Update: The Music Industry in 2006

Case Solution

John R. Wells, Elizabeth A. Raabe
Harvard Business School ()

The global music industry experienced a major upheaval in 2006. Sales have been falling for a decade and consumers are buying music in new formats and through different distribution channels. CD sales still accounted for the majority of sales, but music sales in digital formats (downloads, videos, ringtones) increased significantly and accounted for about 10% of industry sales in 2006. Many watched digital as the future of the music business, but the format presents both opportunities and challenges. For example, while it had revived the singles market, digitization had also made rampant piracy possible. The music industry retaliated and initiated lawsuits against illegitimate peertope operators, such as groups found to be performing illegal downloads. Whether this would be enough to stop the trend was controversial. Meanwhile, the industry continued to consolidate. In 2004, Sony Music and BMG, the third and fifth largest record company at the time, merged to become Sony BMG. Surprisingly, in 2006 the Court of First Instance of the European Union annulled the merger, which the European Commission had approved two years earlier after a group of independent music labels complained about the impact of the merger on competition. As Sony and BMG defended the merger in court, EMI Group plc wondered if the proposed acquisition of Warner Music Group, which it had pursued since 2000, would ever take place. If so, how much business would the new company have in a rapidly changing environment? Everyone wondered how the industry would develop.

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