Strategy to Improve Disney's Music Streaming Services

5597 words (22 pages) Business Assignment

3rd Jun 2020 Business Assignment Reference this

Tags: Business AssignmentsSWOTPorter's 5 ForcesFinanceInternal AnalysisExternal AnalysisBusinessThe Walt Disney CompanyBusiness Strategy

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Contents

Executive Summary

Industry

Macro-environment

Porters Five Forces- Supplier power

Substitutes

The rivalry

Buyer Power

Key success factors for music streaming industry

Is the music streaming industry attractive?

Financial Analysis

Disney Finances (profitability, growth and liquidity)

Disney value chain

Competitive advantage

SWOT Analysis

Strengths

Weakness

Opportunities

Threats

Competitive Strength Assessment

Disney present mission

Present Generic Strategy

Strategic Issues and changes

Implementation model

References

Appendix- CSA

Appendix-B

Disney Monthly Active Metrics

Executive Summary

This report will outline actions the current CEO of Disney should take to boost revenue and performance in the music streaming service industry.  Disney is a worldwide entertainment company based in the mass media industry.  Disney owns dozens of entertainment companies around the world.  Some of the most notable companies are Marvel, ESPN and ABC.  When we think of Disney, our first thought are Disney land and Disney World theme parks.  Disney’s management teams strategized to move for the theme park industry to the entertainment industry due to the customer reviews after visits from the parks.   Disney is the world’s leader in the mass media industry.  The have market leaders in sports entertainment, “tween music”, and animation.

I recommend that we look at adding a new product by introducing or developing a new genre of music with the Disney structure. Yes, this may be considered a blue ocean method, but the market base is there, and you can find it.  This report will also offer some recommendations on the best ways to implement strategy changes to address the firms marketing weaknesses. Yes, this may be considered a blue ocean method, but the market base is there, and you can find it.

Industry

This report will explain and outline actions that Disney can take to improve music performance revenue.  There are not a lot of peer reviewed studies on the music streaming industry because it is still new, and its growth has been faster and broader than expected.

At the beginning of the 21st century, the children’s musical products that were produced by folk singers and musicals, started to evolve into sounds that mimicked mainstream pop music.  The products aimed at youth and young adults took on more complicated production values and the industry of “tween” music began to expand between 2005 and 2012 (Beckford, 2012).  Disney entered this market by providing music that takes the essential characteristics of mainstream pop and removes potentially offensive elements, such as cursing or verses that produce sexual explicit images for kids.  Disney helped develop artists like Justin Bieber, Molly Cyrus and the Cheetah Girls.  All of whom help develop the market for the current Disney channel and aid Pop music to be at the forefront of this industry.

There are still avenues of approach to grow in this segment of the industry as this company has yet to address different genres of music such as gospel, Latin and a new genre called country rap aka “country trap music”.  According to Forbes magazine, Latin music Latin music has a larger market share at 9.4% than country at 8.7%.  There is growth in this segment because of the decrease in the popularity of rock music.  Introducing or developing a new sound like country trap for example “Old Town Road”.  This song is the most played sound in the nation today.  With listeners form age 4 to 75 years of age because it brings country and urban music fans to one sound.  There was also the collaboration with Nelly and Tim McGraw, which topped charts in 2004.  Today Blanco Brown’s hit song “The Git up” is number one today on Country charts.  This company has a proven history with finding, acquiring, and developing talent. Another approach is to appeal to listeners between the ages of 25 and 45 years old: currently Disney is looking for a strategy to increase the age of the target audience for their products instead of just being appealing to children under sixteen.

There are a number of these generation “X-ers”, who would have no issue with a music streaming service that that focuses on the lyrical side of the music rather than the “dope beat”.  The is a music streaming market for consumers who want to hear a different type of music, Latin music is a great example.

Macro-environment

The most relevant Macro Environmental forces Disney are sociocultural and technological.  Sociocultural forces are attitudes, values cultural influences, and life styles that impact the demand for goods and services.  The music industry has changed with the trend of people living healthier life styles. For example, I joined the Army in January 2001, my work outs were accompanied by a large CD player attached to my waist and a small CD case holder with about 20 discs.  Now you can play music from your watch and listen with wireless earphones.  This is the result of streaming, where consumers can listen to any music at any time on most electronics devices. Streaming now accounts for about 54% of music consumption in 2018 as album and song sales continue to decrease (Ryan, 2018). Steaming has allowed rap music to become the most poplar music genre among music fans.

While I am sure that the Disney music segment will not over take rap, but it could be a better option for those who are disgruntled with the quality of rap music and the lack of new talent for the rock genre.  In addition, genres like classical, gospel, jazz and seasonal music continue to poll al less than 3% popularity (Ryan, 2018).

In 2017, total music consumption increased nearly 13% and the hip hop genre accounted for over 24% of music consumed (Caulfield, 2018).   This expansion is a result of hip hop and rap celebrities partnering with tech firms.  The most notable is Dr. Dre and Apple who collaborated to develop the Beats by Dre head phones.  This is one example of how hip-hop music expands its market.  It does matter where or who, the music reaches everyone, even if the quality of the song is diminished.  Music fans don’t have a strong brand preference or a high degree loyalty to a certain genre.  If the music has a nice beat, and “catchy” lyrics, consumers will download or stream from devices while driving, working out, cleaning, studying etc.  Music has become an ornament in a lifestyle trend for fans of music and technology has been the driving force behind the expansion of the hip hop genre.

The size of the global steaming market is expected to grow in terms of size, demand, revenue and supply.  The adaption of music streaming has led to the decline in downloaded and hard copy music sales (Watch, n.d.)  Amazon music and Spotify are the current driving forces behind the US music streaming growth.  About 80 percent of music streaming subscribers belong to these two music streaming services.  The US has an estimated 51 million monthly subscribers with about a quarter of the subscribers paying extra for the no commercial service (Diaconescu, 2018).  Music steaming is becoming the primary music source for consumers.  Those of us who listen to the radio while driving, usually switch to a streaming service when we exit our vehicles by using our mobile devices. Disney does not need to create a new device to stream music, it must create streaming service with a focus in music entertainment which will set apart the new “Disney sound”.

Porters Five Forces – Supplier power

The leading global suppliers of music streaming services are Amazon music, Spotify, Google music and You tube music.  We all know that Amazon is responsible for some of the largest shifts in web services and logistics; the company is now attempting to do the same with music.  Amazons web service, Amazon.com has over 300 million monthly active subscribers and has cornered roughly 40% of the ecommerce market share (Benn, 2018).  Amazon Music has grossed over $50 million in gross revenue in app store user subscriptions.  Using Amazon music as a supplier for the “Disney Sound” will probably give our company the best chance at familiarizing the market with our sound with an investment in advertising, how ever the low prices associated with the service may stagger revenue growth although Amazon sales overall grew over $40 billion in 2017.  Amazon has different websites for different markets that cater to the local customers, which is their most vital bargaining tool to leverage in negotiating costs.

Amazons investment in sociocultural factors enables marketing strategies that are more suited to the local culture and society.  We can conclude that music streaming services gain bargaining leverage by distinguishing their services through their market share or popularity Our company does not have to invest in extra capital expenditures to connect with local customers. We could use our brand to purchase equity ownership with smaller music streaming services.

Spotify has a global market footprint in 79 countries with over 217 million monthly active users.  The benchmark is a bit below the forecast for the last quarter, however the company did expand its global market foot print to India. Spotify currently has about 2 million subscribers in this country.  While Amazon has a better name recognition in the western hemisphere, Spotify has actively and is still actively strategizing to expand their brand in other countries.  Disney is a world-wide brand, using Spotify as a supplier for our music brand will give our new talent and sound more of an outreach to other cultures.  The issue is that the new sound might not be quickly accepted in other countries as quickly as it would with the markets in the US and Canada.

Pandora’s global market footprint is similar to Spotify. Pandora brands itself as the worlds most powerful music discovery platform offering music consumers personalized experiences through mobile devices, car speakers and any other devices that can play or stream music.  In 2017, the music streaming service had nearly 75 million active users with about 6 million paid subscribers.  Listeners have the ability to add variety to and rename stations, which further allows for the personalization of the service (Pandora Media INC, 2018).  Pandora would be my supplier of choice because of their place in the current market and the fact that its active users are declining.  We could use our name recognition to leverage costs.

The demand for suppliers on the consumer level is low because consumers demand access to music, so switching services is done at a low cost.  However, if there is a supplier that has collaborated with tech firms and have developed newer devices to play that music, that streaming service witness more users during the initial output of that new device.

Substitutes

The are also several other streaming services that are not as profitable and have notable names.  Google music, Apple music, Tidal Review and I heart Radio are all comfortable substitutes for music streaming and could provide a platform for our new Disney sound.  The pricing of these options is not as acceptable to music fans as Spotify, Amazon Music, and Pandora.  Amazon music offers unlimited streaming for $9.99 so does Tidal Review.  However, consumers don’t get same the value or entertainment experience with Tidal as they would with Amazon Music.  Apple music has the largest share or monthly users because the service in provided with the purchase of the I-phone.

The rivalry

The rivalries with music streaming services are very intense.  Most services provide a subscription price around $9.99 USD per month.  Consumers will leave the service if prices are increased, but many will pay up to $4.99 to have commercial free streaming.  So, music streaming providers must offer an increased value of the service.  Most already allow consumers to personalize playlist, have auto top ten list, free streaming with other internal devices etc. Price cutting is not a problem in this industry, because music fans are willing to pay at average price and will not typically use cheaper service packages because of the value of those packages.

Buyer Power

Piracy has always been threating to the music industry, and because of this threat CD sales and download sales for the music industry will continue to decline.  This gives music streaming services an increased bargaining power.

The introduction of the “music on demand” process is a result of the continuous improvement of the music supply chain system.  Consumers do not want to wait two or three minutes for a download a song when the capability to listen right away is possible.  There is an old real estate investment tool that states, “buy everything and own nothing”.  The same goes with music consumers; access over ownership.  Buyers have an high influence on the market.

Key success factors for music streaming industry

Consumers in the United States are spending more money on music than ever before.  Music has become a lifestyle trend and furthermore music streaming will continue to expand the music experience of the listener.  From professional athletes to couch potatoes, music streaming services provide access to our favorite celebrities and the music they love.  As the social media market expands, fans have access into those private moments of their favorite celebrities who have relationships with music artists, who may have songs that we have streamed online.  The success of social media has aided in the success of the online streaming industry.  In addition, the National Basketball Association and ESPN, whom we own have parented or collaborated in someway with music celebrities, enabling more people to become familiar with their latest music products.  Another success factor is brand recognition.  Apple, Amazon, Google and YouTube all have successful music streaming services.

Is the music streaming industry attractive?

The top five most popular music streaming services have nearly 190 million monthly subscribers.  Global music streaming services accounted for nearly 47 percent of global music revenue, which included a 33 percent growth in paid subscription services in 2018 (Perez, 2019).  According to the IFPI Global music report, streaming revenue grew by 34 percent.  Although the music streaming industry is saturated with small providers, there is still a market that can provide a steady revenue for the company’s future streaming services. Spotify is the clear leader the music streaming in terms of paying subscribers with 87 million and 191 million monthly active users Apple music has 28 million paying subscribers and 60 million monthly active users (Watson, 2019).  This leaves 136 million monthly active users that are not subscribing to the streaming services.  Why are they not subscribing? This is your market! The firm should invest in research and development to engage these consumers and persuade with an appealing music streaming service that will be valuable enough to pay $9.99.  The industry is appealing because there is a lager number of non- paying consumers, looking for a service that fits their music taste, music quality and lifestyle.

Financial Analysis

In 2019 global recorded music revenue grew 9.7% which is the fourth consecutive year of growth (Global music Report, 2019).  Global paid streaming revenue increased 33% and posted an increase in nine of the top ten global markets.  Music listeners engagement in music streaming has enabled digital revenue to expand to about 60% percent of all recorded music revenue.  There has been a 34 percent growth overall in global music streaming as a result of the are 255 million active paying music streaming consumers worldwide (Global music Report, 2019).  According to forecasts, the number of expected music streaming users will be around 978 million worldwide by 2023 (Statisca, 2019).  Users are expected to pay an average price of about $13.40 per subscription however the number of users does not always mean an increase in number of paid subscribers.  As prices rise for the current average of $12.74, revenue growth slows and revenue increase.  Research shows that market growth will slow to about 3.3% by 2023, meaning that users will demand something new or a streaming service that will add more value to the experience.

This is a multi-billion-dollar industry, with millions of users who stream with out becoming paid monthly subscribers.  Currently Disney is working on introducing a video streaming service that would compete with Netflix at $7 per month.  This is premium content at a discounted rate, which should penetrate Netflix users and persuade them to switch due to the discounted price.  Adding a music streaming service to the entertainment experience will make up for lost revenue when Netflix decides to lower prices also.  Remember our goal is to be the number one brand in entertainment streaming services.  We want to give are users the ultimate streaming experience at their fingertips, at the sound of their voice whenever and wherever, using whatever device that consumer wishes to use.

Disney Finances (profitability, growth and liquidity)

Disney is expected to make about $71 billion in revenue this year with a forecast of $101 billion by 2023. Sales have increased from $42.2 million to about 60 million in 2018.  That is an average growth of 5.54 percent per year. As stated before, music streaming revenue growth is expected to slow as more consumers become paying monthly subscribers.  This firm needs to counter the $393 million loss it posted in the first quarter of this year due to the expenses of preparing for the launch of its video streaming services (Schwartzel & Armental, 2018).  Current forecast state that Disney expect to have between 60 million and 90 million subscribers by the end of 2024.

Earlier in this paper I pointed out that subscribers don’t always turn into active monthly paying subscribers. Apple has 56 million subscribers with but 28 million active paid subscribers.  This means that Apple gives away free services.  There are other companies that have to same pattern.  I strongly believe that just offering the streaming service alone will not be enough to overcome or compete with Netflix.  Adding the extra music streaming service will persuade subscribers to stay and pay. The current Disney Music Group along with streaming services that are collaborated with music streaming services only made about $6 million in profits.  That number is very hard to find, this company does a great job over covering for the minimum gains due to its profits for the other segments involved in the Disney “empire”.  This firm should commit to becoming consumer focused, meaning focus on attracting active monthly subscribers. Instead of a goal of adding 60 million users, lets be more realistic and try to add 30 million active subscribers at the average cost in 2023 of $13.50 which includes both music and video streaming services.  This could lead to over $400 million in sales and increase the accounts receivables or the asset of having paid monthly consumers.

Disney has a liquidity ratio of .77 as of 1 April 2019 which is a drop off from the ratio of 1.0 posted on December 31, 2018.  This is a result of the increase in liabilities which were around $18 billion at the end of 2018 to $44 billion at the end of the first quarter of 2019.  The $26 billion increase does not put Disney in a financial crisis overall but could jeopardize its current investment in its video streaming project.  Disney’s current total assets value were valued at $214 billion, an increase of 118 percent, largely due to its $71 billion acquisition of 21st Century Fox in March 2019.  The overall health of Disney’s finances is presently in good standing and will be the foreseeable future.

Disney value chain

Disney value chain is divided into two categories: support functions and value chain activities.  Value chain activities for Disney include supply chain management, distribution, marketing and customer follow-up services.  Supply chain management activities should focus on lean six sigma processes and continuous improvement.  The supply chain managers should always look for bottle necks in the supply chain by evaluating logistic activities and implementing strategies to lower costs and increase profits.  This includes evaluating current supplier using a balance score card and renegotiating transportation and inventory costs. Disney accrued a $26 billion increase in liabilities after the purchase of 21st Century Fox.  Supply chain managers must develop new key performance indicators for suppliers, incentive employees by creating a more diverse and competitive work environment.

Competitive advantage

Disney is the global leader in entertainment and media services.  This enterprise is very skilled, and those skills allow it to operate at a competitive advantage in any segment or industry it enters or has entered. Disney most valuable skill is the ability to operate in different business segment, with different business models and still generate income.  Because if Disney’s diverse business portfolio, it is not as affected by external environmental changes or economic ebb and flows as its competitors would be.  Another competitive advantage that Disney has is its competency in acquisition.  This is the backbone of the current structure of Disney.  Acquiring music streaming services that are currently in the bottom rankings of popularity and revenue will lead this enterprise into the top tier of streaming services.  Those music streaming services like Tidal, Deezer, and MelOn still generate nearly a combine sales revenue of $ 200 million in sales annually (Watson, 2019).  Disney’s skilled acquisition of these services could more than triple the value in that segment and at least compete on a global scale in the top five by the year 2023.  The reputation of the Disney brand is its strongest advantage in the face of competition.  Disney ahs been around for nearly a century and consumers will always feel inclined to purchase Disney products and services.

SWOT Analysis

Strengths

Disney is very popular, and its brand name alone will make competitors in any segment of business have to prepare, strategize and invest more in marketing along with advertising.  Disney has a growing portfolio of popular products such as the Marvel movie productions and theme parks.  The overall strengths of this company support long-term growth despite very aggressive coemption even if that competitor has a strong name brand like Amazon or Google.

Weakness

Disney does have some weaknesses, and these areas have caused a slight dip the its current stock price.  Disney has limited innovation, and diversification.  Disney operators below competitors in research and development and sometimes products positioning is not clearly defined.  The fact that Disney wants to launch a video streaming service to compete with Netflix and HULU is one of those examples. As of now the only difference between its competitors in the streaming service is that Disney will offer premium content at a discounted rate.  That alone will peak consumer interest but will not lead into active paying subscribers.  Again, Disney cannot be afraid to be innovative and offer something new like the genre of country rap discussed earlier in this report.

Opportunities

The government adoption of new technology standards and the uptick in spending give Disney the opportunity to enter new markets and compete aggressively. Disney alone is a great branding source, and any small company or a less popular business in which Disney competes in will benefit from partnering with the enterprise.

Threats

Disney is not a technology or software firm and cannot manufacture or produce devices that will be beneficial for products and services offered to consumers.  In addition, Disney has a limited customer base- children. Kids are not revenue drivers, so the firm must develop a new strategy to expand the age of its target audience.  Again, music streaming services coupled with video streaming services will expand the age of Disney’s target audience.

Competitive Strength Assessment

My assessment is based on eight critical success factors.  Those factors are marketing, brand recognition, price, innovation, product diversification, number of paid subscribers, entertainment experience and daily users.  The score is based on a scale from 1 to 5 with 5 being the best and 1 being the worse.  Brand recognition has the most weight at .41 and paid subscribers has a weight of .25.  My reason for the weight mentioned is that brand recognition inclines consumers to purchase and paid subscribers control revenue. I compared the strength of Disney to Spotify, Amazon music, and Netflix.  I added Netflix because I recommend that Disney commit to its mission in being the world premier entertainment leader. Disney is in the entertainment streaming service industry.  This is the best way to separate from competition and add active paying subscribers.  Of course Disney has the highest weighted average score with 4.15.  This is largely due to the scores in marketing, entertainment experience and price.

Disney present mission

The mission of Disney is to is to entertain, inform and inspire people around the globe through the power of unparalleled storytelling, reflecting the iconic brands, creative minds and innovative technologies that make ours the world’s premier entertainment company (Executive leadership, n.d.).  This mission statement does fit with the market forces and I would not make any changes to the statement.  However, I would take that last part of the statement “innovative technologies” and actually invest in research and development so that this firm can continue to operate effectivity under that statement.

Present Generic Strategy

Disney uses product differentiation as a generic strategy for a competitive advantage. The firm’s aggressive strategies for growth are focuses on developing new products and services to compete in different global markets.

Strategic Issues and changes

Disney announced a strategic reorganization in 2018.  The new business unit focus on direct-to-customer streaming platforms (Wang, 2018).  It was important for Disney to address concerns about its products with traditional paid TV and movie services. I recommend that Disney takes this one step further and invest or collaborate more with tech firms and seek out opportunities in the automobile industry.

 Implementation model

Disney must address strategic issues and implement changes.  The actions that I think are necessary to implement the recommended strategy will start with the allocation of sufficient resources to the execution effort (Thompson, 2019).  I strongly believe that before you chose a management team to execute this project, the company must be committed to providing all resources that will be needed to do this task.  The Project manager will be able to lead more efficiently and effectively knowing that the board of directors will full support the new strategy and this individual along with the team will not have to stall and wait for answers to move on ideas that need to be executed in a timely manner.  Disney has already instated new policies and procedure to facilitate the execution of the new strategy. Now this firm has to adapt practices and processes that will drive continuous improvement, this means engaging the supply chain.  When engaging the supply chain, the firm must be aware of the “Iceberg effect”. Do not just fix what you see, find out what you don’t know and then fix those problems also.  If you look for dirt, you might find a mountain.

References

  • Beckford, T. (2012). The new ‘tween’ music industry. Cambridge University, 417-436.
  • Benn, M. (2018, January). Medium.com. Retrieved from How Amazon Music Unlimited Could Win The Music Streaming War: https://medium.com/@MattBenn/how-amazon-music-unlimited-could-win-the-music-streaming-war-401525d052ba
  • Caulfield, K. (2018, January 3). U.S. Music Consumption Up 12.5% in 2017, R&B/Hip-Hop Is Year’s Most Popular Genre. Retrieved from bilboard.com: https://www.billboard.com/articles/columns/chart-beat/8085975/us-music-consumption-up-2017-rb-hip-hop-most-popular-genre
  • Diaconescu, A. (2018, September 18). Retrieved from phonearena.com/news: https://www.phonearena.com/news/apple-music-spotify-driving-forces-us-music-streaming-growth-new-report_id108926
  • Executive leadership. (n.d.). Retrieved from www.thewaltdisneycompany.com/about/
  • Global music Report. (2019). Retrieved from IFPI: https://www.ifpi.org/news/IFPI-GLOBAL-MUSIC-REPORT-2019
  • Pandora Media INC. (2018). Pandora 2018 Annual report. DC: US securities Exechange.
  • Perez, S. (2019, March). Tech Crunch. Retrieved from Streaming accounted for nearly half of music revenues worldwide in 2018: https://techcrunch.com/2019/04/02/streaming-accounted-for-nearly-half-of-music-revenues-worldwide-in-2018/
  • Ryan, P. (2018, January 3). Rap overtakes rock as the most popular genre among music fans. Here’s why. Retrieved from USA today: https://www.usatoday.com/story/life/music/2018/01/03/rap-overtakes-rock-most-popular-genre-among-music-fans-heres-why/990873001/
  • Schwartzel, E., & Armental, M. (2018, May 8). Disney Spends Big on its Straming bet. Retrieved from Wall Street Journal: https://www.wsj.com/articles/disneys-profit-surges-but-costs-rise-as-it-splurges-on-content-11557348219
  • Statisca. (2019, April 2). Retrieved from https://www.statista.com/outlook/209/100/music-streaming/worldwide#market-revenue
  • Thompson, e. a. (2019). Strategic Manegement. Florida: McGraw- Hill.
  • Wang, C. (2018, March 4). Disney announces strategic reorganization, effective immediately. Retrieved from CNBC: https://www.cnbc.com/2018/03/14/disney-announces-strategic-reorganization-effective-immediately.html
  • Watch, M. (n.d.). Retrieved from https://www.marketwatch.com/press-release/music-streaming-market-valuation-2019-2024-impact-of-competitors-driving-factors-distributors-wholesalers-end-use-sector-by-region-by-country-forecast-2019-03-27
  • Watson, A. (2019, July 2). Number of Apple Music subscribers worldwide from October 2015 to June 2019 (in . Retrieved from Statista: https://www.statista.com/statistics/604959/number-of-apple-music-subscribers/

Appendix- CSA

Appendix-B

Disney Monthly Active Metrics

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