Date Submitted:
03/18/2011 01:02 AM
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1463/ 6
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Bmg Entertainment

BMG Case analysis




The music industry deals with goods that have a high fixed cost of production and a near zero marginal cost of distribution. These goods have interesting properties with regard to intellectual property rights, versioning, and pricing. Due to the nature of the goods and the industry characteristics, a small number of companies were able to dominate the industry. The characteristics that led that led to small industry were high-risk rate of four out of every five records losing money. The fact that one record alone costs a company about $300,000 to make. The low cost and ease to make copies of existing records. The high risk that a record would not be a hit and the ability and pressure to pick songs, and artists that will produce hit records. In addition, the industry has very high barriers to entry and low success rates. For example, artists only want to sign with a label that already has successful artists associated with it. Therefore, in order to get a successful artist to sign you need to leverage an existing star making it difficult for newcomers. The chances of a label to produce a hit record are difficult when there are about one thousand new songs released every week and only three or four get any airtime on the radio or video, which are the two most popular means of exposing an artist.
Most importantly, the history of the record industry lead to the dominance of a small number of companies dominating the industry. A few individuals developed the industry as they introduced new technology. Record companies were instrumental in introducing complementary technologies and working on establishing a standard, consequently the industry as a whole offered few substitutes. During the early stages, the industry was experiencing growth due only to technological advancements. The early technology required high investments and acted as a high barrier to entry for small participants. The industries consolidation in the 1980’s allowed…

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