1. University of Rochester
Digital Music
University of Rochester
Simon Business School
Haotian Gong
Gengfei Li
William Trigg
Minjia Zhan

2. Competitive Landscape – Before Digital
Buyers
Purchasing CDs only option
Needed additional hardware (CD player, stereo)
Suppliers
Record labels were very influential
Manufacturers
Threat of Entry
Easy to enter, difficult to scale up
Competition
Large labels dominated market
Smaller labels competed but struggled to grow
Substitutes
Other entertainment (e.g., dance, theater)
Live music

3. Disruption
Invention of the MP3 file allowed internet users to easily access music without a tangible purchase
Technology firms (Apple, Napster) started selling MP3 files for a fraction of the price of CDs
Advances in storage technology facilitated new music hardware such as the iPod and Zune
Music streaming made music even more accessible (any song anywhere)
Start-ups (e.g., Spotify) began offering free streaming services

4. Competitive Landscape – With Digital
Buyers
Internet users: large number
Easily accessed at home
Price sensitive
Suppliers
Competitive: online stores, streaming start-ups
Few or no physical stores
Weakened record labels
Threat of Entry
Medium: Difficult to generate cash flow
Low initial investment needed for tech firms
Competition
High: Easy to switch platforms
Low per-unit revenue
Substitutes
Other entertainment (e.g., dance, theater)
Live music
Older tech: CDs, records

5. Factors/Issues Streaming music is easily accessible
More affordable for consumers – no purchase necessary
Revenue fell industry-wide as pricing models changed

6. Reaction
Resistance from record labels to sell to digital vendors caused losses
Technology firms (e.g., Apple) began selling MP3 files

7. Potential Solutions
Record labels should have embraced digital music sooner
M&A: Acquire digital music or tech firms to gain market power
Partner with tech firms earlier to leverage stronger position over a smaller digital market
Invest internally in digital music platform
Use digital platform to promote physical products

8. Potential Solutions: M&A
Challenges:
Startup does not want to be merged
Conflict between two organizational culture
Benefits:
Head start with technology pivot
Promptly identify and embrace trend
Diversify company products
Access new customers through internet

9. Potential Solutions: Partner with Digital Music Firm
Challenges:
Limited revenue stream
Young industry implies instability
High cost due to customized demand and equipment requirements
Benefits:
High exposure for music
Broaden customer base and loyalty

10. Potential Solutions: Invest Internally
Challenges:
Time-consuming
High cost in regards to labor and equipment
Product cannibalization
Benefits:
Fit in the market in the long term
Brand recognition
Gain the market share in the first place as pioneers

11. Risks & Mitigation Takes much more time and we are not pioneers
Hard to find suitable person for engineering team
Customers may feel uncomfortable with the new technology
The digital platform is more advanced and we have a customer base
Use human resources tools to identify talents
Discounts and available options

12. Thank you!