Internet and the digitalization of products: A potent mix or recipe for disaster? A case study of the music industry

Sammanfattning: The purpose of this thesis is to analyze how the ongoing controversy surrounding the Internet, the phenomena of digitalization and file sharing will affect the music industry in the form of the “big five“ labels. Furthermore the thesis aims to present a recipe of strategies for the companies’ survival by studying their situation through a theoretical perspective in conjunction with a comparative analysis with industries facing the digitalization challenge. The theoretical contribution lies in the strategic perspective at an industry level. Both the positive and negative aspect of the Internet and digitalization is discussed. Additionally, the possibilities for the industry to create value and make money, the future shape of the major players and new entrants will be analyzed. The thesis can roughly be divided into three dimensions; the consumer, the value chain (the product) and the strategies. In order to perform the analysis empirical information has been gathered from a wide array of sources, principally secondary in nature. The thesis is a mix between a traditional research paper and a research synthesis. To confer a comprehensive and unbiased view of the ongoing controversy the author has collected data from reports, newspapers, Internet journals and websites, research papers, academic journals and statements from key actors involved in the ongoing development. Traditional business theory including the value chain, Five Forces competition, innovation, transaction cost theory, strategic networks, product and customer value has been updated to incorporate the effect of the Internet. Together with the empirical findings the analysis focuses on how the industry has been affected in terms of the theoretical concepts and its value creating potential. The results form the basis for the ensuing strategic suggestions for continued survival, which is compared to other industries in the same situation as the music industry. The conclusions from the analysis suggest that the music industry is currently going through a restructuring phase where new entrants have attacked parts of the value chain like distribution and production, whereas marketing and talent recruitment remain strongholds of the “big five”. Artists and consumers have increased their bargaining power in relation to the industry, there are more choices in music genres and alternative digital formats to the CD. P2P networks have hastened the industry’s online ventures and value added offerings. Comparative analysis with industries facing the same challenge of product digitalization have shown that there are measures and strategies that can protect the value creating potential of the company and increase their chance for survival. A recipe of strategies that include taxation, advertising, brand leveraging, new pricing structure, strategic partnering, the development of secure formats and in the long term a divestiture, where the “big five” of the music industry concentrate on activities more immune to the process of digitalization and the impact of the Internet, are suggested on the basis of the theoretical analysis. Digitalization and the growth of the Internet promises to be society-changing events affecting not only businesses but also people’s personal lives.