Apple Case-2

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Feb 20, 2024

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Megan Gray Strategic Management Apple Inc. Case About the Case: This case was looking at the music industry before and after Nepster. We were able to see that before Nepster, consumers were able to listen to music by CDs from recording studios, and MP3 players. Then entered Napster and they made songs available via online streaming. Giving consumers a new way to listen to music and get those songs they wanted. They were now able to get one song from a playlist instead of having to buy the whole CD. As technology advanced we were able to see the advancements of the online streaming services with Apple Music, Spotify, Soundcloud and more. We also were able to see the changes in the music industry. 1. Applying the Five Forces analysis, please examine the attractiveness of the industry before Napster’s entry using the Five Forces analysis. Please discuss the factors under each force to evaluate the threat of each force. a. After reading this case the music industry was an attractive industry before Nepster decided to enter the market. Due to the large demand for people wanting to listen to music, the market was growing at a significant rate. It was in the early 2000s before Nepster that we saw CD’s were very popular as it was a way to have music that they wanted with them at all times. The case article states that there were four major record labels during this time that produced and distributed almost 88% of all music recorded. Those four groups were Sony, Warner, Universal Music Group, and EMI . We can use these four record labels when we look at rivalry and use the Four Firm Concentration Ratio. b. Threat of Rivalry: During this time the rivalry was controlled by these top companies. The industry at the time had a low growth rate which is a factor as to why the music industry was favorable. The 88% that the big 4 produced and distributed shows us that this is a concentrated ratio, which makes the industry a favorable factor. To me this makes the threat of rivalry a low threat. c. Threat of new entry: Product differentiation at this time was considered low due to the fact that they are all putting out the same thing. With switching costs, the only thing that would come up was customers switching from CDs to new cassettes tapes, to then eventually MP3 players. But I still believe the switching costs at this time were still low. The economy of scale at this time was large because the big 4 were so large that they have lower prices. For a new company to enter this market it was considered easy but they may not want to. To me this factor is considered unfavorable. d. Threat of substitutes: Consumers at this time still had the opportunity to not buy a CD and rather just listen to music on MTV or the radio. This to me is favorable

because customers would have to bargain on whether or not to risk the chance of not hearing the song on MTV or the radio or just buy the CD. e. Bargaining power of Suppliers: In the case it states that “ Walmart and Target account for 65% of retail music CD sales.” With bargaining power of buyers, they had many store options that they could easily turn to. Buyers had the opportunity to purchase a cheaper option if they didn't want the entire CD. This factor would then be considered unfavorable to me. f. Bargaining power of Buyers: This factor is considered unfavorable to me due to the fact that the buyers at this time had power, they had the power of what they wanted to buy whether it be a cheaper CD or download the song on their MP3 player. They were able to control how much the records were being sold. I also believe there wasn’t necessarily any switching costs to worry about at this time. 2. Applying the Five Forces analysis, please examine the attractiveness of the industry using the Five Forces analysis after Napster’s entry. Which forces have changed? To which direction? a. The music industry was shaken up when Napster entered the market and became a major player. Napster made it available for consumers to access music files, which insight eliminated the need to go buy a CD causing the record labels to lose a lot of money. The music industry got very competitive when Nepster entered the market. I believe that it changed consumer power, competition and rivalry. It changes a new format of how to buy music. Substitutes change much higher because there is such a high threat of substitutes. With Nepster, Apple Music, Spotify, Amazon Music and others eventually came along. These services allowed consumers to completely stop buying CDs and rather just get a membership and buy the certain songs they wanted off an album. In the case it states that in 2019 there was an estimated 60.4 million users paying for an online streaming service. The music industry is a very competitive market now that we have all these streaming services for consumers to choose from along with CDs. Nepster did have an obvious effect on the music industry once it entered the market.

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