Colorado Creative Music Case Study Part 2

STEP AnalysisThe STEP analysis of the Coloradohave formal and reliable national and international
Creative Music aims at analyzing macro-environmentalchannels of distribution. The examples of such
factors of the music business the company iscompanies are Columbia, Sony Music, EMI, GMG,
engaged into. These factors fall into political,Warner Brothers, Atlantic Records and some others.
economical, social and technological groups (Pearce,As the mater of fact, such companies are not
Robinson, 2000).Political factors affecting musicnumerous and their recording equipment is rather
business in whole and CCM in particular: strong politicalexpensive, amounting to no less that couple million
stability in the United States; regulatory and legaldollars, since these studios record music with
issues concerning music business including copyrightanalogue and not digital equipment, thus receiving
laws for copyright protection of both music writingthree-dimensional, saturated, rich sound, instead of
and recording, copyright-related legislation touchingcorrect but plain digital sound.Independent labels have
upon the issue of virtual internet promotion and10-100 artists under contract, focus on recording of
distribution, such as The Audio Home Recording Actone or two major music styles and have either
(1992), No Electronic Theft (NET) Act (1997), "Thenational or most often regional distribution channels.
Digital Performance Right in Sound Recordings ActExamples of independents are: Higher Octave, Metal
(DPRSRA) 1995, The Digital Millennium Copyright Act,Blade Records, Rhino Records, WAR, Windhan Hill,
"Pending legislation: Music Online Competition Act andSoundings of the Planet. Such companies are more
the Consumer Broadband and Digital Televisionnumerous than first-rank companies and can use
Protection Act (CBDTPA)" and others. Environmentalanalogue equipment as well as digital. Generally,
regulations and employment requirement do notindependent labels strive to grow into major ones,
affect business CCM is engaged into. As for the taxbut for that they need to invest large amount of
policy, in 2000, from total income of $216,614.05 themoney into amelioration of their equipment.Microlabels
company had to pay $4,744,97 of taxes, which ishave less then 10 artists under contract and are
not high rate and amounts to nearly 2 percent fromtightly focused on definite style of music. They are
the total income. In whole, it should be noticed thatcharacterized by small staff and manager performing
political factors are favorable for music recordingas the leading artist of the studio. Microlabels have
industry and for CCM particularly.Economic factorsrarely formal distribution system and heavily rely on
include indexes in the macro economy that candirect sales to fans and wholesale to clubs and
affect music recording industry. Here also,specialty retailers. On American market, microlabels
macroeconomic factors, such as economic growth,are presented with Etherian, Evol Egg Nart,
interest rates and inflation rate are favorable forCuneiform Records, CCM and a large number of
CCM. Thus, the U.S economy kept growing steadilyothers. Generally, such companies survive competition
since 1995. CPI falls down in 1997, 1998.due to low cost of digital recording.Vanity labels are
Unemployment rate decreased gradually from 1995the fourth, the last and the most specialized segment
to 2000.Social factors, covering demographical andof the music recording industry. They are founded by
cultural aspects of the environment external to musicindependent artists for recording and selling their
recording industry are rate of population growth, ageproducts. Examples of vanity labels are Bob
distribution and carrier attitudes. The populationCulbertson, Watson and Company, Lao Tizer,
growth in the United States is steady and ageEsteban Ramirez and many others. (Darren & Winn ,
distribution also favors the music recording industry. It2003). At present, CCM is the microlabel that strives
should be noted that for music industry in whole,to convert into independent label.In the first place,
teenagers and 20-years-olds are primary customerthe competition among rivals is carried out on the
segment, but CCM aims at attracting people of 40-60basis of popularity of the performer and songs
age range. Thus, the considerable share of Americanrecorded by their companies. Recording studios
population fits this target market.Technologicalintensively compete to attract popular of promising
advancements in music recording, promotion andartists to sign contracts with them. If the songs or
distribution have several effects on the recordingartists are highly popular, price is secondary factor
industry. One aspect of the issue is that musicianswhich may influence the competition. However, if the
are no longer dependent on major recording labels toartist is lesser-known or songs recorded are not very
create or distribute their products. (Viljoen & Dann,popular, price does play role as the competition and
2000) The MP3 software alternative to the CDstrategy factor. In the distribution process of the
becomes more popular since 1998. In the spacerivals, the particular importance is attached to getting
traditional audio can fit 12 to 15 audio tracks; MP3access to traditional channels of music distribution,
software can store approximately 150 music tracks.such as retail musical stores, major chain record
"The move towards MP3 as the new format tostores, independent record stores and Internet
replace CD just as the CD replaced vinyl albums havedistributors such as These means are very important
been accelerated by the rush of new portable MP3for selling CDs of the artists apart from direct sales
players on the market - some for less thanon their performances. Also, another factor that
conventional Sony Discmans." (Viljoen & Dann 2000,greatly influences CD sales is advertising of songs and
p. 173). On the other hand, new digital technologiesradio promotion and transmission.For CCM, rivalry is
which appeared in late 20 century not only facilitateby far the most important competitive pressure
the process of music recording, but make itsource. The strong competition from rival producers
considerably cheaper, providing the possibility forand sellers of music can be explained by the fact
multiple firms with limited resources to enter thethat the performers of CCM are not known to the
market. Thus, if in 1980s, professional recordingwide public in comparison with the artists of the
studio with all recording equipment, working on vinylfirst-tier and independent labels.The competitive
or tape carriers, cost several million dollars andthreat of new entry, is, to the opposite, by far the
therefore was a domain of 5 or 6 major recordingweakest competitive force, ranked between weak
companies, in 2000, assembling professional recordingand moderate. Barriers for entry are not high for the
studio could be carried out at cost of only $5,000. Allnew producers of recorded music, especially those
the equipment and hardware, due to the globaltargeting limited segment of the market and
advancements in technology, are much moreemploying cheap digital technology of recording. CCM
affordable for an average artist orcan serve the brightest example of such entry. Such
businessman.SWOT AnalysisStrengths* Costcheap digital recording technology can be assembled
advantages with new technology arising from thenowadays for no more than $5,000. Still, expensive
digital revolution. Not only assembly of studio with allanalogue technologies keep costing hundreds
necessary equipment and hardware is cheaper, butthousand or even millions. The technology employed
duplication of CDs, storage and shipping are lessby the firm automatically determines its resources
expensive as well. Low cost of production, duplicationand rank in the music recording industry. Besides cost
(duplication of 500 CDs ranges from $1.90 to $3.63,of the equipment, the main subject of the
duplication of 2000 CDs costs about one dollar percompetition for new entrants will be distinct market
CD), shipping and storage makes the final productshare and sales volume. Considerable sales volume, in
less expensive and more affordable for theits turn, depends on the ability of new entrants to
customers, thus widening the range and scope of theattract famous, popular or widely known performers
target market.* Positioning of CCM in a distinctiveand singers whose songs are able to get to the top
market niche. CCM is microlabel recording companyof the popularity charts. Given the fact that virtually
which specializes on classic and traditional instrumentalall popular artists have already signed contracts with
music.* Growing customer base and customer loyaltymajor recording studios, this is significant barrier for
within target group. Customer base growth due tonew entrants. Another important barrier is gaining
expansion of product lines (4 already, each year 2considerable channel of distribution. Generally, large
new product lines emerge), and geographicaldistribution centers and music CD retailers are
coverage of listeners.* Good customer serviceinterested in selling the music of famous performers
shown through the direct contact between Darrenand unwilling to accept the products of relatively
and his fans.Weaknesses* No clear strategic vision:unknown artists. For the CCM, the threat of new
CCM needs a long term vision which includes all areasentry is not very strong, since the company targets
of the business, from marketing and management torather narrow market segment. Though, if the new
distribution and human resources. At the moment theentrant uses the same recording technologies,
company faces a dilemma of further strategicdistribution channels and targets the same niche in
development, which will be focused on eitherthe market, the fact may become an issue of major
enhancing or developing the recording company orimportance.Competition from substitute products can
more active promotion and distribution of thebe considered moderate competitive force in the
products through the possibilities of other companiesmusic industry. Such substitute products are be
(the company is currently regarded by itspresented in the form of providing consumers with
management as potential object of acquisition orpossibility to listen music with other that CD means
investment)* Competitive disadvantages: CCM aresuch as radio, cable TV music channels, live concerts,
not able to enter the retail market due to its currentlocal bars or night clubs with live performances or
level of sales. Competitors such as major labels haverecorded music, and internet. Internet has become by
advantage because they have major market powerfar the most important and strong substitute to
and influence. Such firms can specify when theirtraditional buying CD, since music provided on the
music should be played on radio and negotiate largeweb is most often cheaper or completely free and is
contracts with distributors and retail outlets, hencenot much inferior in quality than .wma format of CDs.
giving themselves broader appeal.* Limited channelsTherefore, for certain amount of people these
of distribution: at present moment the companymeans serve as effective substitutes, but for music
heavily relies on such distribution sources as directfan, buying official CD is obligatory. In the case of
sales, which include sales at the gig, shopping mallColorado Creative Music, people can enjoy the
distribution and sales in the back end (800 numberperformance on live concerts of these artists and
order, website order processing and mail orders).decide not to buy their CD. Therefore, from CCM's
These channels are major sources of profit for theviewpoint, this may be regarded as fairly significant
company. Nevertheless, to expand its consumercompetitive force.The forces left are bargaining
base, the company needs to acquire formalpower of suppliers and bargaining power of buyers
distribution channels, such as sales through traditionaland collaborative buyer seller relations, which are both
music distribution networks and others.* CCM is shortstrong competitive force.The first, bargaining power
in financial resources to pursue new opportunities.of suppliers depends on the popularity and reputation
Profits are thin, meaning new opportunities may beof artists. Those who are popular and whose
unobtainable and long term improvements may notrecordings sell well, have strong bargaining power,
be afforded due to initial costs. To conclude athey can chose among numerous recording studios.
contract with major labels, which would provide theCCM specializes on recordings of infamous artists, and
company with the access to traditional producttherefore it enjoys weak bargaining power, since
distribution, the firm needs to sale at least 15,000artists involved with CCM do not have many
copies of its products per year. From the other hand,alternatives for studio record and CD
high sales numbers are impossible to obtain withoutdistribution.Bargaining power of buyers and
good traditional distribution channels.* CCM is losingcollaborative buyer-seller relations is very strong
ground to larger firms because of limited exposure.competitive force. The major distributors of recorded
CCM at present does not reach global or nationalmusic supply CDs to the leading music stores and
audience like independents and major labels. CCMother retailers of music, these leading distributors
needs to broaden its reach and widen its customerstock about 40,000 copies of a CD and work on
base.Opportunities* Serving additional customer60-90 working schedule retaining the privilege of full
groups by expanding co-operation with other artistsreturn of investments for the unsold copies. So called
and enlarging the Acoustictherapy and other product"one-stops" are distributors which provide products
lines with new marketing strategies.* Internetfor the independent music stores in smaller quantities
through expanding e-commerce and releasing MP3s.*and very often with limited range of music types.
Expanding sales nation wide.* Acquiring channels ofGenerally such distributors prefer to handle stock CDs
traditional distribution to reach wider customer baseof the very popular artists or at least well-known
exposure* Developing new technologies to cope withartists and often they are not interested in going into
the driving forces of the industry.* Releasingdistribution of CDs of unknown performers.
compilations with other artists has proven popular.Therefore, CCM faces great difficulty in acquiring
One strategy could be to assembly the songs (suchdecent and formal distribution, especially in getting its
as Accoustictherapy) at the studio, and sell theproducts sold by such music stores as Sam Goody,
completed disks at a discounted rate back to theTower Records, Borders Books and Music, and
performing artists in their hometowns. This methodBarnes and Noble.Also, a great role in the distribution
would cover the costs up front and give the playersprocess is played by getting the music heard by
a financial incentive to push the product.* Pushingpeople so that they would be more willing to buy the
sales into non-traditional areas such as weddings,CDs. This includes playing the music on the radio
shopping center music etc.Threats* High number ofstations, on TV music channels and including
new entrants and growth of other smaller labels duesoundtracks into movies. Until the performers and
to the digital revolution. In addition, major labels orartists of CCM become so famous that they are
independent labels could decide to enter into CCM'sasked for in retail music stores, the company has
domestic markets and try to drive the smaller labelslittle chances to receive considerable representation
out of the market.* Lose sales to substituteby major CD distributors. The manager of the
products like mp3s or internet downloads*company, Darren Skanson, has contacted some
Vulnerability to industry's driving forces because ofretailers on his own and found out that it is very
CCM's weak position in its industry, taking intotime-consuming and onerous task to get his CDs
consideration the fact that the company occupiesdistributed by retailers in his own local area. The
microlabel segment of the market and is profitablepeople he hired to tackle the problem had little luck
primarily due to the low costs of digital recording.Fiveeither. CCM has had some experience of selling the
Forces Model of CompetitionMichael Porter's model ofCDs through one-stop distributor, but it was not very
competition (Porter, 1980), if applied to musicsuccessful due to high markup imposed by the
recoding industry, comprises the followingdistributor on the CDs of CCM. In the long run,
components: Rivalry among sellers of recorded musicDarren plans to make his product lines such as Darren
(competition for better market position andCurtis Skanson, Music for Candles and other artists,
competitive advantage); artists and other suppliers ofpopular enough to have their CD distributed through
music to producers or sellers of recorded music;major music stores. But at the present moment,
distributors, retailers and individual customers of thepredominant part of CCM sales volume stems from
music; competitive pressure coming from substitutesdirect sales such as sales at the gig, shopping mall
of recorded music towards winning customers; anddistribution and internet, mail and telephone orders of
threat of new entrants to the industry of recordedthe musicians' CDs.Anastasia Kurdina is a person of
music.Perhaps, the strongest competitive forcemanifold gifts. Almost every her writing is followed by
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and sellers of music products. The music recordingspecializes in marketing, management, world cultures,
industry has 4 clearly identifiable segments: majorand art. Anastasia is not an essay writer in a
recording studios, independent labels, microlabels andcommon sense. She is a Poet, an Analyst, an Artist, a
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