The recorded music retailing industry with particular reference to Australia
The Recorded Music Retailing Industry is a part of the Retail Trade Division in Australia which retails a wide range of recorded music products. Among these products are audio cassettes, CDs, music videos/DVDs, etc. Such products are purchased from domestic manufacturers and wholesalers which are then sold by the operators through their stores to the general public for private use. The primary activities of companies in this industry include audio cassette retailing, compact disc retailing, phonograph record retailing, video cassette and digital versatile disc retailing.
The Recorded Retailing Industry in Australia has ranked 367 out of the 496 in terms of industry turnover. The life cycle of this industry is in its mature stage which means it is growing in a rate as that of the economy. The intensity of labor and capital in this business is in medium level while the technology uptake is high due to advancements and the internet.
This paper takes a look on the status of the Australian music recorded retailing industry identifying its key strengths and weaknesses. The analysis presented herewith also gives an insight of the potential opportunities and threats for retailers in the music industry.
In terms of exports, the industry has a low level with about less than 5% of its turnover generated from exporting. The imports have a low level as well comprising of 5% in the domestic demand of the industry. The industry acquires a low and steady assistance from the government making the level of regulation in its medium level ( 2007)
This analysis presents the internal and the external factors that affect the business strategy of recorded music retailers. It includes the internal assessment of the functional processes by identifying the key strengths and opportunities. The key factors for success are presented along with the weaknesses and the threats in the industry.
Ø Strong Loyalty among customer base
Ø Maturity of the industry
Ø Slow scope
Ø Limited Customer Base
Ø Reliance on single distribution channel
Ø Widespread adoption of information and communication technologies
Ø Cost reducing technologies
Ø Growth of DVD sales and other products
Ø Music Piracy
Ø Growth in Illegal file sharing
Ø Rise in competition
The retailing industry has an advantage in terms of the consumer’s behavior. Traditional record shops are foreseen to stay despite the emergence of new means to purchase music. The market for electronically distributed music remains immature due to the unwillingness of the consumers to buy music over the internet (2001).
The recorded music retailing industry has been the traditional distribution channel in the music industry. Even as the internet has been popularly used for retailing, consumers are still reluctant to purchase products from the internet. However, retailers must not ignore the threat of technology not only in changing the value chain but also in introducing new ways to distribute music both legally and illegally.
The advantage with the use of a single channel is the guarantee of minimum level of sales and the attention to the products sold. By contrast, using multiple channels will lead to increased sales the potential for a wider distribution. Restricting the number of channels by which the products is sold also restricts the number of people who can come in contact with the products (2000). Hence, there is the need to develop channels through the internet.
The impact of technology in the recorded music retailing industry is twofold. For one, it provides means to develop systems and services for trading. As such, companies are able to generate knowledge of customer behaviors and preferences through their navigation of the website. This kind of information is important for companies as they are availed of the opportunity to understand the demands of the consumers. In order for the organization to understand the broader issues of the business environment, it is necessary to understand the buying behavior of the people. The internet serves as an effective platform for smaller companies to obtain a larger customer base and new business partners. In this era of technology, one will need to make strategic alliances and build relationships to grow their business. In this regard, the online networking can help to identify and connect to potential partners through virtual business development. Online networking allows businessmen to reach more people and consumers with relatively less effort. Obviously, they have the resources to benefit from all opportunities which the electronic trading may offer.
Aside from the opportunities offered by technological advancements, the retailing industry has also been boosted with the growth of DVD/video sales. Aside from the sales in music videos, DVD sales have shown a promise in the music retailing industry. For retailers, the proportion of the DVDs sold to CDs has increased from 10% to 20% in just a couple of years. In fact there has been much as a ten fold increase in the orders of DVD. Already, the music retail has become a part of the business for distributors of DVDs. Currently Australians are the highest video renters per head of capita throughout the globe while also being the lowest in terms of purchasing video products( 2007).
This though is not a problem for retailers since DVD has eight times greater conversion rate for selling as compared through VHS. Indeed, music retailers are more able to offer their consumers with the broad range of entertainment needs. In fact, the growth in the retail music market from $1.04 billion in 2002 to $1.09 billion in 2003 is attributed mainly to the huge sales increase of music video/DVD ( 2004).
However, retailers still face a bleak picture with the digital future. Within the next five years, it is predicted that 30% of the sales will be digital. This is one of the threats that continue to challenge the industry. The increase in competition in the music space by huge retailers such as the Kmart and the Big W along with the stronger Australian dollar will likely to encourage consumers to purchase from international e-tailers such as the Amazon.com. As a result, the sales potentials of the music retailers are narrowed. With this, they are more likely to turn into DVD’s and interactive games as most reinvent themselves as gathering places for fans through cafes( 2004).
Electronic trading may also alter the interaction between different players in the value chain. For instance, the producing company may take over the role of retailers and wholesalers. The transparency of terms and prices also gives the customers better alternatives which results to greater competition. With the recession of traditional in-store and distribution methods, it is likely that the internet will become the primary channel for distribution by recording companies. For example, the Bricks-and –mortar retail stores has been threatened with the digital landscape. The contract of Chaos to sell John Farnham albums online has provoked retailers to withdraw Farnham material from their retail stores (2002).
Another issue in the music industry is the perennial problem of music piracy. With piracy, we mean the deliberate infringement of copyright on commercial scale. It can be referred to the unauthorized copying of music ( 2001). With the advent of the internet, new forms of piracy have emerged. The internet constitutes the greatest challenge of combating illegal music as it provides new possibilities for it. Indeed, the retailing industry has suffered tremendously in the widespread Internet music file swapping.
The recorded music retailing industry has been slumped due to various external factors. One of which is the proliferation of piracy and file swapping which ahs decreased the sales and demand. While technology can provide a cost effective means for distribution, there are potential threats associated with it. It becomes more likely for recording companies to take the role of retailers and wholesalers through this channel. Also, digital sales may indicates the current trend for online music purchase. Whilst the retailing industry is threatened by such developments, its key competences can be used by retailers to survive the intensifying competition. Also, the increase in sales other than that of CDs implies the need to provide a broader range of entertainment needs for the consumers. Lastly, businesses can resort to strategic alliances through online networking to aid each other in growing their businesses.