In determining which target market – unsigned artists, producers, or record companies would pursue, three key considerations are critical— size/growth of the segment, opportunities for obtaining competitive advantage and profitability.
Size/ growth of the segment
Labels may receive three to four hundred demos a week from unsigned artists — at most 19200 demos a year. Speaking to producers, there were only 20 to 30 top producers and a few hundred producers who had a hit once in a whole. Comparing to demos of unsigned artists, it is a smaller portion of market scale that Hit Song Science would not have enough room to put to use. But the record companies, says the five big companies, dominated the recorded music business. Each of those companies had various labels and music publishing companies. In the U.S. alone, there were tens of thousands small and midsized record companies. It is not difficult to figure out from the data that the record companies which had the largest market share represent the largest opportunity for Polyphonic.
Opportunities for obtaining competitive advantage
In fact, it is the case that record companies are not sure about the outcome when they spend millions of dollars to release an album. Thus, before the advent of Hit Song Science, record company utilized many other methods to predict the outcome — call-out study, Internet polling and focus group research which are all expensive methods. Call-out study costs record labels between $5000 and $7000 per song. Internet polling costs as much as $3000. And focus group research costs record labels around $10000 per song. However, it only costs $300 to analyze an album with 10 songs. A method with higher accuracy at a lower cost would be more attractive and competitive to records labels.
In the respect of profitability, most of unsigned artists don not have earnings because they spend most of their time writing song lyrics, composing music and performing music. Only when the record companies are interested in recording for the artists, can artists be paid an up-front fee and sales-based payment varied between 5% and 15% of the record’s suggested retail price. Evan a record contract is a loan from...