Apple's Music Store

On average, subscribers purchased 19.9 CDs annually, mostly through Sonik’s website. Annual subscriber retention rate was 90 percent. Sonik accumulated CDs from various suppliers and fulfilled its own orders. Annual fixed costs of fulfillment were $400,000; shipments averaged 3.7 CDs per package. Annual marketing expenses were $230,000; Sonik spent 90 percent on acquiring new subscribers and 5 percent on subscriber retention. Sonik’s cost of capital was 12 percent. It was considering three growth options: a. Continue the Niche Strategy: Sonik believed it could acquire 20,000-30,000 new customers per annum for the next several years without major new investment. Sonik also believed that spending $0.5 million per annum would increase customer retention to 95 percent. b. Mass-Market Strategy: Abandon the subscription model, add many other music genres, and build a mass-market brand.

2. Total revenue falls as the price of a good is raised, if the demand for the good is ( )

Variable pricing policy allows Apple to increase sales revenue by pricing more popular songs or artist at a higher price, then less popular songs or lessor known artist. Let us take for example the Grammy winner for Best New Artist Sam Smith and the song of the year Stay with Me, today you can purchased the song for $1.29, but let us assume ITunes ups the price to $1.39 sells 100 copies. $1.29 X 100 = $129 or $1.39 X 100 =$139, ITunes can increase sales by $10.00 for every 100 copies sold based on popularity. Eventually the cost of the song will increase due to popularity and ITunes

Along with the development of a file format (MP3) to store digital audio recordings, came one of the new millennium’s most continuous debates – peer-to-peer piracy – file sharing. Internet companies such as Napster and Grokster became involved in notable legal cases in regards to copyright laws in cyberspace. These two cases are similar in nature, yet decidedly different. In order to understand the differences and similarities, one should have an understanding of each case as well as the court’s ruling.

In 2000 the digital music was the next big thing in how consumers listen to music. The technological shift in music changed how the relationship is between the artists, recording companies, promoters and music stores on how they operate today. In the late 90’s and early 2000’s Peer-to-peer (P2P) networks allowed free exchange of music files with companies like Napster and Kazaa was a big step that allowed consumers to store large libraries of music. With the cost of hard drive space going down; it allowed for pocket-sized computers to store more information in a smaller space that open the door for apple to step in with the unveiling of the iPod and iTunes. These systems made it possible for storage and playback that gave consumers the

Since the iTunes music store was introduced on April 28, 2003, gross music sales have plummeted in the United States - from $11.8 billion in 2003 to $7.1 billion in 2012, according to the Recording Industry Association of America (Covert). Counterintuitively, during that time consumers were buying more music than ever. How is that possible? It 's because iTunes had made digital singles popular and was selling them cheap. This would change the music industry forever. In 2000, Americans bought 943 million CD albums (Covert), and digital sales didn’t even make a dent in comparison. But by 2007, those inexpensive singles overtook CDs by a wide margin, generating 819 million sales compared to just 500 million for the CD.

The music industry is an oligopoly. Since the late 1800’s people like Thomas Edison have been buying up patents in communication technology, forming monopolies, leading to a non-competitive entertainment industry. With only a handful of corporations controlling all aspects of acquisition, distribution and marketing of music, harsh business principles create an exploitative industry that takes the best of what artists have to offer and leaves many of them unable to support themselves. Beginning in the 1950’s with payola and white cover music and ultimately evolving into iTunes and Spotify, the music industry has grown into a billion dollar industry with far-reaching influence and control. Contracts rarely serve the artists’ best interest and many are left out to dry when their usefulness has expired.

Over the past decade, the use of CDs has been replaced with online streaming and retailing. This has eliminated much of the record companies revenues as they were used to making most of their profit off of distribution and promotion of physical copies of artists albums (Niemen). This has caused for a major shift and remodeling of major players in the music industries business models. Companies such Sony, Warner Music Group and Universal Music Group have started to completely rethink the way they conduct business (Forbes). In the past record labels were not only responsible for production, distribution and promotion of an artist and his/her music, but they also acted as a bank (Forbes), funding the artists tours and recording sessions. Recently, these music giants have been moving towards becoming more of a modular network organization. What this means is that they are less occupied with the nitty gritty, and more focused on what they do best which is distribution and promotion. This also allows for more freedom of creativity for the artist as well as fairer split of profits (Forbes). This adaption of new business models clearly shows the versatility of the music industry in adapting to new times and technologies.

When speaking economically, the digital music sector of the international music industry is undoubtably the most important sector in the industry. Within the last decade, music has seen cardinal changes in the way both major and independent labels distribute their products. An industry that once relied on Payola 's and mass distribution of physical records and CD 's now relies heavily on the power of the internet. The first instance of mass distribution of music through the internet was by the service Ritmoteca.com in 1998 [1]. Ritmoteca had a library of over 300,000 songs, offering individual songs for 99 cents each and albums for $9.99. After signing distribution deals with many major music labels such as Warner

The shifted new strategy of Apple was initiated by the release of iPod in 2001, followed by the iPhone in 2007, then by iPad in 2012. It was the iPod that brought significant growth in Apple. Initially, the iPod was just another MP3 but soon became the icon of the digital age due to its sleek design and user friendly interface. Moreover, iPod could sync with Windows as well as a Mac and offered accessory markets. Soon enough all the competitor in MP3 market had to face the challenge of consumers comparing their model with iPod. However, the greatest challenge that the competitors had to face was the introduction of iTunes store.

EMI must implement new measures to increase its market share. It can also decrease its CD prices to compete with Universal Records. EMI has less market share because it has less hit recording artists and a smaller music catalog. EMI has several options to increase its prominence in the record industry. One of these solutions is for EMI to change its marketing mix. EMI can consider changing its product mix by offering more music geared toward group of people who have steadily increased the percentage of music they buy for the past ten years; consumers over the age of 40 (Kerin,2007). EMI can also cut cost involved with artists by dropping artists that do not produce, supply the market with high quality artists and increasing productivity. This in turn will also increase its market share. And of course, EMI can decrease the price of its CD's.

Jobs also changed the pricing strategy and focused on value-based pricing that provided customers with premium products at a premium price. Product pricing has specifically set Apple apart from its competitors. Apple believed that they could create demand for their products which would give the company “power over prices through product differentiation, innovative advertising, ensured brand loyalty, and hype around the launch of new products” (Nair, 2014).

Apple users are at 4% computer market, failing to convert Windows PC users. BuyMusic. Com has a larger audience offering the same service.

Downloaded an average of 12 tunes per month, housing libraries between 25 to more than 300,000 songs from the internet

After a half circle of product life cycle Apple refreshes its offer with new features and decreases the price of the previous offer. Thus the market skimming has become the strategy and thus practicing market leadership in product-quality will cover the high cost and R&D. Thus the each year apple enthusiasts are getting the higher value of high quality and advanced features in the closely same price which actually comprises everyday less-price as well.