The takeover of Warners Music Group (WMG) in July 2011 for $1.3b by Access Industries heralds in a new era for the company in an ever-changing music industry. The purchase affords exciting opportunity as well as possible threats in the near future.
The music industry on the past few years has undergone huge overhauls and revamps. With the advancement of technology, companies are constantly seeking new ways to increase profits and further business adventures. Viewing The UK music industry, we see that “total UK music revenues fell by 4.8 per cent, to £3.8bn. Both recorded and live music saw revenue fall by the order of 7 per cent.” (BOP consultants 2011). The internet, file sharing, music videos and live streaming of music, are rapidly changing the face of the music industry.
To sensibly suggest a recommended strategy we need to analyse WMG to gain an understanding of where future focus needs to lie.
Over the years, WMG has grown a hugely successful Brand name. Its image is noticeable worldwide promoting images of professionalism, efficiency and technology advancements. It further has hundreds of world renowned and prominent artists in their ranks. Names such as “Madonna, Oasis, Nickelback, Red Hot Chilli Peppers, Adam Sandler” are some which emphasis the strength of their brand. Being such a large company comes with advantages and disadvantages. The company therefore needs to ensure it does not focus too much on one project while shying away from others. Maintaining the right balance is essential.
Furthermore, vision towards the future will allow WMG to build upon opportunities that are entering the fray in the music industry. WMG have the chance to seize upon a market that are turning their backs on traditional ways to access their music and entering new and unforseen grounds. This, either acts as an opportunity to their advantage or get stuck behind competitors and be threatened by the new technology age. These external forces are possibly the biggest driving force in the need to re- strategise and come up with new campaigns.( Kusek and Leonhard 2005) as well as (Vertygo Team 2007 - 2011) noted that no longer are consumers running to stores to purchase the latest album or CD, rather in the comfort of their own home they are gaining access to the world of music.
The suggested strategy for WMG, will be to direct its operations to a horizontal structure. Up until now, WMG has focused on using its existing brand to broach new markets, new areas not yet tackled by the company. Yet with time of the essence, looking into a takeover or buying out other companies that have access to markets which WMG currently does not have, will hasten this process. There would be some heavy initial costs involved in this; however in the long run this will pay off. The obvious advantage would be the increased market power, brand name recognition of the companies being bought as well as economies of scope and scale. This will allow rapid integration into markets, whereby if not seized at the right moment could be lost. Digital revenue has increased from many different avenues, as Edgar Bronfam Jnr writes in the 2010 annual report for WMG “We derive revenue from different digital business models and products, including digital downloads of single tracks and albums, digital subscription services, interactive webcasting, video streaming and downloads and mobile music, in the form of ringtones, ring back tones, full-track downloads and other products.” Mergers and acquisitions will allow WMG to move swiftly into new markets. This will be a key factor in their role as a leader in the Music Industry.
This will further facilitate another key factor known as “Distribution / place. WMG needs to widen its distribution channels to include Smartphone’s with Wi-Fi access. People are increasingly turning to their devices as a source of their music and WMG must respond to this. Entering partnerships with Mobile phone companies, agreements with internet providers are key moves that the company must initiate. WMG can deny access to competitors, via the use of ‘exclusive dealing clauses’, giving it the sole rights to the new generation of Music/ Mobile users. This will give instant access to networks allowing consumers to reach the music they want, at the tip of their fingers. This will afford the company flexibility in their distribution channels allowing them to stay ahead of the game. In essence, the mobiles will act as a complementary to the music available. No longer will consumers have to deliberate how to get that song they have wanted for so long. Digital Music will have a whole new meaning. In conclusion; building upon an already strong brand name the proposed strategies for WMG, is to move to a horizontal integration, as a possible medium run strategy to create and sustain value in the near future. This will be sustained by improving distribution channels through forging relationships with internet and mobile phone providers.