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Digital Distribution Predicted to Take it's Toll on the Industry, but will Benefit in the Long-run
By Daina Kazmaier
(more articles from this author)
2000-10-18
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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 disruptive innovations.

"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."

Norkus also 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 positions.

Linkography

NARM - www.narm.com
Emerald Solutions - www.emeraldsolutions.com

Related MusicDish e-Journal Articles:
» The Digital Economy: How Digital Goods are Reshaping the Rules of Commerce - Introduction (2000-11-01)
» Story of a Revolution: Napster & the Music Industry (2000-09-06)

Related News from Mi2N:
» NARM/Emerald Solutions Study Says Digital Distribution Will Be Highly Disruptive But Ultimately Benefit Music Industry


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