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'New Sony Walkman downloads Net music' 'Ovitz enters the MP3 dimension' ... 'eMusic, BMI pair up for Net music downloads' 11. Internet Penetration ... – PowerPoint PPT presentation

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Title: 1


1
Challenges Opportunities in the Traditional
Market
  • Slowdown in projected market growth
  • Challenging Economics
  • Signing and Recording Costs
  • Marketing Costs
  • Pricing
  • Emerging markets (China, India, Russia) still
    long term prospects
  • Growth of local repertoire continues




2
Technological Challenges Opportunities
  • Technological advances are leading to new
    business opportunities and new competitors
  • Direct selling to consumer on demand
  • Technology-driven start-ups appearing throughout
    the traditional value chain
  • Content owners must meet more complex and
    evolving needs of artists and consumers
  • Proliferation of new and emerging channels
  • Increased consumer interactivity
  • Expanded product offerings

Enormous potential carries enormous risk and
demands an aggressive, flexible strategy
3
Strategic Overview
Strategy of Continuity
Strategy of Change
Strategy of Transition
  • Successful development of technologically-
    enabled business models demanding new skills
  • Maximize efficiency and margins in the short to
    medium term
  • Refine, strengthen and expand our core operations

Must execute across these three strategic fronts
simultaneously
4
Strategy of Continuity
  • Build the broadest, strongest, deepest base of
    our core strength -- content ownership
  • Entrepreneurial local companies to compete with
    majors and indies alike
  • Particular focus on strengthening repertoire in
    Germany, Spain, Latino and Asia
  • Expand geographically when and where prudent
  • Dramatically raise the sophistication, intensity
    and effectiveness of frontline and catalog
    marketing
  • Improved coordination of international artist
    marketing

5
Strategy of Transition
  • Rationalize manufacturing and distribution to a
    more efficient, cutting-edge operation
  • Shift fixed to variable costs wherever possible
  • Serve needs of evolving pan-European customers
  • Maximize margin recovery through appropriate
    pricing
  • Increase prices and rationalize terms for
    physical product both in the US and across Europe
  • Minimize trans-shipments and control evolution of
    Euro-pricing

6
Strategy of Change
  • Maximize the value of our existing rights and
    those of our artists
  • Lead industry to adopt robust standards for
    protection
  • Fight both passive and active piracy
  • Position ourselves for flexibility in a rapidly
    changing environment
  • Continuously forecast future shape of industry
    avoid exclusivity
  • Leverage technology to enhance our core assets
    new product development, lower operating costs,
    digital storage, etc.
  • Develop / acquire new skills and assets to
    maximize our ability to compete under new
    business models
  • Direct-to-consumer / interactive marketing and
    selling
  • Acquire and replicate practices of potential
    disintermediators
  • Create our own e-currency in the stock market

7
The Transforming Value Chain
Marketing Promotion
AR (Content Creation)
Manufacturing
Distribution
Administration
Retailing
  • Convergence of marketing, promotion and retail
  • Geography proximity not a source of strength
  • Pull marketing wins over push
  • Service is differentiator
  • Direct / personalized experience demanded
  • If it can be digitized it will be distributed
  • Rate of change is exponential
  • Traditional sources of value greatly diminished
    by connectivity
  • New competencies required to play

8
New Value Chain is Uncertain
Promotion / Marketing / Retail
Consumer
AR
Pipeline
Clearing-house
Player / Storage
AR
9
New Players are Positioning for This Future
Promotion / Marketing / Retail
Consumer
AR
Pipeline
Clearing-house
Player / Storage
AR
  • Nigel
  • Microsoft
  • Liquid Audio
  • Real Networks
  • MEI
  • Sony
  • Creative Labs
  • UBL
  • MP3.com
  • Riffage
  • ATT
  • IBM
  • NTT
  • Deutsche Telekom
  • NatWest
  • Reciprocal
  • Credit Card Cos.
  • AOL
  • Yahoo
  • CDNow
  • GetMusic
  • eMusic
  • NetRadio
  • Amazon.com
  • RioPort

10
Yesterdays News
  • Sony to sell music online
  • Bowie in Virgin territory with full album on
    Internet
  • Net radiocasting streams to 2,615 stations
  • Yahoo! Launches music portal
  • Amazon.com to sell music for download
  • New Sony Walkman downloads Net music
  • Ovitz enters the MP3 dimension
  • CDNow to merge with Columbia House
  • eMusic, BMI pair up for Net music downloads

11
Internet Penetration
  • Online households estimated to grow worldwide by
    27 pa through 2002
  • By 2002, U.S. to account for 53 of all online
    households v. 77 in 1997
  • Supply of demand exciting content could
    accelerate roll-out
  • Infrastructure competitors driving adoption
    forward - cable vs. phone vs. data companies

80
U.S. Broadband Penetration (MM Households)
70
60
50
40
30
20
10
2008
1998
00
02
04
06
12
New Channels and Offerings
Today Channels
Tomorrow Channels Products
Physical Retail
Consumer
13
From a Music Company to a Music Services Company
  • We must expand the services we provide to artists
    to continue to offer a compelling source of value

AR
Artist Development
Fan Base Management
New Channel Promotion / Distribution
Publishing
Web Site Development /Hosting
Community Building
Ticket Sales
Merchandising
If we do not provide these services, others will
14
Evolution of Consumer Interface
PUSH
PULL
  • Unfocused, mass market
  • Expensive
  • Intermediaries
  • Lost sales (stock outs)
  • No effectiveness measures
  • Standard products
  • Focused, tailored messages
  • Less costly
  • Direct and interactive
  • Unlimited supply
  • Instant feedback
  • Flexible purchase options

15
One Vision of the Future
16
Organizing e-Business Efforts
DEFENSIVE
OFFENSIVE
  • Leverage e-tools to increase performance
  • Innovative product development
  • Strong relationships across multiple distribution
    channels
  • More effective direct and interactive consumer
    marketing
  • Lower costs through technological efficiencies
  • Extend existing strengths
  • Robust protection standards and business models
    favorable to content owners
  • Long-term contractual artist relationships

Internal to Core
  • Aggressively pursue new opportunities in e-space
  • Innovate with Internet-based business models
  • Cannibalize core business if necessary
  • Fund arms-length businesses

External to Core
17
Secure Digital Music InitiativeSDMI
  • 110 member companies from worldwide recording,
    consumer electronics, and information technology
    industries
  • Goal provide positive consumer experience while
    facilitating secure environment for digital
    distribution of music
  • First SDMI specification published this summer
  • Future SDMI-compliant content to be watermarked
  • Portable devices sold during Phase 1 will have
    software that upgrades automatically to Phase 2
    when watermarked content is available
  • Upgrade is not mandatory, but will be required to
    play new music that includes Phase 2 SDMI
    protection
  • SDMI-compliant portable devices will also play
    unprotected content

18
GetMusic
  • Music destination site based around genres,
    supported by two majors, in order to
  • Build compelling content-rich and high-traffic
    aggregation sites which speak to specific
    lifestyles and music communities
  • Develop a robust consumer database for use as a
    marketing tool and for expanded interactivity
  • Create a retail capability to complete promotion
    / marketing / retail convergence

19
Operational Implications
  • Accounting issues
  • New royalty structures
  • Affiliate commission structures and payment
  • Structural and linking issues
  • Data warehouse of all transaction information,
    linked to consumer database
  • Automation of online feeder systems
  • Content issues
  • Contractual clearances
  • Prioritized collection and digitization
  • Global coordination

20
Closing Thought
Think big start simply grow fast
21
(No Transcript)
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