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

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

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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

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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.

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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

v 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

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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

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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

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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)

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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.

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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.

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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

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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.

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

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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.

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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

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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

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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

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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

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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).

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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

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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.

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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.

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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).

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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.

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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

21 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

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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.

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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.

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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.

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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.

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Aftonbladet Andrea Hegethorn

Project Leader; Sales Department

60min 2009-11-10 Swedish Face-to-face

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

Sundström

Chief of Non-Food Products

60min 2009-11-12 Swedish Face-to-face

EMI Paul

Sonkamble

Technology Delivery Manager

60min 2009-11-13 English Face-to-face

MMTC Patrik

Wikström

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

Spotify Niklas Ivarsson

Global Head of Licensing

45min 2009-11-17 Swedish Telephone

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

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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

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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.

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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

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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

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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