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BMG Entertainment Case Solution
The company BMG has been one of the leading music distribution companies in the music industry. However, with the increase in the use of the internet and the availability of music online, the physical distribution has declined in sales and demand. This decline in demand was threatening to the company’s position that had not invested in digital content to a great extent. There had been a smaller level of investment in digital media. The option available to the company was the investment in digital music. The alternatives were related to distribution. The company was presented with options for either developing a new distribution system for the online business or to extend the existing one. After the assessment, it was recommended that the company go with the development of a new system and partnering with other companies to develop expertise in online distribution.
Following questions are answered in this case study solution
How do these threats and opportunities impose on the current business model of BMG?
If so, would you do it through the existing distribution organization or build a new and independent one, from scratch? What are the pros and cons of each option?
How would you manage channel conflicts? And customers’ conflicts? Could the physical and digital distribution coexist?
Would you choose your partners (complimentary) for online distribution?
There a conflict between protecting intellectual capital and maximizing its value?
Case Analysis for BMG Entertainment
1. How do these threats and opportunities impose on the current business model of BMG?
The music industry’s position and BMG’s position, in this case, was such that BMG was set to the most powerful position. BMG can be referred to as a gatekeeper in this situation since all the lyricists, musicians, composers, and companies that published music needed to access BMG that let the content to the wider audience. However, the growing use of the internet threatened BMG’s position since it connected musicians directly with the listeners. The threat that BMG faced was with its distribution strategy that was the weakest point of BMG in the given situation.
There exist an opportunity with the digital music distribution that BMG can exercise to counter its threat. This would help the company in cutting its costs, distribution, time, and manufacturing costs. These reduced costs would lead the company to get greater margins from the customers that purchase digital music. One other threat that BMG faced was the piracy problem that was more amplified in the digital distribution through the Internet. Even though they had an option of a policy to prevent piracy but did not guarantee results for the company.
2. If so, would you do it through the existing distribution organization or build a new and independent one, from scratch? What are the pros and cons of each option?
The option that I would choose would be to develop a new independent distribution system for online music. The reason I chose this is that the physical distribution system that is already developed consists of a set of skills specific to the physical distribution. If the old system is amalgamated into the new one, the focus would not be primarily on online distribution. The expertise developed before was due to the distribution system working towards a single medium of distribution: physical. The existing distribution would have the pros of utilizing prior experience to enhance the online business. The con would be fragmented attention.
With the new distribution system, the pro would be attention to one particular medium of distribution that would help BMG develop expertise in that medium. It would also reduce the costs of the system because there would be fewer practices of trial and error in this process due to the expertise of the employees. However, the con would be the practice of trial and error through which expertise will be gained. This trial and error risk the position of the company as an online medium.
3. How would you manage channel conflicts? And customers’ conflicts? Could the physical and digital distribution coexist?
Since BMG is a big organization, there is a higher probability of channel conflicts that there would have been in a smaller organization. However, the departments should function as a synergy to improve the company’s position. The management of these conflicts could include an increase in communication and interaction between the departments. This practice would reduce the conflict between the departments.
The physical, as well as the digital distribution working simultaneously, is bound to have conflicts because of the differences in the interest of both systems. The physical distribution would try to maximize their sales while the digital would strive to maximize theirs.
However, to avoid conflicts of interest, the interest should be serving to the customer’s wants and needs and not the maximization of profitability of each division but the overall company.
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