A Business Model Shaped by Technology - a Case Study of EMI Records

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J Ö N K Ö P I N G I NTERNATIONAL B U S I N E S S S CHOOL

JÖNKÖPING UNIVERSITY

A business model shaped by technology - A case study of EMI Records

Bachelor Thesis within the field of Marketing

Authors: Adam Tapper 850522

Johan Sjöberg 840311

Tutor: Börje Boers

Jönköping December, 2009

Acknowledgements We would first of all like to thank our tutor, Börje Boers, for his guidance and feedback. We would like to express our gratitude to the people at EMI in Stockholm, especially to Paul Sonkamble, Ulrik Cahn and Stefan Blom for the valuable information and help we got from you. A big thanks goes to the interviewees at Aftonbladet, Statoil, Spotify and the MMTC centre of JIBS, thank you for your time and for giving us a better understanding of the case we have been studying. Last but not least, we would like to thank Christian Algotsson, former student at JIBS for encouraging us to keep on struggling and our fellow students for all the feedback during the seminars.

______Adam Tapper Johan Sjöberg

Jönköping International Business School 2009-12-09

Bachelor Thesis within Business Administration Title: A business model shaped by technology: A case study of EMI Records Authors: Sjöberg, Johan; Tapper, Adam Tutor: Börje, Boers Date: Jönköping, December 2009 Keywords: Business model, technological change, drivers of change, record company, music industry, EMI Abstract Background: The record companies have experienced a major change in their industry due to technological changes. Ever since 2001, the music industry has lost a third of its global sales. Technology has opened up new distribution channels, both legal and illegal. Since the mid 1990s, when internet became a part of our lifestyle, people have been using these new channels. The music industry is facing a significant environmental and structural change. As a result of this change, record companies are now being forced to change the traditional business models which they have used for many years. We found it interesting to investigate if one of the major record companies in the world has been able to adapt their business model to these technological changes.

Purpose: The purpose of this thesis is to study and analyze the record company EMI, and to investigate how their business model has evolved as technology has opened up for new markets.

Method: A qualitative approach has been selected in order to complete a case study of EMI’s business model and to fulfil our purpose. Interviews have been conducted in a semi-structured manner with mainly new internal actors in EMI’s business model. As well as interviews with employees at EMI, an interview has also been conducted with an independent researcher in the field of media. To gain an external view of these changes, Patrik Wikström, a researcher at MMCT has been interviewed to avoid ending up with a biased study.

Conclusion: The music industry has been through major changes. The driver of change behind this has been innovations in technology. This research has shown that EMI had problems with adapting to these changes and their business model was too inflexible. As a result of these changes EMI have been forced to re- structure their traditional business model and adapt it to the movements on their market. Important actors such as physical record stores have diminished while new actors have grown to become crucial for EMI’s business.

Kandidatuppsats i Företagsekonomi Titel: A business model shaped by technology: A case study of EMI Records Författare: Johan Sjöberg Adam Tapper Handledare: Börje Boers Datum: Jönköping, December 2009 Nyckelord: Business model, technological change, drivers of change, record company, music industry, EMI Sammanfattning Bakgrund: Skivbolagen har tvingats till stora förändringar i musikindustrin på grund av teknologiska framsteg. Sedan 2001 har musikindustrin förlorat en tredjedel av deras totala försäljning. Den nya tekniken har öppnat nya sätt att distribuera musik, både lagliga och olagliga. Sedan mitten 1990-talet då internet blev en del av vår livsstil har människor använt sig av dessa kanaler. Musikindustrin står framför radikala förändringar i både struktur och omgivning. Resultatet av detta är att skivbolag är tvungna att förnya sina traditionella affärmodeller som tidigare fungerat så bra. Vi tycker att det är intressant att undersöka hur ett av världens största skivbolag har lyckats att förnya sin affärsmodel efter de teknologiska framstegen som gjorts.

Syfte: Syftet med denna uppsats är att undersöka hur skivbolaget EMI Records har förändrat sin affärsmodel efter att tekniken har öppnat upp för nya marknader.

Metod: Till denna uppsats har en kvalitativ undersökningsmetod valts för att kunna studera EMI’s affärsmodel och följfölja syftet. Intervjuer med EMI’s interna aktörer och EMI själva har genomförts på ett halvt strukturerat sätt. En intervju med Patrik Wikström, en självständig forskare inom media på MMTC har genomförts för att få en extern bild av musikindustrin. Detta för att undvika att presentera en ensidig bild.

Slutsats: Musikindustrin har genomgått stora förändringar. Den drivande faktorn har till detta har varit innovationer i teknologin. Vår undersökning har visat att EMI haft problem att anpassa sig till dessa förändringar och deras affärsmodel har inte varit tillräckligt flexibel. På grund av dessa förändringar har EMI blivit tvingade att förnya sin affärsmodel och anpassa den till hur marknaden har förändrats. Viktiga aktörer som fysiska skivaffärer har minskat medan nya aktörer har uppkommit.

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Table of Contents

1. Introduction...... 2 1.1 Background ...... 2 1.2 EMI Records...... 3 1.3 Problem Statement ...... 3 1.4 Purpose...... 5 1.5 Definitions ...... 5 2. Theory...... 6 2.1 Business Model...... 6 2.1.1 What is a business model? ...... 6 2.1.2 Components of the business model ...... 7 2.1.3 Product ...... 9 2.1.4 Customer interface...... 10 2.1.5 Infrastructure management...... 11 2.1.6 Financial aspects...... 12 2.2 Factors of change...... 13 2.3 Fit for technological change...... 15 3. Method...... 17 3.1 Choice of strategy ...... 17 3.2 Research approach ...... 18 3.3 Quantitative and Qualitative study ...... 19 3.4 Data Collection ...... 20 3.4.1 Primary and secondary data...... 21 3.5 Interview structure...... 22 3.6 Credibility, generalizability and trustworthiness...... 23 3.7 Ethics ...... 25 3.8 Interview guide ...... 25 3.9 Transcribing and analysing data...... 27 4. Empirical Findings ...... 29 4.1 Internal findings ...... 29 4.1.1 EMI Records ...... 29 4.1.2 Changes in the music industry...... 29 4.1.3 Drivers of change in the music industry ...... 30 4.1.4 Changes in EMI ‘s business model ...... 31 4.2 Customer interface...... 32 4.2.1 Aftonbladet ...... 32 4.2.2 New channels for the music industry...... 33 4.2.3 Music as an addon product...... 34 4.2.4 Spotify...... 34 4.2.5 Their way in to the music industry ...... 35 4.2.6 Spotify's role in the music industry ...... 35

4.2.7 Statoil ...... 35 4.2.8 Reasons to their success...... 36 4.2.9 Music as a tool ...... 36 4.3 External findings...... 37 4.3.1 The MMTC...... 37 4.3.2 Dynamics in the music industry...... 37 4.3.3 Adapting...... 38 4.3.4 Changes in the business model ...... 38 5. Analysis ...... 40 5.1 The changes in EMI’s business model...... 40 5.1.1 The product...... 40 5.1.2 Customer interface...... 41 5.1.3 Infrastructure management...... 43 5.1.4 Financial aspects...... 45 5.2 The impact of technology for EMI ...... 47 5.2.1 Aftonbladet ...... 48 5.2.2 Spotify...... 49 5.2.3 Statoil ...... 50 6. Conclusion...... 52 6.1 Final discussion...... 53 6.2 Credibility of this study ...... 53 6.3 Further research...... 54 References...... 55 Appendix A - Prerequisites for the interview ...... 58 Appendix B – Questions to EMI Records...... 59 Appendix C – Questions to Aftonbladet...... 60 Appendix D – Questions to Patrik Wikström...... 61 Appendix E – Questions to Spotify ...... 63 Appendix F – Questions to Statoil...... 64

Figure 1. "The nine business model building blocks"...... 8 Figure 2. "The seven drivers of change" ...... 14 Figure 3. "Deductive approach vs. inductive approach"...... 18 Figure 4. "Interview table"...... 26

1. Introduction

In this chapter the background to the topic is discussed. The problem statement and purpose are explained together with the delimitations and definitions. We will also give the reader a brief introduction to EMI records, the company that this case study is about.

1.1 Background

“Whatever the culture, whatever the society, wherever there are people, there is music. Throughout most of history, music could only be heard by those immediately around the musician. Music was a live, transient art form.” (http://www.emigroup.com/About/History/Default.htm, 2009)

According to IFPI, the International Federation of the Phonographic Industry (2008) the total trade value between 2007-2008 for global recorded music dropped by 8.3%. In this number, physical sales, digital sales and performance rights are included. The physical sales dropped by 15.4%, while performance rights and digital sales grew by 16.1% and 24.1% respectively (IFPI 2008). A total global drop of 8.3% in physical sales coupled with the heavy growth in performance rights and digital sales only confirms what experts pointed out before. The music industry is facing a significant structural and technological change. This assumption is not only based on a statistical trend from 2007-2008, data shows that since 2001, the music industry has lost a third of its total global sales (IFPI 2008). One of the main contributors to this environmental change is technology. Technology has paved the way for new distribution channels, both legal and illegal. Since the mid 1990s when internet became known and part of our lifestyle, websites and peer-to-peer (P2P) clients such as Pirate Bay, Lime Wire, Kazaa and Direct Connect (DC) that offer illegal downloading of MP3 songs have continued to pop up every year. This illegal copying and distribution of music often called “piracy” is often blamed as the main cause to the recession in the music industry (Premkumar, 2003, Becker & Clement, 2006, IFIPI, 2005). This piracy is a result of new technological innovations. As a reply to this, the record companies are reframing the components of their business model continuously. Distribution channels, value creation and partnerships, among other components are all exposed

2 to these changes.

There are four major record companies that dominate the music industry today in market sales and market shares (IFPI 2007). Sony BMG, Universal, EMI and Warner Music Group also called, “the big four” controlled 71.7% of the market 2005 (IFPI). Who are all affected by the developments in technology and have been forced to adapt to a moving market.

1.2 EMI Records

The Electric and Musical Industries Ltd. (EMI) was founded in 1931 as a result of a merging between Columbia Graphophone Company and The Gramophone Company and is the oldest of the four major record companies. EMI consists of several well-known label groups; Capital Records and Virgin Records are two of them. There are record companies belonging to EMI that were founded as far back as the end of the 19th century. The head office is located in London, U.K. EMI Sweden are located in Stockholm, Sweden. EMI Sweden has about 40-45 employees (personal communication, P. Sonkamble, 2009-11-14). The list of signed artists is long and with hundreds of well-known artists such as; Robbie Williams, Coldplay, Kylie Minogue, The Beatles, Queen and Iron Maiden. The company is active worldwide and in 2008 it had approximately 5500 employees (www.emi.com). As of 2007, the British private equity firm Terra Firma Capital Partners acquired EMI.

1.3 Problem Statement

“We are extremely active in developing new business models, new sources of revenues. We are working with all the big names in the field of Internet, telecom equipment companies, big media companies and this is a big opportunity. I really believe we are at the turning point for the music industry.” (Jean Bernard Levy, CEO of Vivendi, 2008, IFPI, p. 11)

Record companies and their partners are forced to adapt their traditional business model due to major improvements in technology. The music industry is entering a new era. Record companies need to find ways of supplementing the traditional business model in order to meet the new forms of customer demands. In 2004, digital sales represented 2% of the recorded music sales; in 2008 the number had increased to 21%. At the same time the total sales between 2007 and 2008 dropped by over 20%. The growth in digital sales is not enough to cover the loss in physical

3 sales.

“In 2008 we saw the emergence of new partners and business models that have diversified the number of ways consumers can acquire music. We look forward to seeing these new models start blossom in 2009 and 2010.” (Thomas Hesse, President Global Digital Business, Sony Music Entertainment, 2008, IFPI, p. 11)

Magretta (2002) states that a business model needs to be up to date and it should fit the market. The business model should be an essential point in every organization and it is essential to their success (Magretta, 2002). This has been the problem for the music industry. Their business model has not been adapted to changes that occurred due to innovation in technology, they have used a traditional business model without a fit.

The music industry has often benefited from technological innovations such as the LP, the CD format. However, ever since internet became part of our lifestyle, EMI have found themselves in a difficult situation along with the rest of the music industry. The main cause of this has been the developments within technology which is acknowledged as a driver of change by Ackerman – Anderson and Anderson (2008), where they state that shifts in the external environment will later have an impact on the internal level.

The market for record companies is moving from a physical to a digital market. Improvements in technology and communication have opened up new markets and opportunities to reach customers. Several new actors are entering the business model each year while others disappear. Keeping track with the movements on the market is crucial for them in order to have a business model that is up to date. Due to the major improvements and innovations in technology, EMI needs to change their traditional business model in order to find new channels of reaching out to their customers and stay competitive against the rest of the “the big four”.

“The market will rely on an increasingly complex range of multifaceted models. That means more opportunities for fans to connect with artists and vice versa – but being able to manage such complexity is a challenge for artists and labels. To be relevant to today’s music consumers and today’s artists, record companies must develop and offer new sets of marketing skills, especially in digital, starting with deep consumers insight and a truly global and demand driven approach.” (Elio Leoni Scenti, Chief Executive, EMI Music, 2008, IFPI, p.11)

1.4 Purpose

The purpose with this thesis is to study and analyze the record company EMI and investigate how their business model has evolved as technology has opened up for new markets.

1.5 Definitions

“The big fours” (also called the majors) EMI Records, Warner Group, Universal Records, Sony BMG (IFPI 2008)

ROW – Rest of world, a market that consists of Eastern Europe, Asia Pacific and Latin America.

IFPI - International Federation of the Phonographic Industry, the organization that represents the interests of the recording industry worldwide.

Trade value – Record companies’ revenue, net of profits and return on taxes. Promotional goods and non-music related sales are excluded (IFPI 2008)

Physical sales – CD sales ordered via internet or bought via retailers (IFPI 2008)

Digital sales – Sales via online and mobile channels, income from advertising supported services such as ringtones, album downloads, music video downloads, streams, bundles and kiosk sales (IFPI 2008).

Performance rights – incomes received by record companies from music licensing companies for the use of sounds recordings and music videos in radio, TV, nightclubs, bars, restaurants and hotels (IFPI 2008).

Non-traditional-outlet (NTO) – A new sale channel for the record companies. Focus lies on volume instead of margin. Buy a newspaper and get a discount on a specific CD is an example of this.

Antipiratbyrån – An organization that is working against illegal distribution of property rights.

2. Theory

In this part, relevant theories and articles for our chosen topic are presented. These theories have been used to conduct our analysis. Business Model, Drivers of Change and Change Management are three theories that will be brought up. We will also argue and highlight why these theories are chosen and how they can be useful to us.

2.1 Business Model

A business model that is appropriate and up to date to the market is crucial for any business, regardless of the industry. Defining what a business model actually is and what it consists of is widely discussed though. The confusion is shared among several researchers and there have not been many attempts to actually define the components of a business model.

2.1.1 What is a business model?

“Today, “business model” and “strategy” are among the most sloppily used terms in business; they are often stretched to mean everything – and end up meaning nothing” (Magretta, 2002, p 8). Which leaves us with a topic that seems to be hard to even define since the opinions among researchers vary. Magretta (2002) claims that even if the definition of the business model is unclear it is essential for every successful organization. Magretta continues by stating “A good business model answers Peter Drucker's age-old questions: Who is the customer? And what does the customers value? It also answers the fundamental questions managers must ask themselves: How do we make money in this business? What is the underlying economic logic that explains how we can deliver value to customers at an appropriate cost?” (Magretta, 2002, p.4) This appears to be at the very core of every business, being able to realize what the customer values and by using available resources to deliver value and satisfy the needs of the customer. In other words, the business model should consist of those elements that will answer the questions mentioned above by Drucker. The specific elements that belong to the business model, however, differ from one researcher to another.

As discussed in section 3.2, technology above everything else is rapidly changing the way

6 companies conduct business nowadays, they are being forced to innovate their business model continuously to stay competitive. A business model is never meant to stay constant, it has to be revised and examined on a constant basis since markets are moving. Such is the case for the music industry today, with a fast moving market in an environment which is experiencing major changes.

Boulton, Libert and Samek (2000) argue that a business model can never be considered "safe" because competitors are constantly developing ways to acquire each other's most valuable assets. “The business world of today has been transformed by new levels of competition in which old rules of business are constantly shattered” (Boulton et al, 2000, p.32), which leave companies with no choice but to develop new business models attuned to the new reality.

2.1.2 Components of the business model

Hamal (2000) identifies four major components that belong to a business model:

• Customer Interface – Deals with the importance of distribution channels, the pricing structure and also the interaction between the company and its' customers (Hamal, 2000), p.96).

• Core Strategy - How a company decides to compete with their competitors and how they differentiate from their competitors (Hamal, 2000, p.96).

• Strategic Resources - How to make the best use of a company's resources in order to be competitive (Hamal, 2000, p.96).

• Value Network - The resources provided by partners, suppliers, joint ventures and how to make the best out of it (Hamal, 2000, p.96).

However, this is not enough to gain a comprehensive view of the business model. We also believe that it is necessary to make an understanding of how all the components of a business model overlaps. As all parts of a business model in the end affects the outcome of it. “The major implication to management is that strongly developing one component of the business model

always has network effects to other components” (Tikkanen, Lamberg, Parvinen and Kallunki, 2005, p.805).

We will also take a deeper look into the consistence of a business model. Osterwalder's view of the business model in his research identifies the main elements that a business model should consist of. According to Osterwalder (2004) a business model consists of four major categories that are broken down into nine more specific elements.

Figure 1. "The nine business model building blocks" (Osterwalder, 2001, p.43).

The four categories are to be seen as categorizations of the business model with nine interrelated elements that belongs to a certain category. The nine elements are: value proposition, target customer, distribution channel, relationship, value configuration, capability, cost structure and revenue model.

The categories and elements are no new ideas or beliefs, many parts of it will be recognized and our discussion will be on the reasons why, or why not, we believe they belong in a business

8 model. By stating this we hope that you as a reader understand that it is not about anything else but the composition of the business model that we are leading our discussion about.

We would also like to stress the importance of understanding the interrelation between the four categories as well as the nine elements within. Taking that into account will make the next part easier to understand and grasp. Osterwalder (2004) claims that his extensive literature review around the area of the business model is the background to his view of it and how he identifies it. However, we have decided to make our own research around the elements brought up in order to get a better view of the elements and their belonging to the business model.

2.1.3 Product

The product is meant to cover all the aspects that a company has to offer to its customers. It has to do with what the company has to offer and not just the product/service itself. How it differs and in what way compared to competitors. This explains the reasons why customers chose a specific company to buy from. This is where the value proposition comes in, the first element in the business model (Osterwalder, 2004).

Value Proposition

The benefits derived from how products, services and value-added services are packaged and offered in order to meet the customers' needs. Value propositions are the statements of benefits that are delivered by the firm to its external constituencies, such as customers (e.g., lower prices, wider product choices, faster delivery) and also to its internal constituencies, such as employees and shareholders (Bagchi & Tulskie, 2000). It gives the company a view of how their products and services put together creates value for a customer segment. This also shows how a company differs from its competitors and the reasons why a customer buys from a certain company and not from competitors.

The main goal for the company is to better understand their offerings compared to their competitors and by doing so allowing them to understand what can be done better and open up for innovations.

2.1.4 Customer interface

The second category aims at the relationship towards customers; this could be seen as Customer Relationship Management (CRM), which is a completely different area of research where the focus is on technology. For the business model this should only be seen as a single piece of a bigger picture.

“The management of the customer relationship portfolio (customer base) is identified as one of the most crucial aspects in the management of a company’s business model” (Tikkanen, et al. 2005, p. 795). This is also what Osterwalder (2004) takes up to discussion “CEO's and CIO's sometimes tend to reduce managing customer relationships to a problem that can be resolved by technology. Rather, they should perceive customer relationships and CRM as a conceptual management problem that can be resolved with the assistance of IT. Therefore managers should consider a conceptual approach to customer relationship as I do in the customer relationship pillar of the business model ontology” (Osterwalder, 2004, p.59). The customer interface deals with a broader definition that contributes to the business model, while CRM is more in detail towards managing customers. The customer interface is a way to look at how to approach a market, how to reach its customers and the interaction. How and to whom value is delivered by the value propositions and looking into the targeted customers and the distribution channels being used to reach them.

Target Customers

The company has to make a decision about what kind of customers they want to deliver value to. Segmenting a customer makes the allocation of resources more effective with the ambition of reaching the customer who will be most attracted by the value proposition. B2B and B2C are two common ways of segmentation. By defining who the customer is, the choice of channels to reach out with the product is also more effective and beneficial.

Distribution Channels

Osterwalder (2004) sees this as the bridge, which connects the elements value proposition and target customers. It allows the company to deliver value to its target customers. There are in general two ways on how to deliver; directly or indirectly where the later makes use of

10 intermediaries like resellers. This area has also been through major changes as technology is evolving and changing the rules of the markets. The music industry for example, had its products only available for purchasing from record stores in major cities, is now being purchased from our households over the internet. This opens up for gaining a competitive advantage by making use of new channels where competitors are not active for the moment or not performing efficiently.

Particularly, the internet has a great potential to complement rather than to cannibalize a business’s existing channels (Porter 2001, Steinfield and Bouwman 2002, Osterwalder, 2004, p.63). However, selling through several channels simultaneously eventually causes channel conflict when they compete to reach the same set of customers (Bucklin, 1997).

Relationship

The relationship focuses on the connection between the company and its customers. All the interaction between the company and the customers affects how strong the relationship will be. However, interactions of this kind demands resources, which means that a company must realize and determine what kind of relationship they should build, as the outcome hopefully is revenue out of this customer relationships.

2.1.5 Infrastructure management

How to create value is the third category of the business model (Osterwalder, 2004). It is the relationship between creating and delivering value, which is what value proposition and customer interface deals with. This category specifies the business model’s capabilities and resources, their owners and providers, as well as who executes which activity and how they relate to each other, (Osterwalder, 2004). This is done to ensure the best utilization of a network in order to be efficient and successful.

Value Configuration

Value configuration is the activities that are needed to create value and shows the links between these activities. The most well known model of this is the value chain (Porter, 2001). The value chain describes the creation of value and the elements that are involved to deliver value to the customer in the end. Sweet (2001) claims that the business model lays the foundation for the

11 kind of value that will be the outcome of it.

Capability

The important aspect here is the core capabilities that a company possesses. The capabilities that make a company gain a competitive advantage and how they differentiate from competitors. There is also a link between a company’s capabilities and its value proposition. It is the way they create, produce and offer their product/service to the market. As the knowledge set distinguish and provides a competitive advantage, (Leonard-Barton, 1992).

Partnership

It reveals how the partnerships looks like for the company, the activities and resources distributed among them. It could be in the form of a joint venture where two companies agree to perform a certain task for a limited time or the relationship between a supplier and a buying company. With the right kind of partnerships, a business can prosper by reducing costs, improving quality and gaining a competitive advantage by signing exclusive deals with successful companies. According to Tuten and Urban (2001) any partnerships have been based, at least initially, on the potential to achieve cost savings and reduced duplication of logistical effort for both partners.

2.1.6 Financial aspects

The last category of the business model is connected to the other three categories. The outcome of the other three categories reflects this category. The financial aspect determines the logics behind a company's profit or loss, the reasons behind it that is (Osterwalder, 2004). The last category is divided into two parts, revenue model and cost structure.

Revenue Model

Explains how the delivered value could be turned into money. There is no right or wrong way of how this should look like and can have different pricing mechanisms. As the firm focuses on its core competencies and activities and relies on partner networks for other non-core competencies and activities there is an important potential for cost savings in the value creation process (Osterwalder, 2004).

Cost Structure

The ninth and last element is measuring the costs that a company has when creating, marketing and finally delivering value to customers. It can be seen as putting a price tag on the resources, activities and the relationships within the network and the exchanges taking part in it (Osterwalder, 2004). What to focus on in this element in order to make a change are the activities that are being done by partners within the network while the company is focusing on its core competence.

2.2 Factors of change

Different authors have different definitions and views on drivers of change. Number of factors that companies and organizational leaders should take into consideration is also something that differs among authors. For these reasons no “wrong” or “right” model exists. Instead, drivers of change will vary by industry or sector (Johnson, Scholes & Whittington 2008). Something that authors within the change management field agree upon is that a driver of change is a factor that is likely to change the future business models an industry. According to Johnson et al. (2008) a driver of change is environmental factors that are likely to have a high impact on the success or failure of strategy.

In figure 2, Ackerman – Anderson and Anderson (2008) includes seven factors that they argue should be the basic starting point for analysis of change. These factors are:

• Environment

• Marketplace requirements for success,

• Business imperatives,

• Organizational imperatives,

• Cultural imperatives

• Leader and employee behaviour

• Leader and employee mindset

For this thesis only the first driver of change (environment) is essential since this includes technology, which we believe is the main reason to the radical changes that EMI are experiencing. According to Ackerman – Anderson and Anderson, (2001) the change starts with shifts in the external environment that later on affects the internal level. The process starts with radical changes in the environment that creates new requirements for in the industry since the customers demand new services and products. In order to be able to meet these new demands new business strategies need to be developed. And new business strategies require changes in the organization’s structure to be able to implement these strategies successfully. These changes are often significant, for that reason also Ackerman – Anderson and Anderson (2001) suggests that also the culture should be changed. This cultural change requires leaders and employees to change their behaviour and mindset as a result of new demands from customers.

Ackerman – Anderson and Anderson (2001) describes the environment as the dynamics of a larger context within which organizations and people operates, these forces include; social, business and economic, political, governmental, technological and demographics (Ackerman – Anderson & Anderson, 2001).

Figure 2. "The seven drivers of change"(Ackerman – Anderson & Anderson, 2001, p. 17)

2.3 Fit for technological change

EMI has been forced to make changes in their business model since technology is evolving and opening up for new markets. Durand (2004) states that there are different strategies that a firm may choose from when a change is triggered by technology.

“The former business context of an industry, now under deconstruction, had imposed a set of strategic requirements onto the existing firms, pushing them over time to build competence that addresses these requirements” (Durand, 2004, p. 127).

Implying that the old way of doing business, hence, the structure of a business model as well, was shaped due to the market as it used to look like. As the music industry today is experiencing incremental changes due to improvements in technology, so has the business model to be changed. The competence within a firm settles and defines the fit for the changes according to Durand (2004). Competence in this context is defined as the capability of making organizational changes, external as well as internal.

“ A business model's great strength as a planning tool is that it focuses attention on how all the elements of the system fit into a working whole” (Magretta, 2002, p. 6).

Depending on how well the firm can find a fit to the changes and requirements the firm may be able to stretch their existing knowledge and competence to find a fit. If they on the other hand, find themselves with no possibility to adapt to the changes they should diversify and escape from the change, to develop new activities that goes around the difficulties of finding a fit.

Durand (2004) differs between two sets of companies; the companies that are able to influence the changes and the ones that are forced to react as the changes appear externally. Where the companies that influence the changes create their own fit while the others are forced to either stretch or re-deploy. The fact the technology have affected the music industry is evident. More interesting is how they have accepted it since this is a problem that always will occur, technology will always progress and the crucial thing for all industries and organizations is how to handle it.

Change is a phenomenon that will always exist, for good and for bad. Anderson (2001) claims that the speed and complexity within change management have increased since it was discovered

15 in the late 1980s. Further on he also states that future success for companies depends on how successful leaders are at leading that change, “change management”. The internet-boom (1998- 2001) made this management style up-to-date and since then it has been widely discussed by organizational leaders. Change management is a set of processes, tools and techniques for managing the people side of change to move a person or group from a current state to a desired future state to achieve the specific objectives of an identified change (Hiatt, 2006). This management style is not only applicable in the music industry, the quote below is a good example of this. People need to think one step ahead and have knowledge on the future in order to be successful. “A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be” (Wayne Gretzky, Canadian hockey player).

According to Paton and McCalman (2008) there are three factors that are influencing how successful the implementation of change is.

• Knowledge of the circumstances surrounding a situation (Paton & McCalman, 2008, p. 4).

• Understanding of the interactions (Paton & McCalman, 2008, p.4).

• The potential impact of associated variables (Paton & McCalman, 2008, p.4).

Further on, they state that organizations can prepare for the future with knowledge about these factors but the most essential things is managed them. The information is worthless if organizations do not know how they should deal with it. Paton and McCalman (2008) claims it is only the effective management of change that are able to shape the future and gain advantages from changes.

3. Method

In this section the methods used to collect the empirical data are being presented. The methods will also be critically reviewed and strengths – weaknesses with each method are highlighted.

3.1 Choice of strategy

According to Saunders, Lewis and Thornhill (2002) method refers to the techniques and procedures used to obtain and analyse data. It includes questionnaires, observations and interviews together with quantitative data (statistical) and qualitative data (non statistical). Since this thesis is a case study of EMI’s business model in co-operation with employees at their office in Stockholm, Sweden, the choice of methods will be limited compared to a non case study.

Robson (2002) defines a case study as a strategy for doing research, which involves an empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence. Yin (2003) also highlights the importance of the context when doing a case study and states that the boundaries between the phenomena studied and the context is unclear. Studying a single organization is often called the case study strategy according to Saunders et al. (2002). The advantage with the case study strategy is that researcher gains a rich understanding about the context of the research (Morris & Wood 1991). On the other hand, Yin (2003) argues that the biggest disadvantage with a case study is generalisation problems. However, the music industry consists of four leading actors today with a total market share of 71.6% (IFPI, 2005) and one can assume that the case for EMI probably looks more or less the same for the other three actors. Another advantage of our case study is that we have access to most of the internal information and are allowed to take part from inside the company. This is also the main reason for why a case study has been chosen.

“A case study strategy also has considerable abilities to answer “why”, “what” and “how” questions” Saunders et al. (2002).Data that we need for this thesis as it involves the study of changes to a business model and the reasons to it. Making use of figures would not tell us much about the reasons behind the changes and would make it hard for us to gain an understanding of the situation.

A business model is complex and hard to analyse without internal information. For that reason we decided that a case study would be the most applicable strategy for our purpose. According to Yin (2003) a case study is appropriate when the amount of time is limited. This was also a driving factor to why we chose the case study strategy. Yin (2003) also states that using a case study can help the researcher to capture a complex environment. The music industry that EMI operates in is constantly changing and conducting a case study is the best way to study this complexity. By studying EMI’s business model as a single case study we have the chance to get a deeper understanding about their traditional business model and how it has evolved over time. We also have the chance to study EMI’s current business model, with new actors and new distribution channels. We believe that a case study is the best way to collect this kind of information in order to fulfil our purpose. Other data collection methods will not give us the information we need to answer our purpose. However, there also exist problems with choosing this strategy. Generalizability and transferability are two of them. However, as the industry only consists of four major companies we believe that one may draw some conclusions that may be valid for the entire industry, hence, to some extent generalisation is applicable and the same goes for the ability to transfer this to the other major record companies.

3.2 Research approach

The two most well known research approaches are deduction and induction. The deductive approach suggests that the researcher develops a theory and a hypothesis and later on tests the hypothesis with your chosen research strategy. The inductive theory on the other hand suggests that the data is collected first and theory is developed as a result of the data analysis (Saunders et al. 2002).

Figure 3. "Deductive approach vs. inductive approach" (Research methods knowledge base, 2006).

When comparing these approaches against each other we find the deductive approach most appropriate for this thesis. The different stages in this approach are related to how this thesis has been structured. Already existing theories have been chosen in order to fulfil our purpose. EMI’s business model is the case study that can be seen as the hypothesis and trough observations (interviews) we will be able to confirm our hypothesis.

Comparing these approaches against each other will only point out that they are used for different types of research. No approach is better or more up-to date than the other one. It is important to point out that they are two independent approaches, it will not be possible to combine or use them together in order to study EMI’s business model. Saunders et al. (2002) points out this fact by stating;”they are better at doing different things. As always, which is better depends on the research question you are seeking to answer” (Saunders et al. 2002, p. 116).

3.3 Quantitative and Qualitative study

Both quantitative and qualitative studies are meant to give a better understanding of how people, groups and institutions acts and affects each other, according to Holme and Solvang (1997). They do differ and the biggest difference is the outcome of the two methods. A quantitative study strives to offer statistics in the form of numbers while a qualitative method of research is more open for the researchers’ understanding and interpretation. Starrin and Svensson (1994) continues on this by stating that the methods differ on how one is able to measure the results, data giving a rough estimation is qualitative while precise estimation belongs to the quantitative approach. The quantity is also a big difference, which is radically smaller when conducting a qualitative data. Some conditions are best suited for a quantitative approach whiles other for a qualitative one (Holme & Solvang, 1997). The need for data that is able to explain how the changes have taken place and for what reasons is crucial for our thesis and also data that may reveal how EMI’s business model looks today.

Quantitative

Quantitative studies are more structured and numbers, statistics and figures often present the result. It is being used in order to gather considerable amounts of data that researchers later on turn into statistics and draw conclusions from it. The strength of this method is that the researchers are able to formulate generalizations by using large amounts of respondents from the selected area of research (Holme & Solvang 1997). However, the purpose of this thesis is in no need of any statistics and we have decided not use any quantitative research. The nature of a business model is very complex and to be able to study this complexity this thesis is in need of deeper and richer information. Numbers, statistics and figures are not useful when the study is too complex.

Qualitative

The need for information about the business model rather than statistics leads us to use qualitative research methods. Fulfilling our purpose makes no need for statistics and is the main argument to why this thesis solely will make use of qualitative data. As statistics would not reveal much of the reasons behind these changes and would not allow us to analyse the situation of EMI’s business model. Defining the business model of EMI and the reasons behind the changes of it leads us to this conclusion. Holme and Solvang (1997) argue, qualitative data reveals the situation and increases the understanding for the social processes and consistency. However, there is of course a risk of getting data that is a bit biased when making use of a qualitative approach. We do however believe that by conducting an interview with Patrik Wikström at the MMTC we will at least reduce this risk, as he is an independent source of data towards this thesis.

3.4 Data Collection

Since this is a qualitative study, according to Saunders et al. (2002) qualitative data refers to all non-numeric data or data that have not been quantified. They continue by stating that the methods of collecting qualitative data can differ.

“It can range from a short list of respondents to open-ended questions in an online questionnaire to more complex data such as transcripts of in-depth interviews or entire policy

20 documents”(Saunders et al. 2002, p. 470).

Laursen (1979) argues that qualitative methods should focus on the individual and their life situation. For that reason the data should be collected under relaxed circumstances, for example during daily activities. The quality of the data depends on the situation it is collected from (Laursen 1979). Our interviews will be conducted at EMI’s office in Stockholm, where we believe that the respondents feel comfortable and open towards having a discussion. According to Saunders et al. (2002) the place where you conduct your interview may influence the outcome of your data collection. “You should choose a location which is convenient for your participants, where they feel comfortable and where the interview is unlikely to be disturbed”. (Saunders et al. 2002, p. 321). By choosing favourable locations for the respondents we believe that the quality of the data will be better and more precise which helped us study their business model even deeper and gaining a better understanding of it.

The ability to have access to our own office during a week allows us to gain an understanding even further and to observe their organisation.

3.4.1 Primary and secondary data

Data that has already been collected for another purpose is called secondary data. Primary data is collected specifically for a purpose (Saunders et al. 2002). Secondary data includes both quantitative and qualitative data and is known for its availability. Primary is often time consuming.

The primary data in this thesis will be based on interviews conducted at EMI’s office in Stockholm. Face-to-face interviews of semi-structured type with two people interviewing one person at a time. It was for this part important to make an understanding of the respondents and their background and role in the organisation. The reason for this was to make an effort to target the respondent’s specific knowledge and their importance for the purpose of this thesis.

We conducted two interviews with employees at EMI Records and also with actors that we believed to be major actors within EMI’s business model of today. The respondents at EMI were chosen depending on their position and knowledge of EMI’s business model. However, only interviewing two employees of a worldwide company with about 5500 employees will not give

21 an objective picture and we were aware of this. The respondents outside the company were selected according to their part in EMI’s business model. The respondents we were looking for were those who are to be seen as new actors for EMI to collaborate with that are part of the changes to how their business model looks like today. We also made an interview with a researcher at the MMTC in Jönköping to get an independent researchers view upon this area of research.

In order to collect the primary data, notes were taken and also an audio-recorder was being used. The main advantages of using an audio-recorder according to Saunders et al. (2002) is that it allows the interviewer to focus on listening and questioning, the ability to make accurate quotes and that body language and the surroundings will not affect the way one interpreters the answers. Denzin and Lincoln (2003) continues on this by arguing that recordings are a public record, available in a way that notes are not and that it can be replayed and transcriptions can be improved.

The main disadvantage for having an audio-recorder is that it may affect the response received from the respondents. This is a risk that was taken as long as the respondents agreed to as it allowed us to concentrate on the discussion and make the best out of it.

3.5 Interview structure

According to Saunders et al. (2002) the structure of an interview can be divided into three parts

• Structured

• Semi-structured

• Unstructured or in-depth interviews Structured interviews make use of questionnaires with predefined questions and are often used for quantitative research. This thesis is based on qualitative research; hence, this type was not applicable for this thesis.

Unstructured interviews are the opposite of structured interviews and are used to explore an area in-depth. There are no predetermined questions and only the aspect of the interview should be clear enough ahead of letting the interview take place.

Semi-structured interviews are somewhat in between structured and unstructured interviews where the researcher has a theme and questions to cover that may differ from one interview to another. Depending on the context and the development of the interview the researcher may leave out some questions or continue further with one or add resulting questions. This was the structure that this thesis made use of, as we needed a certain amount of structure in order to gain the data needed to fulfil the purpose. Non-standardised (semi-structured and in-depth) interviews were used to gather data, which are normally analysed qualitatively, for example as part of a case study (Saunders et al. 2002). However, unstructured interviews were also used during more informal meetings. During lunch or coffee breaks the unstructured interview was more appropriate. Lunch and coffee breaks are often seen as relaxed time when other things than job are being discussed. For that reason, a semi-structured interview would probably not be appreciated. However, semi-structured interviews are faster to collect data from and the time for this thesis was limited and the main data was collected from this type.

3.6 Credibility, generalizability and trustworthiness

Credibility is one of the most important parts for researchers to handle. It is defined as components of the believability of a statement or a message; two of these components are reliability and validity (Saunders et al. 2002). This is also what Yin (2003) defines as a way to measure the quality of a study, by looking into reliability and validity.

Reliability is a measure of how accurate a chosen method will give the same result at different points of time where all other remains constant. A respondent should answer a specific question in an unchanged manner today, as if he/she would be asked next month in another type of situation in order to claim that the reliability is high. There are ways to evaluate the reliability of a qualitative study, but it is obviously a bit more complicated compared to a quantitative one. Trost (2005) divides reliability into four components:

• Congruence – To what extent could the questions measure the same thing. • Precision – The interviewer’s ability to register answers. • Objectivity – Different interviewer’s way of registering, if they do register the answer in the same manner the reliability is high and vice versa. • Constancy – That the phenomena or attitude does not get affected by time.

These problems have been taken into account and the mentioned components have been discussed in order to present a reliable result. To deal with the congruence the questions have carefully been analyzed so they are not measuring the same thing. To overcome the problem with precision an audio recorder has been used during all interviews along with taking notes in order for us to secure the quality and credibility of the collected data. This makes it easier for us to register the answers, if something appears unclear we were able to replay the interview. An audio recorder also decreases the chance of publish incorrect information and quotations. To be able to register the interviews in the same manner we decided to structure them in the same way, however, with differences in questions being asked. The constancy problem is more difficult to deal with, as the purpose of our thesis is to find changes. It is not applicable to measure the reliability of a qualitative study according to the definition above.

The generalizability of this study is an important factor to discuss and we do believe that it is plausible to assume that EMI makes a good example of how rest of “the big fours” business model has changed. The impact that technology have had on the music industry is also something that we strongly argue for have had an almost identical impact to all of “the big fours”.

One must show or make trustworthy that the collected data is gathered in a manner that makes it serious and relevant for the problem statement (Trost, 2005). We do believe that the trustworthiness of our thesis is high. The interviews that we conducted were all with people in leading positions and the fact that spent an entire week at EMI’s office allowed us to gain a deeper and more reliable view of the situation. Keeping the concepts of trustworthiness and credibility in our mind during the interviews was also of great importance.

Validity is a bit more confusing as validity measures if a certain question measures or describes what one wants the question to measure or describe. To simplify, it measures how suitable the question is to the context. Reliability and validity are connected, if there is low reliability for a question, then that will also be the case for its validity. But the opposite is not applicable, even if there is a high reliability it does not mean that it also is of high validity. According to Bell (2006) a question may give the same kind of answer at different points in time but nevertheless fail on measuring what it supposed to measure. To overcome this problem it was crucial to have the purpose in mind.

3.7 Ethics

An important factor when data is collected is the ethical dilemma. According to Cooper and Schindler (2008) it is the appropriateness of your behaviour in relation to the rights and of those who become subject of your research, or somehow being affected by it.

Saunders et al. (2002) states that this is a matter of judgement from the researchers that the data collection method follows ethical guidelines. The general ethical issue is that the collection method should not harm, embarrass or cause any material disadvantages against those being involved in the research (Saunders et al. 2002).

We are well aware of the ethical dilemma. Most of the data was collected from EMI’s office in Stockholm. Some data may have been sensitive for EMI and their organization. To overcome this dilemma we agreed not to publish any information that we came across during our time at EMI’s office, apart from the data gained during the scheduled interviews. The consequence of our ethical approach could be negative for this thesis. First, some of the information that we came across during the week could have been interesting and important for this thesis, out of respect towards EMI and their organization we did not publish some of it as we did not get their approval to do so. Secondly, the respondent’s awareness that this thesis was to be published and publicly available could have had an impact on their answers. Some respondents could see this, as a chance of marketing their company while others would not speak as freely as they would do if the thesis would not be published. But in general the people we made interviews with showed up to be very open and spoke rather freely.

3.8 Interview guide

To make it easier for the reader to follow the discussion in empirical findings we decided to summarize the interviews for this thesis below. In empirical findings we will only refer to the interviewees’ last name. We would also like to highlight that we have asked for their permission to publish their full names (Appendix A). All interviewees have agreed to this.

Company Name Position Length Date Language Type

Aftonbladet Andrea Project Leader; Sales 60min 2009-11-10 Swedish Face-to-face Hegethorn Department

EMI Ulrik Cahn Vice President, ROW 60min 2009-11-12 Swedish Face-to-face

Statoil Björn-Erik Chief of Non-Food 60min 2009-11-12 Swedish Face-to-face Sundström Products

EMI Paul Technology Delivery 60min 2009-11-13 English Face-to-face Sonkamble Manager

MMTC Patrik Research Fellow 60min 2009-11-16 Swedish Face-to-face Wikström

Spotify Niklas Global Head of 45min 2009-11-17 Swedish Telephone Ivarsson Licensing

Figure 4. "Interview table".

This thesis is mainly focusing on EMI Records and their business model, for that reason we chose to concentrate on EMI and their partners. A total of six persons have been interviewed, the interviewees have been chosen due to their positions in the company. Positions that we believe are somehow related to EMI’s business model. Two of the interviews (Paul Sonkamble, Ulrik Cahn) were conducted at EMI’s head office in Sweden. The other interviews were conducted with:

• Statoil: major gas station in Sweden that is the biggest physical retailer of music CD’s in Sweden. We do believe Statoil to be an important and interesting actor for EMI as a substitute to the closing of physical record stores. The fact that a gas station today actually is the leading physical retailer of music CD’s is a very interesting development that we found out to be worth looking in to.

• Spotify: a new important actor in the music industry and EMI’s business model. Offering legal music through streaming. Spotify is according to us making use of EMI’s property rights in a new way and we believe this to be a hint of how EMI’s business will develop in the future.

• Aftonbladet: the evening paper with largest circulation in Sweden. Also one of the main users of NTO’s. As they are now making use of several different types of medias as an

add-on product and able to reach huge volumes, their work as an interesting type of new channel for EMI to boost their sales of CD’s.

• Patrik Wikström; a research fellow at The Media Management and Transformation Centre (MMTC) at Jönköping International Business School, Jönköping University, Sweden. In his research he focuses on the dynamics in the media industries their business models and also the strategic management of media firms. He also has professional working experience from the telecom and media industries. Since EMI, Statoil, Spotify and Aftonbladet separately have an interest in the music industry it is likely that the outcome from the interviews is affected by this fact. For that reason, Patrik Wikström is interesting for this thesis. His interest in the music industry is only as an individual researcher and he will not take any side. Patrik Wikström will represent the external view of the music industry while the other actors are representing the internal view.

We decided to focus on six to seven areas when the interviews were conducted; we decided to start the interview by asking the interviewees about their background in order to increase the trustworthiness and the transferability for this thesis. However, we have no intention to include this information in the thesis. We are also aware of the fact that all interviews except one were held in Swedish. For that reason the key terms for the interviews have carefully been translated. As mentioned previously, in order to be able to rehear the interviews an audio recorder was being used during all of them.

3.9 Transcribing and analysing data

The data received from our interviews is looked upon through the theories we have been making use of. By following the same kind of structure that is being used in our theory part to guide the readers through the analysis and it also is an easy way to display how we have been analysing the collected data. As Holme and Solvang (1997) explain, qualitative interviews demand all data to be structured and organized after the collection of data have been finished.

All our data have been collected by both notes and by recordings, data that needs to be transcribed. The transcribing of these data can easily be done by structuring it in the manner that it is being done, meaning that the start of the interview is being presented in the beginning and

27 that the end of the data shows in the end of our empirical findings. This is however not our intention. Denzin and Lincoln (2003) argue that the transcription from recordings and notes should be analysed and structured according to how you want to analyse the data, not in the order you collected it. In order to make the analysis easy to follow and understand, the analysis is presented in line with the structure of our theory part, section 2.

We will start out by presenting the data gathered from the interviews with EMI, which will be followed by what we believe to be new important outlets for EMI. From an external point of view, the data collected from the MMTC will be presented in the end of the empirical findings.

4. Empirical Findings

This section will present our findings from the interviews with EMI, Aftonbladet, Spotify, Statoil and the MMTC. A brief background is given and motivations on how they relate to EMI’s business model.

4.1 Internal findings

The findings are being presented by starting of with the internal data we have from EMI, which will be followed by the data collected from Aftonbladet, Spotify and Statoil. All three are today part of EMI’s business model within the area of customer interface as distribution channels. While the data gathered from the MMTC is looked upon as an external source of data.

4.1.1 EMI Records

Ulrik Cahn, vice president commercial development and sales ROW and Paul Sonkamble, technology delivery manager were interviewed at EMI’s office in Stockholm. They were selected based on their knowledge and insight of EMI’s business model and how the technology has opened up for new opportunities. Since Ulrik and Paul have different positions in EMI’s business model and work with different channels the questions asked were personalized to some extent. During the mentioned week, we also helped Ulrik and his colleague Stefan Blom, executive vice president Commercial Development and Sales ROW, with a marketing plan which gave us the opportunity to further discuss the changes to their business model and get a comprehensive picture of the situation of today.

4.1.2 Changes in the music industry

“I don’t think the music industry can afford more failures” (Cahn). By this he refers to the problems that all record companies had when internet became worldwide and opened up for new music channels. He also claims that several years have been lost to piracy because the record companies did not see what was going on. Also Sonkamble agrees to this, according to him, there was a period when things looked really bad in the music industry and it was really easy to

29 steal the music.

“We have come to a stage where we need to take control of the situation again” (Cahn) According to him, one of the reasons to the slow adaption of internet were the inflexibility in the music industry. Today it is the opposite, Cahn believes that they finally can match the technology and in some areas they are even in front of it. This is something that he sees as necessary for the future in order to stay competitive. Sonkamble believes that the music industry is already in front of the technology but it took EMI a long time to change their business model.

According to Cahn, EMI’s business model has more or less been the same through all years until internet was launched. As a result of this, the channels that were distributing the music have changed. “The actors that have disappeared are the physical retailers, the stores that has survived are retailers that are selling other products along with CD’s such as Åhlens and Statoil” (Cahn). Sonkamble also describes the distribution channels as one of the major changes in the industry. He claims that the most obvious change is the “death” of the CD and today you can choose the tracks directly on internet instead of purchasing them in a CD store.

Cahn claims that the new actors are somehow related to the digital era. “You have to understand what has happened; the physical sales have decreased which has opened up for digital retailers such as ITunes and Spotify” (Cahn).

He also points out that the digital era has made it possible for actors other than record companies to be involved in the music industry. “Music have never had a higher turnover than today, the question is, where the money goes” (Cahn).

4.1.3 Drivers of change in the music industry

“I would say that the internet is the main reason to this change in the music industry, when internet was launched new channels arose” (Cahn). Also Sonkamble experiences internet as the driver of change. This made it easy to steal music due to incoherent digital channels. He also states that internet shaped the industry to what it is today. Even if the introduction of it created problems for record companies Sonkamble sees more potential in it compared to before the digital era. He also sees the advanced compression technique that allows people to stream from the “clouds” as the driver of change within the internet. Sonkamble also highlights the slow

30 adaption of technology. ”As with all the other majors we were too slow in the beginning, but we believe that we are building the best digital platform in the industry” (Sonkamble).

Cahn claims that other factors than the internet could have had an impact on other industries but for EMI, he only sees internet as the driving factor. He also explains that when internet was launched people and record companies saw this as a trend that would disappear in the near future. Instead they were paralyzed by the effects from internet.

“We should have had better knowledge about trends and the business cycle, we did not understand the outcome of it until it was too late” (Cahn).

4.1.4 Changes in EMI’s business model

Cahn refers to their business model as: “We make money on packaging music from our artists” (Cahn). He continues by explaining that they need knowledge about their markets, how they look like and the demand from people who consumes the music, to be able to make money. Sonkamble explains the business model in a more basic manner, according to him it is the way EMI makes money. He mentions that even if he was too young to experience the transition period he believes that the changes in EMI’s business model are significant.

“When internet paralyzed the music industry we looked back instead of forward. We looked at old business models that had been successful in past instead of renewal the existing one” (Cahn). He highlights that internet was in the beginning seen as a threat against the record companies, today they have learned to live with it and see it as an opportunity and a part of their existing business model. Another part of EMI’s business model that also been affected by digital innovations is their way of making business. Cahn states that today EMI needs to find and target their customers, before the digital channels the customers more or less came to EMI when they wanted their music. He also mentions that it is important that the artists feel that EMI are contributing. “With the decrease in record sales we need to find other revenue streams for them and us. Brand partnerships are one important area but overall business development is something we need to focus more on now compared to ten years ago” (Cahn). Further on he states that the sale channels have also been trough major changes. “In terms of physical record sales we need to find new sales channels. Traditional record stores and big retail chains are not

31 enough anymore” (Cahn).

Another change that Cahn highlights is the relationship between the “the big fours”. Before the internet affected the music industry the number of record companies was higher compared to today. Today “the big fours” controls such a big part of the industry that they are forced to cooperate with each other, otherwise it is impossible to carry out successful deals with other actors. Spotify is a good example on this, “the big fours” separately have so many artist that a deal without one of them would lead to fewer artist available on Spotify and the popularity would decrease. Another example that is combined with the size of the “the big fours” is the innovativeness. Cahn mentions that it is difficult to be innovative in an industry with few major actors. If one record company comes up with a new idea the other companies will copy it. The music industry has developed the leader-follower phenomena.

4.2 Customer interface

Aftonbladet, Spotify and Statoil are all part of EMI’s business model today. As mentioned in section 2.1.4, the distribution channels are part of the customer interface in a business model. Aftonbladet and Spotify are completely new actors in EMI’s business model while Statoil has been part of it earlier on but has grown to become the biggest physical retailer of CD’s in recent years.

4.2.1 Aftonbladet

Aftonbladet is the largest evening paper in Sweden with a daily circulation of 344,700. It was founded in 1830 and the head office is located in Stockholm. The owners of the newspaper are Schibstead ASA and LO. Aftonbladet describes themselves as an independent social democratic newspaper.

The interview was conducted at their main office in Stockholm. For this thesis, Andrea Hegethorn, project leader at the sales department, was the interviewed. In order to rehear the interview an audio recorder was used.

4.2.2 New channels for the music industry

According to Hegethorn the demand for doing deals with add-on products has increased the in the last couple of years. As a result of this consultants are used and new positions have been added to handle this.

“Every week we receive a various amount of products offerings” (Hegethorn).

“By adding a music product with Aftonbladet record companies have the chance to reach a huge market and it’s a chance for them to get a wide penetration for a product” (Hegethorn).

She explains that sometimes Aftonbladet have sold more copies of a CD in three days compared to one year with the same CD in stores. This is something that the record companies are aware of and therefore the massive offerings from them. She further claims that music is a good way to increase the value of a newspaper and does not see an end to it but the improvements in technology have forced them to look for new digital products to be combined with Aftonbladet.

Hegethorn explains that they do not use the term NTO since the newspaper is their traditional outlet. When they combine their newspaper with a product they instead refer it to “add-on products”. Hegethorn defines an add-on product as:

“Everything that is physical in the newspaper stand that is not a journalistic product in terms of a newspaper or a magazine, for example books, DVD’s and CD’s” (Hegethorn).

Aftonbladet started to use add-on products 2006; today they use it more often.

“Today we have three campaigns going on at the same time every week” (Hegethorn).

According to her, the reason for starting with add-on products was mainly decreasing sales and these add-on products were a tool for increasing the sales again. Now the add-on product is a way to increase customer value and reach new customers. The goal is to increase the circulation and revenues. The breakthrough for add-on products came with a DVD collection. “The groundbreaking example of add-on products was a collection of all James Bond movies” (Hegethorn).

4.2.3 Music as an add-on product

“Today around 20% of our add-on products are music” (Hegethorn). When they started using music in their offerings Aftonbladet had to actively search for good deals and communicate directly with the record companies, nowadays the add-on products have become such a big part of Aftonbladet’s offerings that they use a consultant that handle the contact and negotiate the deals. Today Aftonbladet do not need to actively seek the deals, every week they receive offerings from different companies that want to offer their products together with the newspaper. Before Aftonbladet decides to offer a collection of an artist they want information about how the market will react therefore they often use focus groups to measure how popular a certain campaign could turn out to be. Hegethorn highlights two deals that been successful for Aftonbladet: “Per Gessle and the Christmas CD with Peter Jöback that we have used during the last three years have both been extremely successful” (Hegethorn). But the biggest success so far with music as an add-on product was a composition of songs performed by IL DIVO in 2008.

She also mentions that they are today more careful when they select artists to work with. “We only use unique artist during unique circumstances, Michael Jackson is a good example of this” (Hegethorn).

The uniqueness can also be to launch a campaign at the same time as the artist is playing here in Sweden. Hegethorn explains that they are only looking for artists in the very top of the music industry such as U2, Rolling Stones, Queen and The Beatles. Working with other artists than the ones at the very top would only lead to saturated readers. Another factor that has forced Aftonbladet to only offer unique compositions is the competition from other actors. Hegethorn explains that supermarkets like Willys and ICA are now offering products in the same price range and also some add-on product campaigns every now and then. The range of add-on campaigns increase which leaves the customers with deciding what campaign to choose. She explains that the demand for unique campaigns is a result of wider competition.

4.2.4 Spotify

Spotify is a new actor in the music industry. They offer legal music through streaming, which means that the consumers do not need to install or download the music on the computer. Spotify

34 was founded 2006 and operates in some countries in Europe. “The big fours” owns a separate part in Spotify. Spotify today is offering its customers access to EMI’s music and the majority of all other record companies’ property rights by adding ads between the songs as a source of income that is being used as payment to EMI. The interview was conducted by phone. For this thesis, Niklas Ivarsson, global head of licensing was interviewed.

4.2.5 Their way in to the music industry

“2001 was the year CD sales peaked” (Ivarsson). According to him this was the starting point for digital actors in the music industry, they saw the opportunity and a way into the music industry. Nowadays things have changed; he believes that Spotify is an important actor in the “the big fours” business models. He also claims that this change has been overall positive for the music industry and its actors even if it was big change for the record companies in the beginning. “ In the last three years the record companies have done a good job in catching up and adapting to the digital changes” (Ivarsson).

4.2.6 Spotify’s role in the music industry

“I would definitely claim that Spotify is an important actor in the digital music market today” (Ivarsson). He strongly rejects that Spotify is a complement to other actors in the music industry. They only see themselves as a complement against illegal actors like Kazaa or LimeWire.

“75% of the people that have an account at Spotify and have illegally downloaded music previously admit that they do it less today” (Ivarsson). Ivarsson continues on this by claiming that sites like Spotify helps to decrease the illegal downloading of music.

Ivarsson also explains that the record companies are not seen as competitors, on the contrary, they are seen as partners. Instead, the competitors are similar websites that tries copy Spotify’s business idea. “I think that record companies see us as an important revenue source and a strong partner for the future” (Ivarsson).

4.2.7 Statoil

Statoil was founded in 1972 by the government of Norway and are today a leading actor among

35 gas stations in the Nordic countries. About 600 gas stations are placed in Sweden where most of their stations could be described as a convenience store with the difference that they are also a gas station.

Björn-Erik Sundström, chief of non-food products, was interviewed for this thesis. The interview was conducted at Statoil’s head office in Stockholm, Sweden. Statoil is the biggest retailer of CD’s among physical stores. Music has always been a part of their range of products, but has never before been the market leader in this category.

4.2.8 Reasons to their success

Statoil also experienced drops in sales due to the downturn in the music industry with losses in CD sales as a result. “In 2006 the sales were going down, we had to take a decision, either we would just let it fade out and take it out of our assortment or take action” (Sundström).

Two major changes were made that actually turned the sales around. Sundström explains that they decided to lower the price of their CD’s, previously they charged 179-189 SEK for a CD, but lowered it to 149 SEK which also is the price they charge today. The importance of offering a “web-price” in store and using that expression as a marketing tool is according to Sundström one of the main reason to the upswing. Secondly, they reduced the range of titles to a very narrow group of CD’s, more or less offering the top selling albums.

Sundström do not believe that the downturn in the music industry and the closure of physical record stores has anything to do with Statoil’s success. He believes that the upturn for Statoil’s CD sale is based upon the decisions on price and narrowing down the number of titles offered. Working as a substitute to the disappearance of physical CD stores is replied by: “we are selling to another kind of customers that shops on an impulse and wants to consume the product immediately” (Sundström). Stating that they do not believe that their increasing sales have been affected at all by the changes in the music industry.

4.2.9 Music as a tool

The value in terms of revenue is not that big when it comes to the sales of CD’s for Statoil. Sundström do not believe that their customers are visiting a Statoil store to buy their CD’s. They

36 do however feel that this is a great tool to increase customer value, by offering them something for the road. “I do believe that the main part of our CD’s ends up being played in the car” (Sundström).

One could by this statement assume that the customers they are trying to reach would be a specific segment that travels a lot by car and would be looking for car-related music. But this is not true, Sundström claims that they try to offer music for an older audience, the ones who do not know how to make use of downloading or do not find the time to do so.

Making use of music as an add-on product when launching campaigns is an area where Sundström sees great potential. Everything from offering a discount for card members to making deals with specific artists. Sundström explains that there is also a downside to these campaigns, when Expressen and Aftonbladet are using a CD as an add-on product with their evening paper it occurs a collision between their CD’s and the CD’s Statoil are trying to sell. An almost 2-year long boycott of Expressen was the result of this. “If an add-on product in the form of music ends up in our store we have a problem, customers can not consume that much” (Sundström).

4.3 External findings

The data from our interview with Patrik Wikström at MMTC are representing the external data in our empirical findings. As Patrick Wikström has no connections to EMI or the music industry we believe him to be independent in his opinions of EMI and the music industry.

4.3.1 The MMTC

The media management transformation centre (MMTC) is a global research and education centre that focus on how technological developments and globalisation are transforming media industries. The head office is located in Sweden, Jönköping. Branch offices are located both in Asia as well as in Latin America. Patrik Wikström, research fellow that concentrates on the dynamics in media industries, especially the entertainment media was interviewed for this thesis.

4.3.2 Dynamics in the music industry

The music industry has suffered severely and the sales are down to half of what it was in the

37 beginning of the 21th century and the main reason for this is piracy according to Wikström. “There has always been pirate copying but the volume and availability is so much larger today” (Wikström). He also mentions that the new kind of services have replaced the demand for a CD. Wikström explains that ten years ago people could discover music from listening to the radio, music videos on TV etc, and it lead people to buying the CD, experiencing and discover it from one place and enjoying it by buying the CD. Today, services such as Spotify and YouTube are so good that once the music is discovered form such a channel, the customer continues to listen to it from the same medium. “Spotify claims that they are not a substitute to the CD, instead they are removing piracy as an advanced kind of radio service, which is rubbish and of course they are replacing the CD. Examples of how these services are so good is that they do not stimulate a demand but instead replacing it, which is a structural change within the last ten years” (Wikström).

4.3.3 Adapting

Record companies have been accused for not renewal their business model as technology rapidly have changed the conditions for the music industry. Wikström on the other hand defends the way this was handled by the record companies. “As they mainly were relying on a single source of income, the CD, the risk of putting it aside and paying attention to other possible incomes was too big” (Wikström). As record companies have been able to use the same kind of business model for decades, they were relying on it when the impact internet and file sharing took place. Wikström explains that since the old business models have been working for so long record companies did not dare to replace them. However, he agrees to the fact that they did act late. Today, the record companies would be in a more favourable position if they had taken actions earlier. He makes an example of Napster, as it was introduced to a wider audience the record companies took a position of fighting them instead of welcoming it and look for opportunities to collaborate or learn from them.

4.3.4 Changes in the business model

The way the record companies market and reach customers has been through major changes in the last couple of years according to Wikström. He explains that there was an old typical way of

38 how it used to work, where the record companies signed an artist and then focused on promotion on TV, radio, magazines and concerts. Getting attention in one way or another that made people buy the CD and by selling, making money. Promotion lead to distribution of CD’s more or less. “You are showing it by playing it on the radio, going on tour, the structure between this and CD's was very stable and calm, it was also very simple, if you where appearing you where selling, cause and effect” (Wikström). Today this structure looks a bit different as they are making money out of the very promotion, they are no longer able to rely on the sales according to Wikström. Radio and TV are revenue sources for the record industry today. They are not making enough money on the distribution which forces them to make money out of promotion, a source of income that earlier on was ignored. As promotion may lead to great attention from people as it did before, but with the difference that they later on decided to download it illegally, use Spotify or YouTube for example.

5. Analysis

In the following section the empirical data is analysed. By combining the data with our presented theories we try to fulfil our purpose. It begins by analyzing EMI’s business model and explaining to what extent technology has been involved in these changes. To make it easier to follow the analysis is structured as our theories have been presented.

5.1 The changes in EMI’s business model

As presented in the theory section, a business model consists of a various amount of elements and we believe that the best way to show how these changes has taken place in EMI’s business model is to analyze them part by part as presented in the theory part, section 2. Our empirical findings will be used where we find them to be suitable, as the companies and people we have interviewed have an individual part to play in EMI’s business model, except our external source of data gathered from Patrik Wikström.

5.1.1 The product

As Osterwalder (2004) states, a product is supposed to cover the entire range of aspects that a firm has to offer to its customers and not just the product itself. Before the internet became part of our lifestyle, record companies mainly packaged their product in the form of a CD or other controllable medias which was sold through record stores. The record companies have been forced to be more flexible and find new solution on how to package their product in various forms today. Putting it simple, the product is being packaged in the form of a CD or by a digital version. And there are two major differences that have been made here compared to the old way of packaging: • CD’s are still being used but with the difference that the record companies today have to be flexible to fulfil the demands from their customers. Cahn states that they were used to the fact that customers came to them, today it s the opposite, EMI needs to find and target their customers. A good example is Aftonbladet who are able to put demands on EMI and other media companies if they want to make a deal with them. Aftonbladet demands it to be of a unique composition with a unique artist and preferably during a unique period of time.

• EMI are today forced to work with a product that is not even tangible, as music has taken the form of being digital. Their business has always been built upon a physical product, which have been trough changes that are out of their control and adapting to external forces like these puts a completely new way of thinking to it.

Value proposition Being able to deliver benefits to customers is called value proposition according to Osterwalder (2004). In this case it involves how EMI can use their product to create value towards customers. This is an area of both major obstacles and opportunities. As Cahn mentions, to accomplish a deal of big proportions such as Spotify it is impossible to deliver something that their competitors will not as they are not able to make any deals of this kind unique for EMI alone, as Cahn explains it. Customers would not be interested in a service such as Spotify if they only would include EMI’s artists. On the other hand, there are great possibilities of being unique and competitive for EMI in other areas. Such as their NTO campaigns, where EMI are able to be more flexible towards the demands and offer better suited products than their competitors.

5.1.2 Customer interface

The biggest change is the amount of new collaborations and businesses being conducted. Tikkanen et al. (2005) claims that this aspect of a business model is crucial for a company, a statement that we believe is related to EMI. The customers interface is how a company approaches a market, how to reach customers and the interaction. These aspects have been through radical changes as technology has reshaped the entire industry.

Target customers A company has to make a decision on what kind of customers they want to deliver value to, according to Osterwalder (2004). This is an aspect of the business model that we believe has not changed for EMI. Music is what they are offering and there is no reason to believe that the taste of music has changed due to technological innovations. One may argue though that the majority of new channels are limited to people who are able to make use of the new kinds of technology. We do believe however that the majority of people are able to use them. Cahn argues though along with Wikström that the ability to discover music today is easier and better today due to

41 technological innovations. “Music have never had a higher turnover than today, the question is, were the money goes” (Cahn). The same kinds of customers are being targeted today as ten years ago, but through new channels.

Distribution channels EMI are now making use of more distribution channels than ever before. “In terms of physical record sales we need to find new sales channels. Traditional record stores and big retail chains are not enough anymore”. (Cahn). Osterwalder (2004) claims that distribution channels should be seen as a bridge connecting the elements of value propositions and target customers as it allows a company to deliver value to its targeted customers. There is once again important to make a difference between the deals EMI are trying to sign exclusively and the deals where the major record companies are in need of each other’s co-operation. Technological improvements allow EMI to reach customers in several of new ways but the very same technology is also the reason to their drop in sales, due to both legal and illegal sites.

We have discovered from our research that due to the increase in channels some of them are now in conflict with each other. This dilemma is discussed in the theory part by Bucklin (1997). He claims that selling through several channels at the same time may cause a conflict when they end up competing for same customers. Hegethorn brings up this dilemma; stating that Aftonbladet are experiencing this with their add-on products. She confirms that super markets such as Willy's and ICA today are using the same kind of price segment in store as they are. EMI and other media companies end up with their products from what seems to be two different distribution channels at the same one. This phenomenon is strengthened by the fact that Statoil are also aware of this collision of distribution channels that lead to a boycott from Statoil’s part of an evening paper. “If an add-on product in the form of music ends up in our store we have a problem, customers can not consume that much” (Sundström). Our own opinion is that the various kinds of channels that EMI are using today are at the edge of being too many, as they are striving to increase sales and reach customers through new channels.

Relationships Wikström makes an example on how the music industry and especially the artists today are able

42 to communicate to their fans through channels such as blogs, Twitter and MySpace. Which he believes to be crucial for artists in the future. This is however not meant to be a statement of how the industry has benefited from the technological changes. Wikström argues that this is more or less something that the artists will be forced to do as a reply to dropping sales to increase loyalty and by that increase the compassion for a certain artist and support him/her by buying their CD. This is an area that we believe to be true for all record companies and their artists, hence, we claim that this is applicable for EMI as well.

5.1.3 Infrastructure management

Infrastructure management according to Osterwalder (2004) is how to create value, where a relationship between creating and delivering value is meant to be. The changes taken by EMI in this category of the business models reveals how they are now acting and making use of the very same technology that have been viewed as a major threat in the past.

Value configuration The value configuration shows the kind of activities that are taken to create value. EMI have changed their view of how value is created where we believe that EMI looks upon technology as a tool to this. As Cahn tells us, their ability to adapt to new technologies was poor and the structure of EMI was inflexible. Today Cahn even believes that they are in front of technology in certain areas and Sonkamble sees it as crucial to be in the very front of the digital market. We believe that these statements are signs of how EMI are working with technology today and how this has changed throughout recent years. As Wikström tells us, the record companies looked upon innovations such as Napster as illegal competitors that they were trying to fight instead of learning from. This implies that EMI has taken charge of their development and that certain activities within their business model has been re-arranged so they able to respond to the demands in the digital market in order to increase value.

Another area is how EMI are working with collaborations today. In order to accomplish deals such as NTO’s and the deal with Spotify, EMI are forced to be more open-minded to new ideas and collaborations with actors whom some years ago were not traditional actors in their business model. Cahn states that the way it looks today, EMI needs to find and target their customers,

43 which was not the case before the digital era. The customer used to turn to EMI, wanting their music. This is strong evidence of how the activities in EMI’s business model have changed. EMI was previously able to enjoy the benefit of owning the rights to their music and selling it through a CD, there was no actual need for adding anything to it. As of today, we believe that EMI are focusing on these two areas in order to increase value, being flexible with the usage or their property right and being a leading actor among the record companies with their digital platform.

Capability The important aspect here is the core capabilities that EMI possesses and how these capabilities give EMI a competitive advantage and differentiate from its competitors. We claim that EMI does not differ from its main competitors in any major way right now. We do believe that the changes taken by EMI are shared among the “the big fours”. Cahn argues that the “the big fours” are followers, if one of the four companies is making a move, the rest of them decide to follow. This is an obstacle for the industry as it is hard to be innovative since the rest of the companies often decide to do the same. However, we believe that EMI are developing their way of making use of technology and also how they can enhance their flexibility to meet the new demands to be seen as core capabilities, if not today then for the nearest future.

Partnership We would like to remind the readers of Osterwalder’s (2004) view on partnerships, where he claims that the right kind of partnerships enables a business to prosper by gaining a competitive advantage through signing exclusive deals. Exclusive deals are hard for EMI to sign on a large scale, as stated in section 4.1. Services such as Spotify are not interesting for the consumer if the music being offered only comes from EMI. “The big fours” are forced to collaborate in order to accomplish this kind of deals, which makes it hard for EMI to carry out a partnership on a larger scale that is exclusive for EMI. On the other hand, small deals are an area EMI are working intensively with. Hegethorn reveals that Aftonbladet are receiving too many business proposals from various media companies today that Aftonbladet are using an external consultant to handle it. A situation that is strengthened by Cahn “It’s important that the artists feel that we are contributing. With the decrease in record sales we need to find other revenue streams for them and us. Brand partnerships are one important area but overall business development is something we need to focus more on now compared to ten years ago.” (Cahn). Partnerships have

44 become an important part of EMI’s business model as it covers up some parts of the dropping sales of CD’s. The partnerships that we have been looking into, especially Aftonbladet and Spotify are according to us signs of how EMI are working more with selling than it did some years ago.

5.1.4 Financial aspects

It is claimed by Osterwalder (2004) that the last category in a business model, the financial aspect, is an outcome of a company’s performance in the previous three categories. This is divided into the revenue model and the cost structure. The financial aspect for EMI has also been changing, however, our analysis will not be upon the dropping sales. Instead, the focus will be on how the changes in the previous parts of their business model have affected the looks of their revenue model and their cost structure. By mentioning this, the last part of the business model could be seen as causes and effects, where the causes consists of the mentioned parts and the effects will be presented below.

Revenue model The revenue model is focusing on how the delivered value is turned into money. It can be translated into how EMI’s price mechanism is working and how it has changed. “We make money on packaging music from our artists” (Cahn). When the physical CD was doing well, the price mechanism of EMI was easy to understand and how to turn value into money was simple according to Wikström. “You are showing it by playing it on the radio, going on tour, the structure between this and the CD's was very stable and calm, it was also very simple, if you where appearing you where selling, cause and effect (Wikström). A reasoning that we believe to be true as EMI explains that their business model has more or less looked the same until technology changed everything. This element of the business model also deals with the idea of focusing on what a company believes to be their core competencies and what parts that should be handled by others in order to make the transition from value to money as efficient as possible. Wikström claims that the biggest change in a record companies’ business model in recent years has taken place in this area. We believe to have found three major changes in EMI’s business model that is related to the revenue model. • Where the money comes from – Sales in CD’s still represents the biggest part of their

revenue. However, as a respond to their droppings sales, record companies have started to look for new sources of revenue. Promotion for example was earlier used as a tool to trigger peoples buying behaviour; today that very same promotion is part of their incomes. ”Performance royalties was earlier on something extra, no one really paid attention to it, which of today has grown to become a big and important source of income, which is a radical change to their business model, where do they get their money from” (Wikström). We believe this to be a hint of how EMI's business will develop. Property rights will be used in a new way compared to the past. As a controllable media LP’s and CD’s are no longer working as a main source of income as it used to. Now, EMI are forced to look for new revenue sources where their property rights can be used. • Who is paying for it - “The money rolled in to the industry is less gained from the consumer and more from the commercial part, which is also a major change due to services such as Spotify” (Wikström). To draw a conclusion based only upon Wikström’s ideas is not enough, but we do see a trend towards this already in the media industry. One only needs to take a look at how many newspapers today are able to make money out of their material published on their website in the form of ads as an extra source of income. The newspaper Metro have gone even further, their customers are offered their product for free and paid mainly by advertising. Which is the same concept used by Spotify. This is an area that has grown to be a natural part of EMI’s business and according to us will be even bigger in the future. Advertisement is already paying as customers are making use of their music. Ivarsson continues by saying: “I think that record companies see us as an important revenue source and a strong partner for the future” (Ivarsson). As a reminder, Spotify today is offering its customers access to EMI’s music and the majority of all other record companies’ property rights by adding ads between the songs as a source of income that is being used as payment to EMI. • What to be seen as core capabilities - “The record companies was a bank, a recording studio, a distributor, everything, today they are experiencing competition, artists are today able to buy each and every service separately” (Wikström). EMI today is more focused, not wasting any resources outside their core capabilities. We have defined EMI’s core capabilities as how it makes use of its property rights. An argument that is strengthen by all the companies that we have been in contact with as they are all involved

in how EMI are trying to get the best out of owning certain property rights.

Cost Structure Measuring the costs of creating, marketing and delivering value is what the cost structure is about. In other words, putting a price tag on value. The information needed to make a judgment of this last element of the business model is too sensitive for EMI to mention in this thesis. However, by the use of the other interviews one can make an understanding of how the general picture of today’s record companies’ looks like, which we believe to be the case for EMI as well. Wikström is critically evaluating where the resources by the major record companies are being invested today, or rather where they not are being invested in the creation of value. According to us, one thing above all is crucial for the success of a record company and that is the artists they are able to sign. They represent the core value for EMI and regardless of the marketing and distribution channels, EMI will not make enough money without extraordinary and unique artists. Wikström highlights this as a big threat to all the record companies. There are not enough resources invested in new artists. “Their biggest threat is that there is not enough resources being put on new artists, the ones who are making the big money today are old artists, the biggest names of today are getting older and older, they are relying on old artists, which is not a sustainable strategy”(Wikström).

5.2 The impact of technology for EMI

To make it easier to read and understand the following section we would like to remind the reader how a driver of change is defined. According to Johnson et al. (2008) a driver of change is an environmental factor that has high impact on the success or failure of a strategy. Ackerman - Anderson and Anderson (2008) states that the environment, where technology is included is the starting point for change. Grübler (2003) goes even one step further and claims that technology is the single driver of change. During the interviews with the chosen companies, all except Statoil agreed to the fact that they were part of the EMI’s business model because of the innovations in technology. During our study we have found that EMI’s has been forced to radically change their business model. We claim that the reason to these radical changes is technological improvements.

However, as Durand (2004) mentions, there are two categories of companies, those who are able to influence the changes and those who have to act as changes are taking place. In this case, EMI have been forced to act upon external changes and stretch their existing knowledge into new markets based upon the idea of making money out of their property rights.

Below we will support our statements by analysing three new actors in EMI’s business model separately. We will show the relationship between EMI, the new actors and the impact of technology. Patrik Wikström’s thoughts will also be part of this analysis. As an independent researcher his view is interesting for this analysis.

5.2.1 Aftonbladet

Aftonbladet started to use physical CD’s as add-on products in 2006 and today they have three campaigns of various add-on products going on every week. Hegethorn and Cahn, both state that the partnership between them is a win-win situation where both Aftonbladet and EMI are able to increase their volumes leading to higher revenues. By stating this we started wondering why this kind of partnership did not start earlier. We believe that before technology made it possible to gain access to music through new channels, record companies did not see newspapers as a channel for their products. The digital channels have increased heavily in the last couple of years. The result of this is declining sales in physical products. We believe that the partnership between EMI and Aftonbladet is a result of these technological innovations. Technology forced them to do business with each other. EMI were facing declines in physical CD’s and Aftonbladet was experiencing dropping sales of their physical newspaper. Cahn strengthens our discussion: “I would say that the internet is the main reason to this change in the music industry, when internet was launched new channels arose” (Cahn).

Wikström, agrees that internet have opened up for new channels and these have affected the actors in EMI’s business model. But he states that these channels are not directly the reason to this change. Instead he points out that they have affected the business models indirectly by replacing the demand for physical CD’s. We support his discussion but we also claim that without the improvements in technology the demand for physical CD’s would still be high.

The fact that music is 20% of Aftonbladet’s add-on products proves that they are a new actor in

EMI’s business model and without improvements in technology they would not be a part of it. Before internet made it possible to reach music through digital channels EMI used their traditional business model that has been applicable for decades. Aftonbladet were not part of the traditional business model. EMI had retailers that were selling CD’s, not combined with other products. When the number of digital channels increased while at the same time the number of physical channels decreased, Aftonbladet became part of EMI’s new business model as a respond to the decreasing sales of their physical products. EMI was forced to find new channels for their physical products. Cahn strengthens our discussion: “When internet paralyzed the music industry we looked back instead of forward. We looked at old business models that had been successful in the past instead of renewal the existing one” (Cahn).

5.2.2 Spotify

Since Spotify is an actor that offers music through streaming on the internet it is obvious that they are a result of technological innovations. Without the internet the company would not exist and their business idea is based on people that have access to it. There is no need to further highlight the relationship between Spotify and technology. It is more interesting to discuss Spotify’s role in the music industry.

We believe that Spotify is an important actor in the music industry and in EMI’s business model today. The fact that “the big fours” own a certain percentage separately in the company is according to us proof of that they do see Spotify as an important actor in the present and for the future. Ivarsson claims that the company sees itself as an important actor in music industry and a strong partner for the future. However, we also believe that Spotify’s existence is not only beneficial for the record companies. According to us, Spotify’s presence is decreasing the demand for physical CD’s. Their service is replacing the CD according to us.

Ivarsson, strongly rejects this statement, he argues that Spotify are a complement rather than a substitute for the CD. They only see themselves as a complement against illegal actors. We do not fully agree with this statement. Off course Spotify’s music can trigger a consumer to go and buy a CD in a store, but in the long run we believe that they are replacing the demand for CD’s. Wikström has a similar view, “Spotify claims that they are not a substitute to the CD, instead they are removing piracy as an advanced kind of radio service, which is rubbish and of course

49 they are replacing the CD. Examples of how these services are so good is that they do not stimulate any demand but instead replacing, which is a structural change within the last ten years which is very important” (Wikström).

5.2.3 Statoil

As mentioned in the introduction part, Statoil were the only respondent that claimed that their part in the music industry had nothing to do with how technology has shaped it. Instead they highlighted their own actions as the driving factor to their success. This is very intriguing for this analysis since our opinion is of the completely opposite. Below, we will argue against Statoil’s statement and specify why technology has an important role in Statoil’s success as a retailer of CD’s.

Today Statoil is the biggest retailer of physical CD’s and according to Cahn, Statoil is an important actor in their business model. However, Sundström highlights the right kind of mix of “the four Ps” (price, place, product and promotion) as the main reason to their success. They made two major changes, lowered the price by starting to offer “web-price” in their stores and reduced the range of titles to a narrow selection. An interesting question that came to out mind when discussing this was “why did not Statoil make these changes earlier?”

According to us, the answer to the question is simple; the existing retailers of CD’s were too many. The number of competitors was high and the mentioned changes would not have the same effect. When internet became known and the illegal downloading started to increase the retailers that were dependent on sales of CD’s one by one went out of business. Cahn strengthens our statement by saying “The actors that have disappeared are the physical retailers, the stores that has survived are retailers that are selling other products along with CD’s such as Åhlens and Statoil” (Cahn).

The response from Sundström is that they are selling to another kind of customers and for that reason they do not compete for the same kind of customers. Even if Statoil is targeting another segment the fact that the numbers of retailers of CD’s have decreased dramatically during the last decade is a main factor to their increase in sales according to us. Both Cahn and Wikström agree to our discussion and states that even if Statoil have made good changes, the impact of

50 technology has played a major role in their success by eliminating many important retailers of CD’s. We are not claiming that Statoil’s changes in price and range are meaningless; on the contrary we believe that these changes have helped Statoil to become the biggest retailer in Sweden but it would not have been possible without the impact technology has had for the music industry. These changes have made Statoil to an important actor in the music industry, which plays a leading role in EMI’s business model when it comes to choosing retailers for EMI’s physical sales.

6. Conclusion

In this section the purposed is fulfilled together with our thoughts about EMI and their future as a record company.

The purpose of this thesis was to study and analyse how EMI’s business model has evolved due to improvements in technology. To fulfil our purpose, a case study approach was chosen and what we believe to be new actors in EMI’s business model have been interviewed along with employees at EMI. As an independent source of data, a researcher with working experience in the media industry was contacted to avoid a biased analysis.

Our research has shown that EMI were not able to deal with the changes that took place and that their business model was inflexible to respond to these changes. According to the people we have been in contact with, EMI would have been better off today if they would have tried to understand the new technology instead of fighting it. Relying on the traditional business model when faced with changes and new competitors was a big mistake and EMI did not dare to take a step into the future. Looking at it today, EMI’s business model has been through radical changes due to external forces. This study has shown that technology has been the driving factor to this change. All interviewees except Statoil have agreed to the fact that EMI’s business model have been shaped by technology. They also claim that they are part of EMI’s business model as a result of improvements in technology.

As of today, EMI’s business model has become more flexible towards external changes in their market and also by allowing EMI to make use of their property rights in new and innovative ways. Also the actors in EMI’s business model have been affected by these changes. New actors have risen while others have disappeared. We dare to say that the majority of the new actors in their business model today are a result of how technology has shaped the industry. Their business model has been through major changes, but the most important changes have taken place within two areas. First of all, the number of distribution channels has increased dramatically and more interesting is that they have ended up next to each other fighting for the same type of consumer, which is an issue that both Aftonbladet and Statoil are experiencing. Second, their revenue model, there are several new sources of revenue for EMI, promotion and partnerships are two of

52 them.

EMI’s ability to make use of their property rights in new and innovative ways will be crucial for the future.

6.1 Final discussion

Since internet became part of our lifestyle, there have been numerous of articles written about its impact on the music industry. Before this research was conducted we were convinced that internet have affected the music industry in a negative way. For us internet was related with illegal downloading and the death of the CD. This research has completely changed our perspective.

Another thing that also surprised us was how the music industry works in reality. Going from the consumer perspective and to work for one of the biggest record companies in the world have been both interesting and useful to us. Since childhood, this industry has always fascinated us and this research has not reduced our interest, on the contrary.

However, we would also like to point out that our interviewees have been really helpful and open-minded towards us. We believe that they see this as a chance to gain new perspectives to their business and at the same time give something back to our thesis

Since we have been helping EMI with a marketing plan for their emerging markets in ROW, we wanted to write about how they should target these markets. After some consideration we decided that it would be difficult and would not fit into the guidelines of a thesis. Instead we decided to study EMI’s business model for the thesis and do the marketing plan separately. Even if it has been difficult to do two things at the same time, we are glad that we chose this path and we are proud of the results that we have accomplished.

6.2 Credibility of this study

When doing a study with only in-depth interviews the trustworthiness is often doubted. It is impossible to say if the respondents are telling the truth without withholding critical information or if they utilized this as a chance for promoting their company and values. The biggest issue for this thesis comes with reliability and transferability. Many factors influence the answers

53 especially in this thesis where the focus lies on the impact of technology. As technology will keep developing and probably continue to influence the music industry, it is possible that the interviewees that we have been in contact with will change their view upon technology’s impact on the music industry. The personal background of an interviewee must also be taken into account. For example, interviewing a person that only has been working with digital music can explain why his answers are biased. For that reason we chose to include background and previous work in the questionnaires.

The transferability has also been a difficulty since this thesis is based upon a single record company’s situation. These problems arise as we tried to draw conclusions for the entire music industry. However, the fact that EMI belongs to “the big fours” and it is one of the largest record companies in the world, have helped us overcome this problem to some extent. During the interviews we have found that at least the major record companies are dependent on each other. For this reason we believe that EMI represents “the big fours” in a trustworthy way. However, by only interviewing actors in EMI business model, a biased picture might be formed, but by interviewing Patrik Wikström as an external and independent actor outside the music industry, we argue that the objective picture is upheld.

6.3 Further research

Due to limited time given for this study, we only had the chance to study one of the “the big fours”. For further research we believe it would be interesting to study the other major record companies: Warner, Universal and Sony BMG in order to see if their business models have been trough similar changes as EMI’s. It would also be interesting to conduct a study about the future for the “the big fours”. A couple of years ago they were five, will they continue to decrease or will they split up into smaller labels?

We also believe that Spotify’s way of delivering legal music trough streaming is the beginning of a new era in the music industry. Since this channel seems to be a win-win situation for both artists and record companies it would be interesting to further analyse them and observe how they deal with the competition from new actors that tries to copy their business idea.

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Appendix A - Prerequisites for the interview

We believe that our meeting will take between 45-60 minutes depending on how the interview and our discussion develop.

We have planned to document the interview by the help of an audio-recorder and also by taking notes, we are however ok with just taking notes if you prefer not to be recorded. The reason for making use of an audio-recorder is to reduce the risk of misinterpretations and that it allows us to take part of the interview further in time in a correct manner.

The information gained from our interview will solely be used for our thesis within marketing area at the University of Jönköping.

The thesis will be an official document that allows all that has an interest in it to take part of it and it will be published online at a database designated for this kind of school essays.

You as an interviewee are allowed to receive the final thesis by email.

We would like to get an approval to publish your name and position at the company in our thesis, but we do respect your desire of being anonymous.

It stands to reason that you have the right to discontinue, before or during the interview.

We will offer you the right to approve and comment any quotations that we would like to use before they end up in our thesis.

Appendix B – Questions to EMI Records

Personal background

• How old are you? • How long have you been working for this company? • Have you any previous experience from the industry? • What is your main responsibility at the company?

Changes in the industry

• How has the industry changed during the last decade? • What is the main reason for it? • What are the major benefits of this? • What are the major disadvantages of it?

Technology as a driver of change

• How do you look upon technology and its' development affecting EMI? • Do you think that EMI has been doing a good job to adapt to the changes?

Changes to the business model

• How would you define a business model • How did the business model for EMI look like before the changes took place • Who are the most important actors in EMI's business model • Are there any major actors to your business model that is no longer part of it? • Who where the major actors in the business model ten years ago? • Who are the major actors today? • Do you feel that EMI as an organisation are flexible enough to keep up with the movements on your markets? • Is EMI’s business model adapted to the industry?

Competition

• Who are the main competitors for EMI today? • Do you feel that the development of technology is a friend or an enemy for EMI and the industry? • Has there been any change in your business model in order to respond to this?

Appendix C – Questions to Aftonbladet

Personal background

• How old are you? • How long have you been working for this company? • Have you any previous experience from the industry? • What are your main responsibilities at the company? • NTO

• How would you define NTO? • For how long has Aftonbladet been using this? • For what reason did Aftonbladet start using NTO? • Does NTO campaigns have any major affect on the sales figures?

Collaboration with media companies

• What kind of media products have Aftonbladet used. • What kind of media is most common in your campaigns? • Which one do you prefer to make use of and why? • How much is the cost affecting your choice of media to make use of? • Are there any big differences between the media products when it comes to the cost for Aftonbladet? • Does Aftonbladet sign new deals for every campaign or do you have deals that include several campaigns?

NTO campaigns involving music

• How big part of you NTO campaigns involves music? • Do you see any changes to the share of NTO deals involving music? • What kind of music/artists do you prefer to make use of in you campaigns? • Have there been any changes to the use of music in your campaigns since you first started with NTO's?

For the future

• How do you think that the nearest future will look like for NTO's? • Do you see any change to the composition of the campaigns? • Do you see any possibilities of developing the idea of NTO's further, such as downloads, free of charge, special editions, ringtones etc?

Appendix D – Questions to Patrik Wikström

Personal background

• How old are you? • How long have you at this position? • Have you any previous experience from the area of media and the music industry? • What is your main area of research?

Independence

1. How much of your work is left for you to decide upon? 2. Do you feel that you would like to have a wider space for your research?

Changes in the industry

• How has the industry changed during the last decade? • What is the main reason for it? • What are the major benefits of this? • What are the major disadvantages of it?

Technology as a driver of change

• How do you look upon technology and its' development affecting the industry? • Do you think that the major record companies have been doing a good job to adapt to the changes? • Would you say that they are doing a better job today then they did a couple of years ago?

Changes to the business model

• How would you define a business model? • Who are the most important actors for e record company in a business model? • Are there any major actors that no longer are a part of it? • Who where the major actors in the business model ten years ago? • Who are the major actors today?

Competition

• Who are the main competitors for the major record companies today? • Do you feel that the development of technology is a friend or an enemy for the industry?

For the future

• Is there a future for the record companies? • What will be the biggest change for them? • How do you view the opportunities for the big four to stay alive? • What kind of distribution channels do you think will increase/decrease? • Will the development of technology still be the main reason for changes to the industry or may there be other environmental changes that will have a major impact?

Appendix E – Questions to Spotify

Personal background

• How old are you? • How long have you at this position? • Have you any previous experience from the area of media and the music industry? • What is your main area of research?

Changes in the industry

• How do you think the music industry has changed during the last decade? • What is the main reason for it? • What are the major benefits of this? • What are the major disadvantages of it?

Technology as a driver of change

Changes in a record company business model

• How would you define Spotify’s part in the music industry • Would you say that Spotify is a part of a record companies business model • Are Spotify a substitute to other actors in the music industry? • What function is Spotify fulfilling in the music industry?

Competition

• Who are the main competitors for the major record companies today? • Do you feel that the development of technology is a friend or an enemy for the industry? • Who are the main competitors for Spotify today?

• Do you feel that Spotify is contributing to the music industry is positive for the record companies?

For the future

• What is Spotify’s view on the future?

Appendix F – Questions to Statoil

Personal background

• How old are you? • For how long have you been working for Statoil and for how long have you had this position? • Do you have any previous experience of this kind of position in a company? • What are your main responsibilities?

Sales

• How important is the in-store sales for Statoil? • Has the importance of in-store sales changed any? • How do you think this will change in the future? Media products

• What kinds of media products do Statoil offering to their customers? • Have these products always been offered to customers? • Has the importance of these products for Statoil changed any? Music

• Has music always been a natural part of your products? • Has Statoil's view upon sales of music change during the last years? • Are the sales of music an important part of your total revenue? • How do you make the selection of music that ends in up store? • Do you do any specific deals with record companies for certain artists or releases?

Change

• How have the sales of music changed for Statoil? • Have you experienced the same downturn in sales as the majority of the other actors in the music industry have suffered from? For the future

• What kind of expectations do you have for the sales of music? • Is there an area where you see any potential to develop the concept it even further? • Have you ever considered making use of music in your own campaigns as an add-on product?