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