Intra-Industry Rivalry

Number and Size of Competitors

As mentioned in the industry background, the “Big Four” control a majority of the market share in the music recording industry with the rest of the market being made up of independent labels. Since there is a small number of large firms that dominate the industry, sales for each firm remain relatively high causing increased revenues and profits for these firms.

Industry Growth

3090053847_0c5139a2af_o.jpg

As shown on the right side of the 2007 RIAA (Recording Industry Association of America) Consumer Profile, the music industry's value based on sales (in millions) has been decreasing over the last decade. CDs remain the industry’s largest revenue contributor, versus other formats such as digital downloads like mp3s. Sales from digital downloading, however, have been gaining market share since their introduction into the market in 2001. Digital downloads have been able to gain popularity because they are less expensive then CDs and give consumers more flexibility in terms of listening. For example, a consumer can purchase their favorite tracks off an album, rather than purchasing the entire CD, with the use of digital distribution channel services such as iTunes and Amazon.

In an effort to increase the attractiveness of CDs, the music companies have been decreasing their prices. Furthermore, firms have been increasing their marketing budgets to give their artists more public exposure to help drive sales. The “Big Four” have more capital and resources to help promote the music of any given artist, and independent labels are finding it increasingly difficult to compete. As a result of reduced prices, decreasing sales, and increased costs, the industry has seen negative growth. This lack of growth has lead to decreased revenues and therefore, decreased profits for the industry.

Product Differentiation

There is also low product differentiation across the music industry. While each label owns a selection of artists, the genres that they represent are common throughout the industry. Each recording company usually has a handful of popular artists that represent the different top genres. Given this, consumers are not dependent upon any one record company for a particular type of music. Similarly, the format of the music that is offered is driven by consumer preferences requiring every record label to offer both CDs and various digital forms. Low product differentiation causes revenues and profits for the industry to decrease.

Given that the music recording industry is dominated by a few, large competitors, has seen negative growth, and has low product differentiation, intra-industry rivalry is considered to be high. The diagram to the right summarizes the effect of rivalry on the music industry and how different factors change profits.

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License