Case study of BMG
- SWOT Analysis
- Strategic recommendations
The music industry has been dominated throughout the century by a limited number of majors. The oligopoly exists due to several factors. These include: - The large fixed costs: the costs of production and the distribution of fixed costs are extremely high, and constitute barriers to entry. Effects of scale allow larger companies to become profitable. - Rapid technological change: the ability of companies to follow technical developments is an important success factor in an industry in constant change (the different media changes). - Low margins: The number of actors involved in the production of an album are very important (composers, artists, producers, etc.).
To illustrate the small margin that carry the majors, take the typical cost structure of this type of company for a product sold for $10.75. The operating income is only $0.59 (representing a margin of 5.5%). By comparison, retailers have a slightly higher operating margin (5.7%), which still remains relatively low.
Tags: BMG, music industry margins, cost of production of music, music retailers