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Colorado Creative Music Case Study Part 2

STEP Analysis

The STEP analysis of the Colorado Creative Music aims at analyzing macro-environmental factors of the music business the company is engaged into. These factors fall into political, economical, social and technological groups (Pearce, Robinson, 2000).

Political factors affecting music business in whole and CCM in particular: strong political stability in the United States; regulatory and legal issues concerning music business including copyright laws for copyright protection of both music writing and recording, copyright-related legislation touching upon the issue of virtual internet promotion and distribution, such as The Audio Home Recording Act (1992), No Electronic Theft (NET) Act (1997), “The Digital Performance Right in Sound Recordings Act (DPRSRA) 1995, The Digital Millennium Copyright Act, “Pending legislation: Music Online Competition Act and the Consumer Broadband and Digital Television Protection Act (CBDTPA)” and others. Environmental regulations and employment requirement do not affect business CCM is engaged into. As for the tax policy, in 2000, from total income of $216,614.05 the company had to pay $4,744,97 of taxes, which is not high rate and amounts to nearly 2 percent from the total income. In whole, it should be noticed that political factors are favorable for music recording industry and for CCM particularly.

20 unit: dominoqq pkv include indexes in the macro economy that can affect music recording industry. Here also, macroeconomic factors, such as economic growth, interest rates and inflation rate are favorable for CCM. Thus, the U.S economy kept growing steadily since 1995. CPI falls down in 1997, 1998. Unemployment rate decreased gradually from 1995 to 2000.

Social factors, covering demographic and cultural aspects of the environment external to music recording industry are rate of population growth, age distribution and carrier attitudes. The population growth in the United States is steady and age distribution also favors the music recording industry. It should be noted that for music industry in whole, teenagers and 20-years-olds are primary customer segment, but CCM aims at attracting people of 40-60 age range. Thus, the considerable share of American population fits this target market.

Technological advancements in music recording, promotion and distribution have several effects on the recording industry. One aspect of the issue is that musicians are no longer dependent on major recording labels to create or distribute their products. (Viljoen & Dann, 2000) The MP3 software alternative to the CD becomes more popular since 1998. In the space traditional audio can fit 12 to 15 audio tracks; MP3 software can store approximately 150 music tracks. “The move towards MP3 as the new format to replace CD just as the CD replaced vinyl albums have been accelerated by the rush of new portable MP3 players on the market – some for less than conventional Sony Discmans.” (Viljoen & Dann 2000, p. 173). On the other hand, new digital technologies which appeared in late 20 century not only facilitate the process of music recording, but make it considerably cheaper, providing the possibility for multiple firms with limited resources to enter the market. Thus, if in 1980s, professional recording studio with all recording equipment, working on vinyl or tape carriers, cost several million dollars and therefore was a domain of 5 or 6 major recording companies, in 2000, assembling professional recording studio could be carried out at cost of only $5,000. All the equipment and hardware, due to the global advancements in technology, are much more affordable for an average artist or businessman.

SWOT Analysis

Strengths

* Cost advantages with new technology arising from the digital revolution. Not only assembly of studio with all necessary equipment and hardware is cheaper, but duplication of CDs, storage and shipping are less expensive as well. Low cost of production, duplication (duplication of 500 CDs ranges from $1.90 to $3.63, duplication of 2000 CDs costs about one dollar per CD), shipping and storage makes the final product less expensive and more affordable for the customers, thus widening the range and scope of the target market.

* Positioning of CCM in a distinctive market niche. CCM is microlabel recording company which specializes on classic and traditional instrumental music.

* Growing customer base and customer loyalty within target group. Customer base growth due to expansion of product lines (4 already, each year 2 new product lines emerge), and geographical coverage of listeners.

* Good customer service shown through the direct contact between Darren and his fans.

Weaknesses

* No clear strategic vision: CCM needs a long term vision which includes all areas of the business, from marketing and management to distribution and human resources. At the moment the company faces a dilemma of further strategic development, which will be focused on either enhancing or developing the recording company or more active promotion and distribution of the products through the possibilities of other companies (the company is currently regarded by its management as potential object of acquisition or investment)

* Competitive disadvantages: CCM are not able to enter the retail market due to its current level of sales. Competitors such as major labels have advantage because they have major market power and influence. Such firms can specify when their music should be played on radio and negotiate large contracts with distributors and retail outlets, hence giving themselves broader appeal.

* Limited channels of distribution: at present moment the company heavily relies on such distribution sources as direct sales, which include sales at the gig, shopping mall distribution and sales in the back end (800 number order, website order processing and mail orders). These channels are major sources of profit for the company. Nevertheless, to expand its consumer base, the company needs to acquire formal distribution channels, such as sales through traditional music distribution networks and others.

* CCM is short in financial resources to pursue new opportunities. Profits are thin, meaning new opportunities may be unobtainable and long term improvements may not be afforded due to initial costs. To conclude a contract with major labels, which would provide the company with the access to traditional product distribution, the firm needs to sale at least 15,000 copies of its products per year. From the other hand, high sales numbers are impossible to obtain without good traditional distribution channels.

* CCM is losing ground to larger firms because of limited exposure. CCM at present does not reach global or national audience like independents and major labels. CCM needs to broaden its reach and widen its customer base.

Opportunities

* Serving additional customer groups by expanding co-operation with other artists and enlarging the Acoustictherapy and other product lines with new marketing strategies.

* Internet through expanding e-commerce and releasing MP3s.

* Expanding sales nation wide.

* Acquiring channels of traditional distribution to reach wider customer base exposure

* Developing new technologies to cope with the driving forces of the industry.

* Releasing compilations with other artists has proven popular. One strategy could be to assembly the songs (such as Accoustictherapy) at the studio, and sell the completed disks at a discounted rate back to the performing artists in their hometowns. This method would cover the costs up front and give the players a financial incentive to push the product.

* Pushing sales into non-traditional areas such as weddings, shopping center music etc.

Threats

* High number of new entrants and growth of other smaller labels due to the digital revolution. In addition, major labels or independent labels could decide to enter into CCM’s domestic markets and try to drive the smaller labels out of the market.

* Lose sales to substitute products like mp3s or internet downloads

* Vulnerability to industry’s driving forces because of CCM’s weak position in its industry, taking into consideration the fact that the company occupies microlabel segment of the market and is profitable primarily due to the low costs of digital recording.

Five Forces Model of Competition

Michael Porter’s model of competition (Porter, 1980), if applied to music recoding industry, comprises the following components: Rivalry among sellers of recorded music (competition for better market position and competitive advantage); artists and other suppliers of music to producers or sellers of recorded music; distributors, retailers and individual customers of the music; competitive pressure coming from substitutes of recorded music towards winning customers; and threat of new entrants to the industry of recorded music

 

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