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Digitization in the music industry in Sweden An analysis on the profitability of music companies Paper within Business Administration Author: Roberto Alejandro Orozco Gómez 8811186793 Tutor: Bozena Mierzejewska Jönköping May 2012 Orozco, 2012 Acknowledgements I would like to thank all people that have contributed to this master thesis with their know- ledge, feedback, time and support. To Patrik Wikström, who helped with the collection of secondary data. To the other groups in the seminars that always provided me with constructive feedback. Finally, I want to thank my tutor, Bozena Mierzejewska, who guided me through the process of writing this thesis. Roberto Orozco Jönköping International Business School May, 2012 “Don’t tell me the sky’s the limit when there’s footprints on the moon” Paul Brandt, singer and songwriter. 1 Orozco, 2012 Bachelor Thesis in Business Administration Title: Digitization in the music industry in Sweden: An analysis on the positive effects of digitization. Author: Roberto Alejandro Orozco Gómez Tutor: Bozena Mierzejewska Date: 2012-05 Subject terms: Digitization, music industry, Sweden, positive effects, profitability. Abstract Background and problem: The music industry has been in transition in the last two decades; technological developments have changed the mar- ket and companies are creating new business models to adapt; scholars have done research on the negative effects that digitization has broght to the industry and only a few re- searchers have focused on the positive effects that this has caused. Purpose: The purpose of this paper is to analyze the positive effects that digitization has on the music industry in Sweden. Frame of reference: The frame of reference consists of previous research, the music industry in Sweden, established and emergent music companies, a concept of profitability of media companies and propositions. Method: To fulfill the purpose of this paper, secondary data was used by the author. The information was collected from the big- gest and most recognized federation in the music industry. Analysis: The results showed that the industry as a whole is recovering and the positive effects are restricted to a few players only. Conclusion: The author of this paper can conclude that the positive ef- fects of digitization in the music industry are not evident yet, whilst analyzing the profitability of music companies it ap- pears that they are still in transition. 2 Orozco, 2012 Table of Contents 1 Introduction ............................................................................... 1 1.1 Background ....................................................................................... 1 1.2 Problem Discussion .......................................................................... 2 1.3 Purpose ............................................................................................ 3 2 Frame of Reference ................................................................... 4 2.1 Previous Research ........................................................................... 4 2.2 Music Industry ................................................................................... 5 2.2.1 The Different Sectors in the Music Industry ............................... 6 2.2.2 Music in Sweden ....................................................................... 7 2.3 Music Companies (Former Big Four) ................................................ 8 2.3.1 EMI Group ................................................................................. 8 2.3.2 Sony Music Entertainment ....................................................... 10 2.3.3 Universal Music Group ............................................................ 11 2.3.4 Warner Music Group ............................................................... 11 2.4 Music Companies (Services) .......................................................... 12 2.4.1 Spotify...................................................................................... 12 2.4.2 iTunes ...................................................................................... 13 2.5 Profitability of Media Companies .................................................... 14 2.6 Propositions .................................................................................... 15 3 Method ..................................................................................... 16 3.1 Research Approach ........................................................................ 16 3.2 Choice of Data Collection ............................................................... 16 3.2.1 Secondary Data ....................................................................... 16 3.2.1.1 Strengths and Weaknesses of Secondary Data ..................................... 16 3.3 The “Raw Data” .............................................................................. 17 3.3.1 Type of Data ............................................................................ 17 3.3.2 Delimitations of Data ............................................................... 17 3.3.3 Data Analysis ........................................................................... 18 3.3.4 Limitations of Data ................................................................... 18 3.4 Validity ............................................................................................ 18 3.5 Reliability ........................................................................................ 18 4 Empirical Findings .................................................................. 19 4.1 Music Industry in Sweden ............................................................... 19 4.1.1 Total Sales ............................................................................... 19 4.1.2 Album Sales ............................................................................ 20 4.1.3 Digital Sales ............................................................................. 21 4.1.4 Market Share ........................................................................... 21 4.2 Music Companies in Sweden.......................................................... 22 4.2.1 EMI Svenska AB ...................................................................... 22 4.2.2 Sony Music Entertainment Sweden AB ................................... 23 4.2.3 Universal Music AB ................................................................. 24 4.2.4 Warner Music Sweden AB ....................................................... 25 5 Analysis ................................................................................... 26 5.1 Presentation of propositions ........................................................... 26 3 Orozco, 2012 5.1.1 Proposition 1 ............................................................................ 26 5.1.2 Proposition 2 ............................................................................ 26 5.1.3 Proposition 3 ............................................................................ 27 5.1.4 Proposition 4 ............................................................................ 27 6 Conclusion .............................................................................. 28 6.1 Conclusions .................................................................................... 28 6.2 Discussion ...................................................................................... 28 6.3 Contributions and Further Research ............................................... 29 7 Abbreviation Index .................................................................. 30 8 References ............................................................................... 31 9 Appendix .................................................................................. 35 Table 1 Economic overview of the four major music companies in Sweden in 2010............8 Graph 1 Total music sales in Sweden 1998-2011........................................................................19 Graph 2 Album sales in Sweden 1998-2011.................................................................................20 Graph 3 Average price per album in Sweden 1998-2011...........................................................20 Graph 4 Digital sales in Sweden 2006-2011.................................................................................21 Graph 5 Market share in Sweden 2009-2011...............................................................................21 Graph 6 Sales revenue, EMI Svenska AB, 2002-2011................................................................22 Graph 7 Assets, EMI Svenska AB, 2002-2011............................................................................22 Graph 8 Sales revenue, Sony Music Entertainment Sweden AB, 2002-2011.........................23 Graph 9 Assets, Sony Music Entertainment Sweden AB, 2002-2011......................................23 Graph 10 Sales revenue, Universal Music AB, 2002-2011.........................................................24 Graph 11 Assets, Universal Music AB, 2002-2011.....................................................................24 Graph 12 Sales revenue, Warner Music Sweden AB, 2002-2011..............................................25 Graph 13 Assets, Warner Music Sweden AB, 2002-2011..........................................................25 Graph 14 Comparison of assets, 2002-2011................................................................................36 Figure 1 Cost centers and percentage of costs for normally
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