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Competitive Value Trains for Sony Music

In traditional record company like Sony Music, they make a recording deal with on-boarding artists in
order for Sony Music to provide recording session, to help the promotion and marketing, and to
distribute and sell the artists’ record. In return, recording artist get royalty from every record that is
sold. However, the ownership of the record belongs to Sony Music as the recording label.

With growing active users in digital platform for music like iTunes and Spotify, there comes a symmetric
competitive threat for Sony Music called Digital Distribution Aggregators. Although the value chain in
this music business still looks the same, but these Digital Distribution Aggregators serve different value
proposition to traditional Record Label.

First, let’s find the similarities between the two. To deliver the artists’ music in digital music platform –
iTunes or Spotify, both Traditional Record Label – Sony Music and Digital Distribution Aggregator offer to
handle the administrative paperwork for artist. After that both Traditional Label – Sony Music and
Digital Distribution Aggregator distribute the artists’ music by uploading them to the selected digital
music platform – iTunes or Spotify.

Now, second, let’s find the dissimilarities between the two. Opposed to Traditional Record Label, Digital
Distribution Aggregator does not own any rights to the artists’ music, it simply just helps the artists to
distribute their music. In other word, artists retain 100% of their rights, which means they can collect
royalties as the sound recording copyright owner, as well as the performing artist. Moreover, an artist
can make a distribution deals with multiple Digital Distribution Aggregator whereas in Traditional Label,
an artist has the obligation to serve only to his/her Record Label. In other word, artists have more
freedom and flexibility if they deal with Digital Distribution Aggregator.

However, Digital Distribution Aggregator does not help the artist to promote and do marketing for their
records. But on a brighter note, in practice, finding a distributor is much easier for artists than getting a
record deal.

Finally, let’s analyze the value exchanged leftward started from music consumer down to the artists. The
monetary amount of every transaction that happens between music consumer and Digital Music
Platform – iTunes or Spotify is split based upon agreement. If the artist is a signed record label – Sony
Music artist, the proportion for each stakeholder will be: iTunes – 30%, Record Label (Sony) – 47%, and

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the remaining 23% goes as royalty to artists. Whereas if the artist is unsigned or, in other word, he/she
is independently recording their music and deal with Digital Distribution Aggregator to distribute their
music, the proportion for each stakeholder will be: iTunes – 30% and the remaining 70% goes to the
artists. The question is then, where this Digital Distribution Aggregator companies get their revenue
from. Well, it depends on the pricing scheme of every Digital Distribution Aggregator company. Some
companies charge the artists an annual fee. Other companies charge the artist a one-time fee for every
music is uploaded, although rates are different for singles and full album. Finally some companies may
not charge any fees when distributing the artists’ music to iTunes, but they take a cut of the artists’
proportion of profit from every purchase made by the music consumer.

To conclude, with the presence of digital music outlet – iTunes and digital music streaming platform –
Spotify, there is another kind of economic entity emerged poses as symmetric competitor to traditional
Recording Label, namely a Digital Distribution Aggregator. These companies provides the artists a
flexibility to make a deal more than one company, freedom to manage their creativity, and monetary
benefit that gives the artists a higher portion of shared revenue from every purchase made by music
consumer in iTunes and any other digital music platform.

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