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