Digital Distribution Predicted to Take it's Toll on the Industry, but will
Benefit in the Long-run
The new wave of digital media - streaming technology - is destined to seriously
disrupt the music industry according to a NARM/Emerald Solutions Study.
But it has the potential to be an asset to the business as a whole if
companies can keep a hold on their traditional aspects and convince consumers
to invest in the digital media through value propositions. This new study, entitled "Creating Industry Value From Digital Music Distribution," was conducted by Emerald Solutions for the National
Association of Recording Merchandisers (NARM).
NARM commissioned Emerald Solutions, which was formerly the Alliance
Consulting Group, to study the effects of digital music in the music
distribution channel and evaluate strategic options by simulating competition
and assuming customer needs. Business strategies were then cited for the
various industry segments. The recommendations were based on interviews with
individuals involved in the industry, published secondary research, and
Emerald's past experience working with other industries facing similar
"Entertainment retailing is currently facing one of the most significant
challenges in its history. The Internet presents artists, labels,
wholesalers, and retailers with a tremendous opportunity to innovate products
and create powerful new marketing and distribution engines, which will result
in more personalized relationships with consumers," stated NARM President
Pamela Horovitz. "But meeting these challenges will have a dramatic impact
on industry structure."
"Assuming piracy is contained and technology issues resolved, the
overall impact of digital distribution appears to be positive," stated
Michael Norkus, President and Founder of Emerald Solutions' Strategy Group.
"Although some cannibalization is likely occurring among certain consumer
groups, there are benefits through greater exposure and points of purchase.
In the final analysis, some industry segments will be better positioned to
succeed than others, and while incumbents certainly have the experience,
resources and relationships to win, they may lose out to new entrants if they
don't give consumers what they want."
stated that "As a sampling medium, file sharing seems to increase consumer
exposure to music while downloads offer a new alternative for storing,
transferring, and listening to music. But we see streaming as presenting the
greatest concern for industry incumbents, especially the retail segment,
because it provides a new opportunity to listen-on-demand without the
constraints of physical ownership."
The analysis done by Emerald Solutions was based on three technologies at
the heart of the distribution: shift-file sharing, downloading, and streaming. The report offers a few key findings.
Predictions include the following: CD and digital music sales will co-exist
for the time being. However, digital distribution will gain on CD sales over
time. Digital distribution also offers significant revenue growth
opportunities through targeted promotions, innovative product price
configurations, and more opportunities to buy music.
Consumer's needs differ greatly in digital distribution than that of the
physical world, and although costs per transaction may decrease, new customer
and technology support costs could be significant. The new costumer service
requirements may favor larger industry participants. Due to the co-existing business models (physical equivalent, agent
retailing, subscriptions, and "free music"), and multiple business
strategies, and the fact that no individual industry segment is likely to
provide the consumer with a total solution, it will be vital for participants
to forge partnerships with other industry participants to strengthen their
NARM - www.narm.com
Emerald Solutions - www.emeraldsolutions.com
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