The music industry has experienced dramatic shocks that will ultimately transform its structure. The transformations have been sparked by new technologies and Internet use distributing music as a digital good. The MP3 audio format and the wide distribution network that has become available via the Internet are driving changes in the recorded music market structure and, thus, are simultaneously having significant impacts on the players in the traditional recorded music value chain. Global retail sales of recorded music dropped from $39.8Bn in 1996 to $38.5Bn in 1999 while the popularity of digital music has grown. This reflects digital music's new role as a "strategic necessity" of the music industry. It is obvious that the digital music format is here to stay and, indeed, is quickly becoming the preferred product choice of music customers. Our group will examine the internal and external factors responsible for shaping this new marketplace and analyze BMG's roles in the move to distribution of digital music.
BMG Entertainment, a subsidiary of Bertelsmann media, is a privately held company; therefore we can not study its market performance. However they do release financial statements to the public allowing industry performance to be measured (See Figure 1). To measure BMG's financial health and profitability three tests were performed. These tests were also applied to the other major players in the music industry. An excellent way to determine BMG's financial health is a quick ratio, also known as the acid test ratio which was calculated and compared to it rivals. The quick ratio is calculated by taking a firm's current assets minus inventory divided by current liabilities; this allows you see how well the firm can pay back its debts in a timely matter. BMG, with a ratio of 2.39, only trails Sony, and along with Sony they are the only ones to have a ratio over one, meaning the other three firms have more debt than... [continues]
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