Contents Introduction 3 Microenvironment 3 Macro-environment 3 PESTAL 4 Political/Legal 4 Economical 4 Social 4 Technological 4 Environment 5 Porters 5 force analysis 5 Threat of New Entrant 5 Threat of Substitutes 5 The bargaining power of buyers 6 The bargaining power of suppliers 6 The intensity of rivalry among competitors in the industry 6 Structure of industry 6 Conclusion 7 List of References 9 Bibliography 10 Appendix 1 11

Introduction
For this assignment I will be investigating the structure and analysing the environment of the music retailing industry. To analysis the industry I will be using three main techniques. These techniques will be a macro and micro environment analysis, porter’s five forces and a PESTEL analysis.
Microenvironment
The microenvironment is the environment which has a direct effect on the business or industry, such as customers, staff, rivals and etc. The microenvironment is also not confined to one country either because in today’s market suppliers for example often come from all over the world. The effect of the microenvironment is often what leads a business to be a success or failure. The main players in the music retailing industry are Apple, Amazon and HMV (Datamonitor, 2007). The biggest and most recently change in the music industry has been its distribution channels. The only way music could once be purchased was through buying a CD from a music retailer. Now music can be downloaded via a computer, mobile phone etc. The online distribution of music has been such a strong factor it has forced the industry to reconsider and change its distribution channels (Meisel & Sullivan, 2002). 30% of all music purchases are now done through an online retailer such as apple, amazon etc (IFPI, 2011). ITunes which is owned by Apple who currently have 66.2% market share (TheWallStreetJournal, 2010). Apples market share though should not be taken for granted. This is because half of people, who use Apple products such as IPhones, IPod, etc, are not aware they can use alternative providers to download music (Allen, 2009). Due to the competition within this industry some companies are being forced to diversify (HMVGroupPLC, 2011)
Macro-environment
This is the environment which the industry and business has none too little influence over also known as the broad environment. The Macro-environment “can bring about the birth or death of an entire industry” (Campbell, Stonehouse, & Houston, 2002) this statement alone demonstrated the affect the Macro-environment can have. In recent time the Macro-environment has had a big impact on the music retailing industry in the form of the sharing of illegal music sharing and laws. A recent report shows that up to 95% of music online is illegal (Swash, 2009). To counter this illegal phonon there have been laws made to curb the ever increasing illegal download of music. For example in Spain has recently introduced a law which allows a website which facilitated illegal music downloading to be closed down within 10days (BBC, 2012). So this shows there is a battle of the government’s trying to curve illegal download, and people wanting to illegally download.
PESTAL
For this part of the report I will carry out a PESTEL analysis. In the case of this analysis it will be a PEEST analysis because we will be making Political combine with Legal. This is because in this industry the view is that legal is also a political factor.
Political/Legal
The music retail industry has been affected a lot recently by political/legal factors, such as new law etc. These changes continue to happen and the industry needs to make sure that it lobby’s governments for laws which protect the industry. The industry has to make sure they are aware of the ever changing copyright laws. It is important that the company’s in the industry also adhere to data protection; this is because the move to downloading music companies will hold sensitive information on customers. There is current investment in the internet, which will open more customers up to the ability to use internet music services. The industry does have very little control over illegal download of music.
Economical
The sales of music have been in decline since 2008 (See appendix 1 shows decline in market of music and video). This can be put down to the recent global recession, and that music is seen as a luxury. Also the increasing lure of illegal downloading music is likely to also to have had an impact on the sales of music. Companies are able to establish advantages over companies based on where they are located due to taxation laws. Physical music sales are starting to decline. Increase of digital downloading.
Social
The industry needs to stay aware of the changes in music taste especially as their audience matures. Music is now often used to express a person’s self and for social presence (Dongwon Lee, Jaimie Yejean Park, Junha Kim, Jaejeung Kim, & Moo, 2011). People do not always buy music they actually like but what is popular, this is because of the different social pressures on people. People from different cultures have very different taste and this is something which must always be considered (College). People are more demanding and wanting instant gratification. In the music industry people want a new album soon as it is released not as soon as they are able to get the shop. Changes is lifestyle also have effects on music retailing. This is because it is more common now when people go the gym to listen to music via personal music player, rather than what is over the gyms PA system.
Technological
Music devices and method of listen to music are constantly evolving and changing the delivery channels in which music is delivered. For example in 2003 was when the sales of IPod started to take off, in correlation to this is that from 2003 was when the ITunes store stared to grow (Lloyd, 2004) (Luttrell, 2010). Speeds of the internet and devices such as 3G and new 4G allow new methods of purchasing music. Now you can purchase music while you are away from your computer.
Environment
The downloading of music is seen as eco-friendly because there are limited resources needed. Companies are able to easily operate in different country’s via internet downloads. This means they do not need a physical presence in a country to compete there.
Porters 5 force analysis
Porters 5 force analysis is a way of analysing the market structure. According to porters 5 forces “There are five competitive forces which determine the nature of competition within an industry”(Campbell et al., 2002).

Threat of New Entrant
The threat of a new entrant in this market is medium. This is due to a number of factors. One factor which stops new entrants into the market is the dominance which ITunes holds in its market share and its relation to IPods and IPhones. Distribution can be difficult to obtain, this is due to the fact that record labels can be reluctant to sign with new companies. Illegal downloading of music is a major threat because it is taking market share which a company can’t either take back from competitors. Lack of brand loyalty and the relatively low cost do make entry to the market easier. Due to no physical product or manufacturing entry is easier than average industry.

Threat of Substitutes
The threat of substitutes is high within this industry due to two main factors. These are cheap alternatives especially buy bigger companies in the industry such as Amazon (TheWallStreetJournal, 2010). The even bigger threat is the substitute of illegal downloads. This substitute will also grow easier if the issues are not addressed by governments. What does lower the threat of substitutes slightly is the fact that there is no major benefit offered by other competitors. Though the only major benefit is digital over physical CD because a digital song can be obtained immediately.
The bargaining power of buyers
The buyer’s power is greatly limited by the fact that most products are purchased on an individual basis and generally on a whim of the buyer. Lack of customer education also limits the buying power of the customer. This article shows that half apple users believe they could only use ITunes (Allen, 2009). Switching costs though are relatively cheap. This is largely down to the fact that MP3 players have come cheaper through technology and the availability of an MP3 on most modern phones.
The bargaining power of suppliers
Suppliers who are the record labels have quite a medium power amongst most companies; other than that of mainly Apple and Amazon which have the majority of the market share. Because of the demand of the customer for the must have CD this gives the suppliers power. The product is unique and there is not alternative so this helps the supplier’s power. The music market is run by mainly four major recording labels. This all equates to the suppliers having high power. Though they do have little power over Apple and Amazon, this is simply due to the market share they own in music retailing. This especially applies to apple as they also have 73.4% market share in MP3 players (Elmer-DeWitt, 2011).
The intensity of rivalry among competitors in the industry
Rivalry among competitors within the music retailing industry is relatively high, tough Apple do seem to have a partial monopoly. The ability to be able to change product/supplier makes competition very intense. Also there are the supermarkets who often sell high profile albums at a loss. Given the economic climate, and the risk of future economic turbulence; this often leads to consumers making cut backs on luxury items and music is often viewed like that. Also the ability to illegally download music is also an attraction, and is also an unrecoverable sale without the intervention of politics and laws.
Structure of industry
The structure of the music retailing industry seems to imply that of an oligopoly due to its characteristics which makes it up. The music retailing market has very limited substitutes. The kinked demand curve is a theory which is relative to an oligopoly, seems to fit in with this industry. When prices are increased demand reduces by either customer using a competitor or illegally downloading. Above the demand the demand curve kink demand is inelastic supported by (TheWallStreetJournal, 2010). Whereas below the demand kink price is highly sensitive, meaning if prices where increase customers would flock to another company or substitute. There are barriers to enter as well which is a characteristic of an oligopoly.
Conclusion
From the report the conclusion I have reached is that music retailing is not a great investment in general, though music retailing through digital download is worth investment. Because I have recommended music retailing via digital downloads I believe it is appropriate to look at this segment with a BCG matrix.

In terms of digital downloads within the music retailing industry, it would be put under question mark. This is because the market growth rate is at a high rate supported by (IFPI, 2011) and (Williams, 2011). Market share within the music industry is currently quite low at only 30%. I believe the market will move within the star section within the next two years.
So investment within digital downloaded is worthwhile if done now while the market is growing. Even though technology is ever changing in this market, I do not believe that this delivery channel will change any time soon. The way in which music is listened to may change with technology though. This is because Apple is building a dominant market share, which if left to will grow into a monopolistic position.
To be able to challenge Apple for market share there is two main strategies which could be under taken. The first strategy would be that of educating the music customer about other delivery channels, and that people using ITunes that there is an alternative.
The second strategy would be that of linking the music service to a popular method of listening to music. This could be with integrating your service with the next generation MP3 player. Or if the service could be linked in with popular social networking sites, this method I believe would be most effective. This is because music is often viewed as a social event, and is seen as a way to express yourself (Dongwon Lee et al., 2011).

List of References
Allen, K. (2009). Music price comparison site to challenge dominance of iTunes Retrieved 03/01, 2012, from http://www.guardian.co.uk/business/2009/dec/07/music-price-comparison-challenge-itunes
BBC. (2012, 3 January 2012). Anti-internet piracy law adopted by Spanish government Retrieved 03/01, 2012, from http://www.bbc.co.uk/news/technology-16391727
Campbell, D. J., Stonehouse, G., & Houston, B. (2002). Business strategy : an introduction (2nd ed. ed.). Oxford: Butterworth-Heinemann.
College, W. Music Cultures of the World Retrieved 3/01, 2012, from http://www.wagner.edu/faculty/rcross/world.html
Datamonitor. (2007). Global Music & Video (pp. 40). http://360.datamonitor.com/Product?pid=FE018331-3BC5-43D6-A4CB-FE14CEE1CFC7.
Dongwon Lee, Jaimie Yejean Park, Junha Kim, Jaejeung Kim, & Moo, J. (2011). Understanding music sharing behaviour on social network services. Online Information Review, 35(5). doi: 10.1108/14684521111176462
Elmer-DeWitt, P. (2011). Does Apple have a monopoly? Retrieved 03/01, 2012, from http://tech.fortune.cnn.com/2011/02/16/does-apple-have-a-monopoly/
HMVGroupPLC. (2011). Annual Report and Accounts 2010. http://www.hmvgroup.com/investors/financial-reports/reports-results/report-2011.aspx.
IFPI. (2011). IFPI Digital Music Report (pp. 32). www.ifpi.org.
Lloyd, D. (2004). Instant Expert: A Brief History of iPod Retrieved 03/01, 2012, from http://www.ilounge.com/index.php/articles/comments/instant-expert-a-brief-history-of-ipod/
Luttrell, M. (2010). Never-ending iTunes sales tally hits 10 billion Retrieved 03/01, 2012, from http://www.tgdaily.com/consumer-electronics-brief/48578-never-ending-itunes-sales-tally-hits-10-billion
Meisel, J. B., & Sullivan, T. S. (2002). The impact of the Internet on the law and economics of the music industry. Info, 4(2), 16 - 21.
Swash, R. (2009). 95% of music downloads are illegal Retrieved 03/01, 2012, from http://www.guardian.co.uk/music/2009/jan/16/online-music-illegal-downloads
TheWallStreetJournal. (2010). Amazon Can't Dent iTunes Retrieved 03/01, 2012, from http://online.wsj.com/article/SB10001424052748704073804576023913889536374.html?mod=rss_whats_news_technology&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wsj%2Fxml%2Frss%2F3_7015+%28WSJ.com%3A+What%27s+News+Technology%29
Williams, P. (2011). European download market sees big growth in 2011 Retrieved 03/01, 2012, from http://www.musicweek.com/story.asp?sectioncode=1&storycode=1046084

Bibliography
Sloman, J. Garratt, D. (2010) Essentials of economics (5th ed.). Harlow, United Kingdom: Pearson Education
Palmer, A. Hartley, B (2006) The Business Environment (5th ed.). Berkshire, United Kingdom: McGraw-Hill Education
Brooks, I. Weatherston, J. (1997) The business environment: Challenges and changes Hertfordshire, United Kingdom: Prentice Hall Europe

Appendix 1