Nicole Golston

Company Snapshot  Universal Music Group (UMG) was established in 1998  It was originally named Decca Records USA, which started in 1934 and went through many changes to get the current name  In February 2006, the group became 100% owned by French media conglomerate Vivendi SA. It is in the entertainment industry and targets the global music market  UMG is the world’s leading music company  UMG also sells and distributes music video and DVD products, and licenses recordings, encouraging the legal distribution of music online and over cellular, cable and satellite networks

Company Snapshot (cont.)  The CEO is Lucian Grainge  Currently they have 7,100 employees  Representing 98% of the music market, Universal has three key competitors. Sony Music Entertainment Warner Music Group EMI Group  UMG has a diverse family of record labels which include: A&M/Octone, Barclay, Decca, Deutsche Grammophon, Disa, ECM, Interscope Geffen A&M Records, Island Def Jam Music Group, Mercury Records, Show Dog–Universal Music, Universal Motown Republic Group, Universal Music Latino, Universal Music Group Nashville, and Verve Music Group This also includes popular artists like Justin Bieber, Black Eyed Peas, Mary J. Blige, Mariah Carey, Sheryl Crow, The Killers, Lady Gaga, Lil Wayne, Ludacris, Maroon 5, M.I.A., Pussycat Dolls, Lionel Richie, Rihanna, Gwen Stefani, Sugarland, Robin Thicke, Stevie Wonder, Sting, 3 Doors Down, and Kanye West

PEST Analysis 5 FactorTrendEvaluationImpactRank in terms of importance PoliticalFair Use and Copyright Law P2P Privacy Prevention Act Opportunity Threat EconomicRapid growth in emerging markets Rise of legal music downloading Opportunity SocialConsumers want constant connectivity Large enough to produce material for all genres, ages, and gender. Threat Opportunity TechnologicalGreater use of mobile applications and music downloads Threat51

Five Forces Model Competitive Rivalry within an Industry Bargaining Power of Customers Threat of New Entrants Threat of Substitute Products Bargaining power of Suppliers

Five Forces Model Music Retailers Consumers Buyers Artists Suppliers Sony EMI Warner Competitors Online Entertainment Streaming Music Substitutes

Industry Analysis

Supplier Power  The supply of available talent (artists) is very low, so they have a high bargaining position  Artists get signed in the beginning of their career, so they don’t have much leverage with UMG  Once artists get famous they gain more power and can basically name their own price

Buyer Power  Music buyers, as a group have a high bargaining power Price to pay Software attached to product  May not need or want to buy it  Music Retailers have low bargaining power because there are few record companies

Threat on New Entrants  Barriers to entry are high  “Big 4” recording companies control the market so much, independent labels pose no threat

Substitute Products  Video game and movie companies  Online Entertainment Download or stream Mp3s or CDs

Suggestions to Address Key Forces  Universal Music Group is competitive because they have: Loyal customers Technological advancements Loyal suppliers  Rivalry could emerge because the market sizes are similar and they have similar organizational structures

Blue Ocean Strategy Universal Music Group Strategy Competition is Irrelevant Pursuit of differentiation and low cost Construct unknown market space Create Value Innovation Create and capture new demand

Blue Ocean Strategy  Largest Music Company  Horizontal Integration- entering other entertainment genres  Low prices for unique and valuable products

Conclusions  Technological and social factors have the greatest impact  Barriers of entry, buyer power and supply power are all high for Universal Music Group  UMG has the ability to adapt to blue ocean strategy.  New strategies will come along under the new management of CEO Lucian Grainge

Identification of Key Competitors  Sony BMG Music Entertainment Sony BMG Music Entertainment is the second biggest major record label in music sales. Headquartered in New York City  Warner Music Group The Warner Music Group is the third major record label in music sales World’s only publicly-trade music company Aimed at helping artists achieve long-term creative and financial success while providing consumers with the highest-quality music content available. Aimed at helping artists achieve long-term creative and financial success while providing consumers with the highest-quality music content available.  EMI Group A business solely focused on music, tracing its history to the very beginnings of recording Headquartered in London, UK The EMI Group is the fourth biggest major record label in music sales. *Sony and EMI are privately held

of Competitors Evaluation of Competitors Universal Music Group Sony BMG Music Entertainment Warner Music Group EMI Group Revenue$6.14 million$3.9 million$2.9 million$1.6 million Geographic Scope 77 countries47 countriesMore than 50 countries 32 countries Market Share35.12%22.79%21.12%8.35% Market Rank1st2 nd 3 rd 4th Well Known record labels A&M/Octone, Barclay, Decca, Interscope, Island Def Jam, Mercury, and Motown Arista, Columbia, Epic, J, Jive, and RCA. Asylum, Atlantic, Lava, Reprise, Rhino, and Warner Bros Astralwerks, Capitol, EMI, Mute, and Virgin Key ArtistsBlack Eyed Peas, Mary J. Blige, Lady Gaga, Lil Wayne, Maroon 5, Lionel Richie, Rihanna, Stevie Wonder Kelly Clarkson, Alicia Keys, Outkast, Shakira, Britney Spears Green Day, Madonna, Alanis Morissette, My Chemical Romans, Rob Thomas The Beatles, Coldplay, Gorillaz, Rolling Stones, Robbie Williams

Industry Analysis

Strategy Business Groups in the Industry  Differentiation Strategy Investing in unique artists  Pursue digital distribution Downloads/Online sales Online streaming UMD/ Blu-rays

How Competitors Compete  Loyal Customers  Consumer Preference Keep up with the rapidly changing style  Commercialize artist Artists must be able to reach different demographics (exploitation)

Recorded music market 75% of recorded sales come from U.S (31%) Japan U.K Germany France

Key Trends in the Music Market  Music product to music as a service Just-in-time; customers want music at the click of a button Move away from physical products  Technological development High speed downloads Apps Wireless networks

Products and Service types  Discover and develop artists  Market and distribute artists and their recorded music  Encourages legal distribution of online music

Target Market  Music retailers  Consumers that listen to music Ages All races Middle class or greater Preferably with a computer

Market Segmentation  Industry segregation by region Location has a lot to do with the type music people listen to  Industry Segregation by genre of music Declining market- Many people opening their taste of music and listening to all different genres  Industry Segregation by age The younger generation listens to music more  Industry Segregation by technology Those who have the ability to download apps or music in general Growing market- Technology is advancing quickly

Social Media The music industry is focused around the media -Artists have Facebook, twitter and YouTube pages in order for consumers to be more connected -Consumers can play artist music and videos on sites like YouTube and Vevo -Almost all of the popular social media sites have streaming music, so music can be playing while visiting the site -There are cell phone apps like Pandora to play music from your phone -All these sites are great marketing tools for the record label and artist themselves

Conclusions  UMG’s Main Competitors Sony BMG Music Entertainment (Privately Held) Warner Music Group (Publicly Traded) EMI Group (Privately Held)  Record Labels use the same strategies to get to the goal of successful music  Strategies Differentiation Digital Distribution

Conclusions  Competitors compete by Loyal Customers Consumer Preference Commercialize artist  Key trends for the Music market Music product to music as a service Technological developments  Market segmentation Industry Segmentation by ○ Region ○ Genre ○ Age ○ Technology

UMG Business Model  Diverse group of business divisions has allowed the company to respond quickly and capitalize on the changing music industry  Different business divisions at UMG work together in great harmony throughout the whole process of publishing and eventually selling an artist’s music  The eLab’s division is responsible for handling the company’s electronic commerce initiatives, internet exploration, and new technology opportunities worldwide

Company Strategy  Ensure leadership of the core business during the transition to digital  Participate in a broader range of music revenue streams  Maximize profitability through efficient cost management

Company Strategy  Product differentiation Uniqueness of artists and songs  The best resources best recording technologies merchandising services management services live music services

Resources  interdependence of different business functions and divisions  excellent corporate integration and acquisition skills  a tremendous ability to attract top talent

BCG Matrix StarsQuestion Marks Cash CowsDogs Industry Growth Rate Relative Market Rate Low High Low High Market Rate: UMG is the world’s largest music company, with 35% of the market Low Growth Rate: The “Big 4” has the industry locked down. There is little opportunity for growth

Value Chain Analysis ArtistsPublishersRetailersCustomers UMG controls the entire chain Retailers will be eliminated, since the products will be directly delivered to the client through internet ArtistsPublishersManufacturersDistributorsRetailersCustomers Brick and Mortar Digital

SWOT Analysis StrengthsWeaknesses  Market leadership  Strong global presence  Aggressive acquisition strategy  Unique and diverse music  Low costs for customers  Weak performance in Europe and Asia  Declining cash from operations OpportunitiesThreats Rapid growth in emerging markets Rise of legal music downloading Large enough to produce material for all genres, ages, and gender Greater use of mobile applications and music downloads  Constant style changes  Economic recession  P2P Privacy

Overall Cost Leadership Differentiation Cost focusDifferentiation focus Comparative Advantage Low Cost Higher Cost Competitive Scope NarrowBroad Generic Strategy Low Cost Comparative Advantage: UMG has reduced the price of products Broad Competitive Scope: UMG has a broad range of customers to market to

Grand Strategy

 Acquisitions and Mergers In 2001, UMG acquired an online subscription music service, EMusic.com, which it used to help grow digital sales and internet related operations From 2003 to 2008, UMG made over six acquisitions of different record labels which helped the company achieve the largest music catalog in the industry In 2006, UMG acquired BMG Music Publishing and in turn became the world’s largest music publisher

Grand Strategy  Acquisitions and Mergers The acquisition of Univision Music Group in 2008, expanded UMG’s reached to nearly 50% of the Latin music market There are many independent labels UMG can acquire

 UMG should focus on Product Development: publish new albums change album packaging (size, shape, etc.) use different medias to publish albums like online,DVD’s, Blu-Ray Discs, etc. Ansoff’s Growth Matrix

International Markets  Currently has a network of subsidiaries, joint ventures and licensees in 77 countries  Universal Music Group International is the division that manages UMG's businesses in countries outside of North America  In some markets outside the U.S., UMG companies handle their own distribution and sales  In other markets UMG companies have sub- contracted services to third parties or entered into distribution joint ventures with other record companies

Conclusions  Business Model Different business divisions at UMG work together in great harmony throughout the whole process of publishing and eventually selling an artist’s music  Generic Strategy Overall Cost Leadership  Grand Strategy Acquisitions and Mergers

Conclusions  Ansoff’s Growth Matrix Product Development ○ New Albums ○ Use different medias  International Markets Currently has offices in 77 countries