Environment As McDonalds serves millions of customers per day, it needs a large supply of materials. The large amount of animals slaughtered to create a supply for McDonalds is frequently criticised by world environmentalists. In addition, forests have been lost due to large scale plantation. Before using paper packaging, McDonalds used Styrofoam based packaging for its products, which is hard to recycle. Organisation structure McDonalds is a fast food franchising company and its success comes from its various franchisees all over the world. About 70% of McDonalds worldwide restaurants are run by independent businessmen and businesswomen. A franchise is a business licensed to use the name, logo and expertise of an existing, well-known business (123helpme.com n.d.). McDonalds provides licenses to the markets local operators to start a McDonalds restaurant. McDonalds may take away the license if the franchisee fails to meet the franchise agreement or requirement. All of McDonalds restaurants have a flat structure. A manager controls all the employees and makes all the decisions. This allows the staffs to only carry out their simple routine works such as selling and serving customers. On the other hand, the McDonalds corporation has a tall and complex structure. The corporation is highly formalized, has a limited information network, is centralised and has extensive departmentalisation. The departmentalisation of McDonalds is structured along functional lines. The various departments in McDonalds are operations, development, finance, marketing, and human resource. Operations The operations department of McDonalds controls the equipment and franchising of restaurants. They ensure that the franchisees are following the agreements set by the McDonalds corporation. They provide support for the franchisees in all aspects of the business. All in all, they make certain that the business of McDonalds runs smoothly. Development The development department plans and manufactures products. They ensure that the products made are up to the qualities set by the corporation. Besides that, they also develop new products for McDonalds. Finance The finance department keeps record of the profits of the company. They keep account on all the transactions done by the company. They also pay the salaries of the employees. They keep track of how the business is doing. Marketing The main role of the marketing department is to attract new customers. They organise advertisements and promotions. Moreover, they cooperate with the development department to ensure that the design, quality and price of a product are what the consumer wants. Human Resource The human resource department recruits and appoints all new staffs. They handle the affairs of all employees which include retirement, dismissal and etc. They employ quality staffs and motivate them to do their best. Culture in Society Cultures in societies are affecting the organization. An organization will change its way or structure to adapt to the culture in the society. It might also change the communication style with its customers in order to stay in business. In other words, McDonalds must understand that they must make their organization structure compatible with the various cultures in societies. Otherwise, the amount of customers will reduce when the organization does not adapt to the markets culture, or goes against it. When there are less customers, McDonalds will not have enough income and motivation to continue running their business. Culture of Religion Halal is a term designating any object or an action which is permissible to use or engage in, according to Islamic law.'(wikipedia) When someone wants to operate a McDonalds restaurant, they have to consider about religion issues such as Halal in certain countries, for example Islamic countries like Malaysia, Pakistan, Iran, Sri Langka and so on. McDonalds have to comply with the regulations given by the government and the culture of the residents. Therefore in these Islamic countries, McDonalds have to provide Halal food due to the large population of Muslim and Arab people to run the business successfully. However, Halal issues are not only applicable in Islamic countries, there is also an exceptionally large number of Muslims and Arabs in non-Muslim countries like in Dearborn (Michigan, United States). McDonalds have introduced Halal chicken nuggets there. Culture of Food Different countries might have different food cultures. It will affect the food menu of McDonalds as well. In order to expand the business, or to increase the income, McDonalds has to do research on the food culture of the markets residents. Only foods that adhere to their food culture are able to attract more local customers. For example, at German, McDonalds serves beer. In India, there is no Big Mac because Indians do not consume beef. However, they do have a Maharaja Mac which contains lamb or chicken meat instead of beef. They also provide a vegetarian burger named McAloo Tikki, since a certain amount of Indians are vegetarians. Besides that, for rice-loving Chinese in countries like Hong Kong, Taiwan and Singapore, McDonalds introduced rice burger. In other words, McDonalds will modify their menu according to the food culture of the local customers so that they would be able to earn more customers as well as income. Culture of Social Women are also affecting the income of McDonalds. As there are more and more women that work nowadays, most of them will have less time to spend in the kitchen to cook for their family. The job of preparing a meal will fall onto their parents or even their husband, but they often choose to eat fast food. Therefore, McDonalds has become one of the places for these families to have their meal. This has directly increased the income of McDonalds. There are many more cultures in societies that affect McDonalds, it must clearly know the change of the culture in order to keep its business updated. If there are no customers due to the structure of the organization which is against the customers culture, McDonalds will not have the motivation to run its business in that market. The reason McDonalds run successfully is because it able to adapt with the local culture of the market. It also structures its internal environment well and has a good reaction to the external environments.