South-Western - Management  
Burn, Baby, Burn
Topic Strategy
Key Words strategy, CD burner, MP3
InfoTrac Reference none
News Story

In the 1980s, the music industry was faced with a problem: customers were making copies of music on cassette tapes and not buying records. The CD changed all that, and the industry enjoyed a 15-year-long sales boom. Now, for the first time in history, CD sales are dropping globally. Worldwide sales of music dropped 6.5% last year.

Consumers spent $1.6 billion last year on CD burners, blank CDs, and digital-audio players. They would much rather create their own collection of songs than buy a CD with one or two tracks they like. In response, the Big Five music companies are pushing controversial anticopying technology into the marketplace. These copy-protected CDs come with problems: they can crash computers, and they may not work in all car stereos or portable CD-players. To make matters worse, some companies are releasing these CDs without warning labels, feeding the fear that any purchased CD could crash a computer.

The companies that are embracing CD burner technology seem to have the more consumer-friendly strategy, and may reap the rewards in the end. Apple Computer and Gateway are both pushing CD burners. A company called StreamCast Networks has come up with an innovative strategy that allows the artists to sell their music via a website without the music label middleman, and for greater profit. Rap Singer Chuck D also has a website that is a source for MP3 files of 4,000 rap artists.

In contrast, the online strategies offered by the music labels have not been successful. They are too limited and too expensive.

Questions
1.

In the last paragraph of this article, Marc Andreessen states, "A business strategy that alienates your customer base isn't a good strategy. The most productive way to solve the problem is to satisfy demand." Explain how the music industry's strategy is alienating its customer base. What do you believe is a better strategy?

2.

Define competitive inertia, and explain how the music industry is a victim of this.

Source Chris Taylor, "Burn, Baby, Burn," Time, May 20, 2002.
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