| STEP AnalysisThe STEP analysis of the Colorado | | | | rock, country, jazz, classical, traditional and other, and |
| Creative Music aims at analyzing macro-environmental | | | | have formal and reliable national and international |
| factors of the music business the company is | | | | channels of distribution. The examples of such |
| engaged into. These factors fall into political, | | | | companies are Columbia, Sony Music, EMI, GMG, |
| economical, social and technological groups (Pearce, | | | | Warner Brothers, Atlantic Records and some others. |
| Robinson, 2000).Political factors affecting music | | | | As the mater of fact, such companies are not |
| business in whole and CCM in particular: strong political | | | | numerous and their recording equipment is rather |
| stability in the United States; regulatory and legal issues | | | | expensive, amounting to no less that couple million |
| concerning music business including copyright laws for | | | | dollars, since these studios record music with analogue |
| copyright protection of both music writing and | | | | and not digital equipment, thus receiving |
| recording, copyright-related legislation touching upon the | | | | three-dimensional, saturated, rich sound, instead of |
| issue of virtual internet promotion and distribution, such | | | | correct but plain digital sound.Independent labels have |
| as The Audio Home Recording Act (1992), No | | | | 10-100 artists under contract, focus on recording of one |
| Electronic Theft (NET) Act (1997), "The Digital | | | | or two major music styles and have either national or |
| Performance Right in Sound Recordings Act | | | | most often regional distribution channels. Examples of |
| (DPRSRA) 1995, The Digital Millennium Copyright Act, | | | | independents are: Higher Octave, Metal Blade Records, |
| "Pending legislation: Music Online Competition Act and | | | | Rhino Records, WAR, Windhan Hill, Soundings of the |
| the Consumer Broadband and Digital Television | | | | Planet. Such companies are more numerous than |
| Protection Act (CBDTPA)" and others. Environmental | | | | first-rank companies and can use analogue equipment |
| regulations and employment requirement do not affect | | | | as well as digital. Generally, independent labels strive to |
| business CCM is engaged into. As for the tax policy, in | | | | grow into major ones, but for that they need to invest |
| 2000, from total income of $216,614.05 the company | | | | large amount of money into amelioration of their |
| had to pay $4,744,97 of taxes, which is not high rate | | | | equipment.Microlabels have less then 10 artists under |
| and amounts to nearly 2 percent from the total | | | | contract and are tightly focused on definite style of |
| income. In whole, it should be noticed that political | | | | music. They are characterized by small staff and |
| factors are favorable for music recording industry and | | | | manager performing as the leading artist of the studio. |
| for CCM particularly.Economic factors include indexes | | | | Microlabels have rarely formal distribution system and |
| in the macro economy that can affect music recording | | | | heavily rely on direct sales to fans and wholesale to |
| industry. Here also, macroeconomic factors, such as | | | | clubs and specialty retailers. On American market, |
| economic growth, interest rates and inflation rate are | | | | microlabels are presented with Etherian, Evol Egg Nart, |
| favorable for CCM. Thus, the U.S economy kept | | | | Cuneiform Records, CCM and a large number of |
| growing steadily since 1995. CPI falls down in 1997, | | | | others. Generally, such companies survive competition |
| 1998. Unemployment rate decreased gradually from | | | | due to low cost of digital recording.Vanity labels are |
| 1995 to 2000.Social factors, covering demographical | | | | the fourth, the last and the most specialized segment |
| and cultural aspects of the environment external to | | | | of the music recording industry. They are founded by |
| music recording industry are rate of population growth, | | | | independent artists for recording and selling their |
| age distribution and carrier attitudes. The population | | | | products. Examples of vanity labels are Bob |
| growth in the United States is steady and age | | | | Culbertson, Watson and Company, Lao Tizer, Esteban |
| distribution also favors the music recording industry. It | | | | Ramirez and many others. (Darren & Winn , 2003). At |
| should be noted that for music industry in whole, | | | | present, CCM is the microlabel that strives to convert |
| teenagers and 20-years-olds are primary customer | | | | into independent label.In the first place, the competition |
| segment, but CCM aims at attracting people of 40-60 | | | | among rivals is carried out on the basis of popularity of |
| age range. Thus, the considerable share of American | | | | the performer and songs recorded by their companies. |
| population fits this target market.Technological | | | | Recording studios intensively compete to attract |
| advancements in music recording, promotion and | | | | popular of promising artists to sign contracts with them. |
| distribution have several effects on the recording | | | | If the songs or artists are highly popular, price is |
| industry. One aspect of the issue is that musicians are | | | | secondary factor which may influence the competition. |
| no longer dependent on major recording labels to | | | | However, if the artist is lesser-known or songs |
| create or distribute their products. (Viljoen & Dann, | | | | recorded are not very popular, price does play role as |
| 2000) The MP3 software alternative to the CD | | | | the competition and strategy factor. In the distribution |
| becomes more popular since 1998. In the space | | | | process of the rivals, the particular importance is |
| traditional audio can fit 12 to 15 audio tracks; MP3 | | | | attached to getting access to traditional channels of |
| software can store approximately 150 music tracks. | | | | music distribution, such as retail musical stores, major |
| "The move towards MP3 as the new format to | | | | chain record stores, independent record stores and |
| replace CD just as the CD replaced vinyl albums have | | | | Internet distributors such as These means are very |
| been accelerated by the rush of new portable MP3 | | | | important for selling CDs of the artists apart from |
| players on the market - some for less than | | | | direct sales on their performances. Also, another |
| conventional Sony Discmans." (Viljoen & Dann 2000, p. | | | | factor that greatly influences CD sales is advertising of |
| 173). On the other hand, new digital technologies which | | | | songs and radio promotion and transmission.For CCM, |
| appeared in late 20 century not only facilitate the | | | | rivalry is by far the most important competitive |
| process of music recording, but make it considerably | | | | pressure source. The strong competition from rival |
| cheaper, providing the possibility for multiple firms with | | | | producers and sellers of music can be explained by |
| limited resources to enter the market. Thus, if in 1980s, | | | | the fact that the performers of CCM are not known |
| professional recording studio with all recording | | | | to the wide public in comparison with the artists of the |
| equipment, working on vinyl or tape carriers, cost | | | | first-tier and independent labels.The competitive threat |
| several million dollars and therefore was a domain of 5 | | | | of new entry, is, to the opposite, by far the weakest |
| or 6 major recording companies, in 2000, assembling | | | | competitive force, ranked between weak and |
| professional recording studio could be carried out at | | | | moderate. Barriers for entry are not high for the new |
| cost of only $5,000. All the equipment and hardware, | | | | producers of recorded music, especially those |
| due to the global advancements in technology, are | | | | targeting limited segment of the market and employing |
| much more affordable for an average artist or | | | | cheap digital technology of recording. CCM can serve |
| businessman.SWOT AnalysisStrengths* Cost | | | | the brightest example of such entry. Such cheap digital |
| advantages with new technology arising from the | | | | recording technology can be assembled nowadays for |
| digital revolution. Not only assembly of studio with all | | | | no more than $5,000. Still, expensive analogue |
| necessary equipment and hardware is cheaper, but | | | | technologies keep costing hundreds thousand or even |
| duplication of CDs, storage and shipping are less | | | | millions. The technology employed by the firm |
| expensive as well. Low cost of production, duplication | | | | automatically determines its resources and rank in the |
| (duplication of 500 CDs ranges from $1.90 to $3.63, | | | | music recording industry. Besides cost of the |
| duplication of 2000 CDs costs about one dollar per | | | | equipment, the main subject of the competition for |
| CD), shipping and storage makes the final product less | | | | new entrants will be distinct market share and sales |
| expensive and more affordable for the customers, | | | | volume. Considerable sales volume, in its turn, depends |
| thus widening the range and scope of the target | | | | on the ability of new entrants to attract famous, |
| market.* Positioning of CCM in a distinctive market | | | | popular or widely known performers and singers |
| niche. CCM is microlabel recording company which | | | | whose songs are able to get to the top of the |
| specializes on classic and traditional instrumental | | | | popularity charts. Given the fact that virtually all popular |
| music.* Growing customer base and customer loyalty | | | | artists have already signed contracts with major |
| within target group. Customer base growth due to | | | | recording studios, this is significant barrier for new |
| expansion of product lines (4 already, each year 2 | | | | entrants. Another important barrier is gaining |
| new product lines emerge), and geographical coverage | | | | considerable channel of distribution. Generally, large |
| of listeners.* Good customer service shown through | | | | distribution centers and music CD retailers are |
| the direct contact between Darren and his | | | | interested in selling the music of famous performers |
| fans.Weaknesses* No clear strategic vision: CCM | | | | and unwilling to accept the products of relatively |
| needs a long term vision which includes all areas of the | | | | unknown artists. For the CCM, the threat of new entry |
| business, from marketing and management to | | | | is not very strong, since the company targets rather |
| distribution and human resources. At the moment the | | | | narrow market segment. Though, if the new entrant |
| company faces a dilemma of further strategic | | | | uses the same recording technologies, distribution |
| development, which will be focused on either | | | | channels and targets the same niche in the market, the |
| enhancing or developing the recording company or | | | | fact may become an issue of major |
| more active promotion and distribution of the products | | | | importance.Competition from substitute products can |
| through the possibilities of other companies (the | | | | be considered moderate competitive force in the |
| company is currently regarded by its management as | | | | music industry. Such substitute products are be |
| potential object of acquisition or investment)* | | | | presented in the form of providing consumers with |
| Competitive disadvantages: CCM are not able to enter | | | | possibility to listen music with other that CD means |
| the retail market due to its current level of sales. | | | | such as radio, cable TV music channels, live concerts, |
| Competitors such as major labels have advantage | | | | local bars or night clubs with live performances or |
| because they have major market power and | | | | recorded music, and internet. Internet has become by |
| influence. Such firms can specify when their music | | | | far the most important and strong substitute to |
| should be played on radio and negotiate large | | | | traditional buying CD, since music provided on the web |
| contracts with distributors and retail outlets, hence | | | | is most often cheaper or completely free and is not |
| giving themselves broader appeal.* Limited channels of | | | | much inferior in quality than .wma format of CDs. |
| distribution: at present moment the company heavily | | | | Therefore, for certain amount of people these means |
| relies on such distribution sources as direct sales, which | | | | serve as effective substitutes, but for music fan, |
| include sales at the gig, shopping mall distribution and | | | | buying official CD is obligatory. In the case of Colorado |
| sales in the back end (800 number order, website | | | | Creative Music, people can enjoy the performance on |
| order processing and mail orders). These channels are | | | | live concerts of these artists and decide not to buy |
| major sources of profit for the company. | | | | their CD. Therefore, from CCM's viewpoint, this may |
| Nevertheless, to expand its consumer base, the | | | | be regarded as fairly significant competitive force.The |
| company needs to acquire formal distribution channels, | | | | forces left are bargaining power of suppliers and |
| such as sales through traditional music distribution | | | | bargaining power of buyers and collaborative buyer |
| networks and others.* CCM is short in financial | | | | seller relations, which are both strong competitive |
| resources to pursue new opportunities. Profits are thin, | | | | force.The first, bargaining power of suppliers depends |
| meaning new opportunities may be unobtainable and | | | | on the popularity and reputation of artists. Those who |
| long term improvements may not be afforded due to | | | | are popular and whose recordings sell well, have |
| initial costs. To conclude a contract with major labels, | | | | strong bargaining power, they can chose among |
| which would provide the company with the access to | | | | numerous recording studios. CCM specializes on |
| traditional product distribution, the firm needs to sale at | | | | recordings of infamous artists, and therefore it enjoys |
| least 15,000 copies of its products per year. From the | | | | weak bargaining power, since artists involved with |
| other hand, high sales numbers are impossible to obtain | | | | CCM do not have many alternatives for studio record |
| without good traditional distribution channels.* CCM is | | | | and CD distribution.Bargaining power of buyers and |
| losing ground to larger firms because of limited | | | | collaborative buyer-seller relations is very strong |
| exposure. CCM at present does not reach global or | | | | competitive force. The major distributors of recorded |
| national audience like independents and major labels. | | | | music supply CDs to the leading music stores and |
| CCM needs to broaden its reach and widen its | | | | other retailers of music, these leading distributors stock |
| customer base.Opportunities* Serving additional | | | | about 40,000 copies of a CD and work on 60-90 |
| customer groups by expanding co-operation with other | | | | working schedule retaining the privilege of full return of |
| artists and enlarging the Acoustictherapy and other | | | | investments for the unsold copies. So called |
| product lines with new marketing strategies.* Internet | | | | "one-stops" are distributors which provide products for |
| through expanding e-commerce and releasing MP3s.* | | | | the independent music stores in smaller quantities and |
| Expanding sales nation wide.* Acquiring channels of | | | | very often with limited range of music types. Generally |
| traditional distribution to reach wider customer base | | | | such distributors prefer to handle stock CDs of the |
| exposure* Developing new technologies to cope with | | | | very popular artists or at least well-known artists and |
| the driving forces of the industry.* Releasing | | | | often they are not interested in going into distribution of |
| compilations with other artists has proven popular. One | | | | CDs of unknown performers. Therefore, CCM faces |
| strategy could be to assembly the songs (such as | | | | great difficulty in acquiring decent and formal |
| Accoustictherapy) at the studio, and sell the completed | | | | distribution, especially in getting its products sold by |
| disks at a discounted rate back to the performing | | | | such music stores as Sam Goody, Tower Records, |
| artists in their hometowns. This method would cover | | | | Borders Books and Music, and Barnes and Noble.Also, |
| the costs up front and give the players a financial | | | | a great role in the distribution process is played by |
| incentive to push the product.* Pushing sales into | | | | getting the music heard by people so that they would |
| non-traditional areas such as weddings, shopping | | | | be more willing to buy the CDs. This includes playing |
| center music etc.Threats* High number of new | | | | the music on the radio stations, on TV music channels |
| entrants and growth of other smaller labels due to the | | | | and including soundtracks into movies. Until the |
| digital revolution. In addition, major labels or independent | | | | performers and artists of CCM become so famous |
| labels could decide to enter into CCM's domestic | | | | that they are asked for in retail music stores, the |
| markets and try to drive the smaller labels out of the | | | | company has little chances to receive considerable |
| market.* Lose sales to substitute products like mp3s or | | | | representation by major CD distributors. The manager |
| internet downloads* Vulnerability to industry's driving | | | | of the company, Darren Skanson, has contacted |
| forces because of CCM's weak position in its industry, | | | | some retailers on his own and found out that it is very |
| taking into consideration the fact that the company | | | | time-consuming and onerous task to get his CDs |
| occupies microlabel segment of the market and is | | | | distributed by retailers in his own local area. The people |
| profitable primarily due to the low costs of digital | | | | he hired to tackle the problem had little luck either. |
| recording.Five Forces Model of CompetitionMichael | | | | CCM has had some experience of selling the CDs |
| Porter's model of competition (Porter, 1980), if applied | | | | through one-stop distributor, but it was not very |
| to music recoding industry, comprises the following | | | | successful due to high markup imposed by the |
| components: Rivalry among sellers of recorded music | | | | distributor on the CDs of CCM. In the long run, Darren |
| (competition for better market position and competitive | | | | plans to make his product lines such as Darren Curtis |
| advantage); artists and other suppliers of music to | | | | Skanson, Music for Candles and other artists, popular |
| producers or sellers of recorded music; distributors, | | | | enough to have their CD distributed through major |
| retailers and individual customers of the music; | | | | music stores. But at the present moment, predominant |
| competitive pressure coming from substitutes of | | | | part of CCM sales volume stems from direct sales |
| recorded music towards winning customers; and threat | | | | such as sales at the gig, shopping mall distribution and |
| of new entrants to the industry of recorded | | | | internet, mail and telephone orders of the musicians' |
| music.Perhaps, the strongest competitive force | | | | CDs.Anastasia Kurdina is a person of manifold gifts. |
| belongs to such factor as Rivalry among producers | | | | Almost every her writing is followed by lavish |
| and sellers of music products. The music recording | | | | testimonials from satisfied customers. Anastasia |
| industry has 4 clearly identifiable segments: major | | | | specializes in marketing, management, world cultures, |
| recording studios, independent labels, microlabels and | | | | and art. Anastasia is not an essay writer in a common |
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