The Internet brand MusicWorld.com. Essay

Custom Student Mr. Teacher ENG 1001-04 20 April 2017

The Internet brand MusicWorld.com.

The paper presents e-commerce business idea that could be realized at the Internet brand MusicWorld.com.

Mission Statement of MusicWorld.com

It is MusicWorld.com’s goal to enhance the development of electronic music by being the premier, comprehensive resource on the Internet for electronic music aficionados and producers of MusicWorld.com will democratize music, creation, distribution and consumption by:

  • assisting artists in the production of their music by providing samples and sound fonts at no cost
  • giving talented artists with few connections or resources the chance to distribute their music
  • giving small record labels the chance to distribute their music online, increasing their viability
  • allowing a fan of the music anywhere in the world instant access to a huge selection of releases from across the globe at very reasonable prices.

Executive Summary

A formidable opportunity has arisen from the combination of the advent of the Internet as a medium for music distribution, and the rise in popularity of a genre of music that is entirely composed with computer software – electronic music. This genre has been largely ignored by most mainstream retailers and labels because of its non-traditional song formats that make it non-conducive for radio play.

It is MusicWorld.com’s plan to market the electronic genre of music via a web site whereby consumers will download the music to their PCs. As a convenience, MusicWorld.com will write the purchased songs to CD and ship them directly to consumers who are not yet equipped to download music. The web site is designed for maximum user-friendliness, unlike any other music site today. MusicWorld.com’s unique web design allows users to browse the selection effortlessly, while being able to automatically hear excerpts from each virtual CD.

The electronic genre of music is ideal for online distribution for the following reasons:

  • There is a proliferation of artists worldwide within this genre because of the low price and accessibility of the necessary equipment and software
  • The music is created on PC; artists simply send MusicWorld.com music files via the Internet from anywhere in the world
  • Even very popular artists within this genre are accessible to negotiate contracts with since they tend to be self-distributed, or own small record labels
  • Because of the genre’s rapid evolution and its individualistic nature, aficionados constantly demand new material

MusicWorld.com is distinguished from its competitors in that:

  • The site uses flash software, the latest generation in web site technology that allows users to view complex graphics and animations, and hear high-quality audio
  • It uses a “push” marketing approach in that there is no need to download individual music files
  • It combines the advantages of CD-quality, piracy-protected downloadable music, custom-mixed shipped CDs, an electronic focus, event information, and musician resources

The market

The market for electronic music is largely composed of University students. According to Jupiter Communications:

College students, typically have free broadband access that makes digital distribution much more feasible, not to mention the highest penetration rate of any online demographic. This audience is the first that will be compelled to purchase writable drive peripherals specifically for the digital delivery of commercial music. (3)

Aficionados of electronic music are raised in the age of the World Wide Web, making Internet distribution in tune with their lifestyle.

Offer and Use of Proceeds

The estimated net proceeds to be received by MusicWorld.com from the sale of common shares, is GBP 166,666 (including GBP 16,666 of expected expenses associated with the offering). MusicWorld.com intends to allocate GBP 27,777 of the net proceeds towards the purchase its web site design, and the balance, in the amount of GBP 138,888, towards funding salaries and working capital. The investor will receive 10% of the common shares in exchange.

Capitalization
The following table sets forth the capitalization of MusicWorld.com as at the dates indicated, before and after giving effect to the issue of common shares contemplated hereby.

Shareholders’ equity Pro forma as at April 30, 20## Pro forma as at April 30, 20##
after giving effects to the Common shares
No. of common shares (without par value) 1,650,000 1,833,333
Book value of equity (in GBP) GBP 165 GBP 183,498

Summary Financial Information

1,833,333 outstanding shores 2000 2001 2002 2003 2004
Revenue GBP 405,752 GBP 1,622,987 GBP 4,900,662 GBP 12,964,445 GBP 30,145,945
Net Income (GBP 56,483) GBP 232,377 GBP 1,051,891 GBP 3,275,671 GBP 8,034,936
Net Book Value GBP 39,468 GBP 271,846 GBP 1,323,738 GBP 4,599,409 GBP 12,634,346
Return on Ave. Equity GBP 103,743 GBP 156,368 GBP 812,923 GBP 2,982,460 GBP 8,790,386
Gross Margins 30% 30% 30% 30% 30%
Earnings per share (GBP 0.28) (GBP 0.016) GBP 0.07 GBP 0.31 GBP 2.43

The Opportunity

The music industry is experiencing two major changes:

  • Music has been traditionally sold in a physical format that required manufacturing, including the record, the eight-track tape, the cassette, and the CD. Recently, with the advent of the Internet and increasing bandwidth, music has been reduced to a digital entity – as witnessed by the proliferation of MP3. This is the biggest change the recording industry has possibly ever seen.

“As we look ahead, we anticipate that the convenience of digital delivery of phonorecords may soon make digital transmission services the music distribution method of choice for many consumers.”(4)

  • Music used to be classified into a narrow range of genres. These included classical, pop/rock, country, and jazz. Tastes have fragmented over the last decade, such that there are many more genres of music today – most likely due to the proliferation of low-cost technology that allows artists to “self-publish”. This phenomenon was virtually unheard of in the past due to the enormous costs involved.

“Once upon a time, people bought pop music. Then they bought rock music. Now, they buy grunge, ambient, illbient, acid house, acid jazz, drum ‘n’ bass, Eurodance, hip-hop, trip-hop, lounge, techno, glam, industrial metal, lo-fi, dream pop, psyche rock or riot grill. Digital technology encourages this fragmentation by giving each new splinter genre easier access to the means of producing and distributing its wares.”(5)

Despite its growing popularity, electronic music has been practically ignored by mainstream record labels and radio stations, which are just beginning to catch on. Internet radio stations are discovering that the genre can be lucrative however. One of these is amino Radio:

AminoRadio is a 24-hour station devoted completely to music including techno, drum ‘n’ bass, house, turntablism, and other forms of electronic music. AminoRadio is The Eclectic Radio Company’s answer to the huge demand for techno electronic music that is not being provided by any other form of broadcast media. (6)

Launched in August 1998, amino Radio now has over 15,500 listening sessions per month, and is growing at a rate of 300% each quarter.

The lack of electronic music’s traditional radio play is possibly due to the unusual format of the songs, which have erratic lengths. Some tracks are ten seconds long, while the majority are at least seven minutes long. This does not fit well with the traditional radio format of three and four minute songs. With virtually no radio play, record labels do not want to risk the investment of producing electronic artists’ music. The result? An “invisible” community of electronic music lovers who hear the music through Internet radio, at dance clubs, and buy it from specialized record stores at a premium. The record stores are supplied by small record labels, which have grown out of the success of certain artists.

MusicWorld.com plans to take advantage of the resulting opportunity by positioning itself as the premier online source for electronic music and culture.

The Music

History

Whether we are prepared to admit it or not, technology has always defined popular music. From the development of the microphone that allowed Bing Crosby and Frank Sinatra to croon softly on top of a big band to Keith Richards’ discovery of the pleasures of an overdriven guitar amplifier, the excitement generated by pop music is often the thrill of exploration and the sense of possibility provided by the use and misuse of new technology. Electronic music is about the era of the proliferation of digital technology; an age in which the boundaries between human and machine are becoming increasingly blurred. (7)

Possibly the most significant difference between electronica and other musical genres is the importance of the DJ in reinterpreting and re-mixing what artists produce. Indeed, there is a significant shift in recognition from the musicians themselves to the DJs who perform it live, and who also record their work. This began in Chicago with the advent of “House music”, which was pioneered at a local venue called the Warehouse.

The tradition continued later in Detroit, the birthplace of “techno”. The importance of the DJ can be attributed to the fact that the music is disseminated by being played live, and by the fact that only a professional working full-time could possibly afford the time and cost involved to gather such rare music from various countries. In Germany, where electronica occupies a significant portion of the Top 40, it is bona fide pop music. (8)

Music production process

The following explains how electronic music is created using current technology:

  • The minimum equipment needed is a computer with at least a 150MHz processor, 32 Megs of RAM, a MIDI-compatible sound card (e.g. Soundblaster), 1 gig of hard disk space, and music composition software (MIDI), e.g. Cubase – already affordable.
  • The sound card is capable of generating sounds which fall into 2 categories: synthesized, and sampled
  • Synthesized sounds are generated from simple tones, whereas sampled sounds are recorded from various sources, often using a microphone
  • Using MIDI software, the musician creates a score which plays these sounds, which effectively act as instruments (think of the MIDI score as sheet music, the sound card as the instruments, and the computer as the musicians)
  • The result of the MIDI file playing these sounds is a WAV file. This file can then be uploaded to MusicWorld.com.

The Products and Services

A comprehensive electronic music web site has been designed for maximum user-friendliness, unlike any other music site today. The unique design allows users to browse MusicWorld.com’s musical repertoire effortlessly, while being able to automatically hear excerpts from each virtual CD. The site uses Flash technology, the new generation in web site design that allows users to view complex graphics and animations, and hear high-quality audio by streaming the content to them as they browse the site.

Music fans can:

  • Listen to various tracks/clips of their favorite artists and/or DJs
  • Download a complete “CD” in 10 minutes through use of a high bandwidth connection for GBP 4.00 (this includes downloading the cover art as well). They then have the choice of burning the file to a CD, or playing it through their computer.
  • Have a custom CD burned by MusicWorld.com’s staff, and have it shipped for an additional fee (GBP 3.00)
  • Find out about electronic music events in their area, or elsewhere
  • Read/listen to interviews with their favorite artists/DJs

Electronic artists can:

  • enter into a distribution agreement with the site whereby their music is available for purchase
  • download (and post) musical samples which are used to create their music at no charge
  • agree to be interviewed to increase awareness of their work

DJs can:

  • sample songs/clips of various artists before buying
  • have access to the latest tracks from even the most obscure artist from anywhere in the world virtually instantaneously
  • enter into a distribution agreement with the site whereby their music is available for purchase
  • agree to be interviewed to increase their recognition
  • post tour information

Labels can:

  • use MusicWorld.com as an additional distribution vehicle for their talent, at no marginal cost
  • use MusicWorld.com to run promotions for new releases (e.g. “sneak previews”, etc.)

By making sure the site offers not only music to consumers, MusicWorld.com is ensuring authenticity. Web sites that only aspire to be “stores”, forget why people surf the Internet in the first place: for information. MusicWorld.com intends to provide high-quality information on the topics that interest the target market to ensure frequent visits to the site, and a positive brand image. The intent is to be the premiere resource for electronic music and related information on the Internet. A site of this caliber does not presently exist.

Operations

Technology

 Site Operations

Standard operations for MusicWorld.com consist of three major facets: updating the site with new information, adding musical content to MusicWorld.com’s repertoire of products, and distributing such content to online customers.

The addition of musical content to the MusicWorld.com site consists of:

  1. Artists submitting their music (and cover art, created on their home PCs) to MusicWorld.com’s submissions department as a digital audio file, or on a conventional CD
  2. MusicWorld.com screening musical content for quality and appropriateness (a qualified Artistic Director, see the Employees section on page 25)
  3. Artists signing a digital distribution contract, whereby they earn 50% of the sales price (before shipping) of each full album or individual track
  4. Converting content into a format (Liquid Tracks) that can be played by customers’ Liquid Music Player or Real Player using the Liquifier Pro music publisher
  5. Uploading it to our server

The second facet involves distributing content to customers:

  1. Hosting the site through a dedicated server
  2. Providing samples of music, which are streamed with the Liquid Music Server software.
  3. Providing this music for purchase via a secured credit card transaction. This is provided by a third party that specializes in this service, iBill see www.ibill.com)
  4. Delivering the selected content from MusicWorld.com’s server (managed with the Liquid Music Server software)

MusicWorld.com will be paying a one-time licensing fee (GBP 16,666) for the use of Liquid Audio’s Liquid Music System, a commercial hosting package that includes the Liquifier Pro (copy-protected music publisher), Liquid Music Server (music delivery management software), and the Liquid Music Player (digital audio listening software). The Liquid Music System not only meets our requirements for efficient, trouble-free software to manage and publish musical data, but also equally offers superior performance and flexibility.

The Liquifier Pro is the first professional software that allows MusicWorld.com to prepare and publish CD-quality, copy-protected music for purchase and delivery via the Internet to PCs and Macs everywhere. It transcends audio features by providing the capability to include lyrics, credits and artwork – all contained within one file, the Liquid Track. Furthermore, Liquid Audio uses Dolby Digital encoding, resulting in the highest quality audio for streaming and downloading of CD-quality music on the Internet. To ensure audio quality, regardless of different connection speeds, the Liquifier also provides a unique preview capability before publishing to the Liquid Music Server.

Target Markets

MusicWorld.com target market is very specific, as it comprises those people who already listen to electronic music. MusicWorld.com conducted a survey of 100 respondents, mostly in the UK area, with approximately 10% of respondents were from abroad, (surveyed via the Internet). As this market research revealed, the target market is young (average age 25), well educated (average 1-3 years University), and predominantly male (65%).

They have computers at home (81%), Internet access (97%), and spend more time on the Internet than most people (9 hrs/wk). They also are more likely to have access to a high bandwidth connection (31%) than average Internet users, and are also more likely to possess a CD burner (29%). They also buy more CDs than the average consumer. A high proportion (12%) of electronic music fans actually compose their own music, which supports the fact that a high proportion of them (75%) would like to support a retailer, which rewards artists at a higher level than the industry average. This is part of MusicWorld.com’s marketing strategy.

Possibly the most important characteristic of electronic music listeners is that they are dispersed all over the globe. For the purposes of marketing communications, however, MusicWorld.com’s main target markets are in the U.S., Germany and the UK. This is because the consumers in these countries are either English speaking or highly fluent in English, have the highest sales of CDs per capita, and the highest concentration of electronic music fans for historical reasons. Since MusicWorld.com’s main distribution channel is via the Internet, an English speaking person anywhere in the world with Internet access can be attracted to our site and make a purchase.

Product

MusicWorld.com conducts an electronic commerce that aims to fulfill all the needs of electronic music fans and artists. The site will have an image that fits with that segment’s lifestyle and tastes. This will come naturally, given that MusicWorld.com’s founders are part of the target market.

Thus, in the very short term, MusicWorld.com’s goal is to become the most complete online resource for electronic music lovers, regardless of whether the people frequenting the site actually purchase anything. The idea is to get consumers used to using the site for information such that when they are in the market for a new CD, they use MusicWorld.com’s site as opposed to another that has not served their needs so well.

After this initial period, the site must continue to innovate and respond to the consumers needs. Even beyond this, it must anticipate what customers want before they want it. This way, it will be hard to take away the first-mover advantage that the site will have in this niche market.

MusicWorld.com will rely on some independent, unsigned artists for the site’s content, however, MusicWorld.com will also target certain small electronica-focused record labels in order to add their roster of artists to MusicWorld.com’s repertoire. These small labels have much to gain from partnering with MusicWorld.com. Partnership offers a way of earning 40% of sale price while incurring no marginal cost whatsoever. In fact, MusicWorld.com’s site can be seen as a way of popularizing the labels’ roster of artists.

MusicWorld.com will find unsigned talent through posting on Internet Newsgroups, which is free of charge. In fact, MusicWorld.com already has found numerous artists through market research who are enthusiastic about the possibility of the online distribution of their music; f(y)u, for example, whose CD is included at the back of this document. MusicWorld.com will have a qualified artistic director screen submissions, and only make the highest quality music available in order to preserve  brand image.

Distribution

In terms of the delivery of music, MusicWorld.com’s primary market research showed that our potential customers are mainly concerned with the following:

  • Security of transactions (5.72 on a scale of 1 to 7)
  • Speed of download (5.48 on a scale of 1 to 7)
  • Technical problems (5.17 on a scale of 1 to 7)

The site will provide secured credit card transactions as well as alternative modes of payments to satisfy all customers. In the first three months these aspects are taken care of by Liquid Audio, by being a part of the Liquid Music Network. Download times will be reduced as high bandwidth connections become the norm. MusicWorld.com will ensure that the customers who so choose will be able to download their CD without running into any of the above-mentioned problems through the use of proven, easy-to-use software from Liquid Audio.

As the customer profile suggests, the target segment is very narrow and would be difficult to reach with traditional distribution methods. The spread of customers has so far made this market very small and unattractive. However, the Internet overcomes the obstacles of geography in the sense that almost everybody can be reached from a web site.

Pricing

MusicWorld.com’s primary market research showed that its customer have a large amount of disposable income (average income of GBP CAD 15,000, yet many are students), spends money on technology (81% have computers and 92% have Internet access) and is not particularly price sensitive (average importance of price on a scale of 1-7 was 4.8).

The average downloadable CD price suggested by respondents was GBP 5,50 CAD. At the time of the survey (Feb. 1999), there were no sites offering whole CDs available for download. Sites were offering individual tracks for GBP 0.55, however. Now, Good Noise Inc. is offering full albums for GBP 4.99, although they do not have any electronic (genre) music, which tends to be more expensive because of the high import rate.

The selected price-point for MusicWorld.com’s album downloads will be GBP 4 /unit, as compared to the price of actual CDs (physical copies) sold in retail outlets for GBP 6-8/unit domestic, or GBP 9-16 for imports.

This GBP 4 price is composed of GBP 2.48 profit margin (56%), GBP 1.70 in artist/label royalties, and GBP 0.18 credit card processing fees. Such a cost structure is made possible by the online nature of MusicWorld.com’s distribution, which bypasses many levels in the distribution channel, and thus many overhead costs normally incurred by wholesalers/retailers. MusicWorld.com is selecting the GBP 4 price point for several reasons:

  • To encourage first time purchases
  • To discourage new entrants from entering the niche
  • A very competitive introductory price will encourage loyalty.

This cost structure allows not only offering a better price to consumers (with a faster speed to market), but also better royalties to artists. Under the traditional record label contracts, artists can expect to earn 10% of sales at the most. With MusicWorld.com’s method, unknown artists gain worldwide distribution overnight, and royalties of GBP 1.70 per album sold.

This offers significant incentives to artists who either aren’t known enough to sign major record deals, or don’t have an interest in dealing with major labels. There is also a significant opportunity for labels to be able to distribute their artists’ work worldwide risk-free, with no marginal costs, no marketing costs, and no administrative hassle.

Promotion

MusicWorld.com will use public relations, advertising, “personal selling” and an Associates Program to meet sales goals.

Public relations

  • Post MusicWorld.com to all Internet search engines (e.g. Excite, Altavista, etc.,) (free) with the help of analytical software, Webposition Gold, which optimizes meta tags for each search engine, as they all have different preferences
  • Post links to MusicWorld.com on smaller related sites, such as hyperreal.org and Technoindex.com (free)
  • Post newsgroup messages in the appropriate newsgroups, e.g. alt.emusic, alt.music.techno, alt.music.house, alt.music.jungle (free)
  • Send press releases to all relevant media, including electronic music print and Internet magazines, campus radio stations, and alternative newspapers in urban areas
  • Sponsor electronic music events, by posting signage, passing out flyers, and video

Advertising

  • MusicWorld.com will advertise in several print publications, which cover the UK and Germany, the U.S., and Canada. Respectively, they are: Mixmag, XLR8R and Tribe.
  • MusicWorld.com will also advertise on the Internet, primarily on Technoindex, an index site which lists all relevant electronica sites, and on aminoRadio’s Internet radio site (exclusively electronica)

Positioning

  • Electronic music fans should view MusicWorld.com as the comprehensive “one stop shop” for all of their electronic music related needs. This means their actual musical needs, their need for information on artists, DJs, upcoming events, films, etc., and their need to contact other fans of the music.
  • Composers of electronic music should view MusicWorld.com as a source of samples and sound fonts to create their music with, and as a fairly remunerated means of distributing their music and gaining recognition.
  • DJs should view MusicWorld.com as a source of the latest in cutting edge material for their repertoires, and as a means of gaining exposure via actually distributing their music or by consenting to be interviewed, and/or posting tour information.

An important note to make is that it is essential that MusicWorld.com reaches all three of its positioning goals, as it is the combination of the three that will lead to success. By having the site supported by leading DJs and talented artists, it gains credibility as an authentic “place” to purchase music. This puts it way ahead of a simple retailer who is merely selling music. In contrast, MusicWorld.com should become a part of the consumer’s lifestyle.

Competitors and Substituting Products

Online Players Downloadable Music CD Quality Piracy protected Custom CD shipped Event Info GBP 11 or less Push marketing Electronic focus Musician resources
MusicWorld.com x x x x x x x x x
CDuctive   x n/a x       x  
raveworld.net         x     x  
thewomb.org         x     x  
MP3.com x     x   x      
CDnow     n/a            
Amazon.com     n/a            
hyperreal.org         x     x x
technogenesis x     x x   a little x  
X-radio.com               x  
Astralwerks               x  
GoodNoise x         x      

 To compete with these firms, MusicWorld.com must successfully bundle these three characteristics – greater source of information, greater variety of innovative electronica, and downloadable content – and build brand equity to be recognized as “THE electronica site”. MusicWorld.com will continue to offer online order processing for regular shipping to accommodate electronica fans that have not yet acquired the latest technology.

MusicWorld.com’s greatest competitors generally offer real-time streaming audio of sample tracks (to listen to directly with RealAudio), or downloads of single tracks, mostly using MP3, and online ordering of conventional CDs. Most are small, independent outfits, formed over the last three years, and appear to be privately owned. Competitors generally price conventional CDs at GBP 5.55-8.88, and downloadable tracks at GBP 0.55 each, plus a base price of GBP 2.772 – GBP 3.3285 for a custom CD.

The market for online music is already consolidating, as big players merge to create bigger entities with wider revenue bases (e.g. CDNow and N2K), in hopes of protecting themselves from new entrants. Investors’ belief in the explosive potential for online (downloadable) content distribution is reflected in market capitalization of these companies’ shares. This threat of new entrants is very real, as witnessed by the extension of Amazon.com’s retail mix into CD’s for home delivery, and the recent creation of online mega-distributors such as Spree.com and Buycomp.com. The next logical step for such distributors is to offer online downloads. Meanwhile, a variety of small, independent sites are also appearing with alarming frequency.

Major record labels such as Warner and Sony Records have recognized the “digital threat” and are moving to develop competitive alternatives. Some have even begun to recognize the potential of the electronica market, and are signing contracts with major artists (e.g. Fatboy Slim and Virgin Records). Some are even developing separate labels to cover electronica – Virgin Records’ Astralwerks is now a significant player in terms of variety offered. They have not given any indication that they plan to offer downloadable music.

The speed with which this industry is moving can cause MusicWorld.com’s window of opportunity to close rapidly. Any investment initiative that is to be undertaken in this venture will have to be taken now.

References:

  1. Jupiter Communications, “Music Industry and the Internet”, p.5
  2. “Techno Tackles the Net”, Niall McKay and Christopher Jones, http://www.wired.com/news/print version/culture/story/16764.html?wnpg=all
  3. Jupiter Communications, “Music Industry and the Internet”, September 1998, p.9
  4. National Music Publishers Association, http://www.nmpa.or2/nmpa.html
  5. “The Music Industry. A Note of Fear”, The Economist, Oct. 31, 1998.
  6. AminoRadio press kit. http://www. Aminoradio.com
  7. Modulations treatment (Caipirinha productions), Peter Shapiro, available at: http://www.modulations.com/
  8. Quantum Fireball as quoted on www.egghead.com on April 20, 1999.
  9. http://www.gvu.gatech.edu/user surveys/survey-1997-04/graphs/purchase/OnIine Seeking And Purchasing.html
  10. Calculated from lFPl and Statistics sources.
  11. Prices obtained from www.CDuctive.com on April 20,1999.
  12. Prices obtained from www.technogenesis.com on April 20, 1999.
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