Some of the key factors reflecting the unique needs of the digital music distribution model are:
Reduced fixed cost to produce music will enable more music diversity (lower entry barrier for musicians) and a less skewed distribution of sales among artists. This will expand the promotional needs and would also require broader alliances with larger artist base.
In case of the traditional distribution model, record companies used to off-load (or in some cases share) the consumer interfacing with brick-and-mortar retailers. For instance, focus area for BMG’s central distribution unit was to manage product shipments and strategic relationship with brick-and-mortar retailers. However the digital music distribution would require online advertisement models like search engine optimization and consumer behavioral tracking.
Digital division will also have to focus on selection of appropriate technology platform with built-in security (digital right management) to prevent illegal copying. This is critical to avoid any negative impact on the publishing division’s copyright inventory and overall profitability.
In lieu of the above it’s critical for BMG to establish a separate distribution channel to cater to the unique demands of digital music industry. Another alternative of strengthening the existing “central distribution division” with phased transition to digital music format would loose the crucial first mover advantage....