Definition of the problem:
“Hay más probabilidades de ganar en Las Vegas que en el sector de la música” stated Ric Wake, an Independent music producer. In a US market where sales growth is declining by 10.4% in 2002, this situation weakens deeply the whole music industry and opens to the door to a change of pattern in the way executives of this industry predict future “hits”. Polyphonic HMI, a technology company, relies on a single marketable revolutionary product: Hit Song Science. HSS is artificial intelligence software that can assess the “hit” potential of a song thanks to an extensive analysis of millions of songs. This tool is the first of its kind to predict future “hits” with 80% accuracy which means a tremendous increase of customer’s functional and economic value. If successfully launched, this disruptive innovation could even change the rules of the game in a $32 billion industry. If the company can also rely on an experienced management team and on well respected music industry “insiders”, the record company executives have showed skepticism during the first sales presentations. Most of them are for the moment reluctant to consider the use of science to quantify artistic value as growth leverage and are not willing to change the way they do business. By late 2003, Polyphonic had not been successful and the company is operating on a very tight budget of $150 000 for the launch of HSS. Its fragile financial health (and no longer paid CEO) requires a quick definition of a target and positioning to leverage this opportunity and generate revenue. Is there a business opportunity for HSS?
Polyphonic HMI SWOT Analysis (Exhibit 1)
There’s definitely a strong business opportunity for HSS software mainly because of the following reason: Major record company, in particular, spend a lot of money to market music: having a single in the “Billboard Top 40” is essential to make money out of an album and this require high investment: a single cost at least $300,000 for an unknown artist up to $1 million for a star. At moment, less than 15% of music titles are profitable and a company either “pierde un montón de dinero con un fracaso o gana un montón de dinero con un éxito”. Uncertainty is definitely a major issue for the business actors in the market. These marketing costs include, in 2002, Market research methodology employed by music executives before releasing a song: the executive “instinct” and three expensive options: focus group, call-out researching and online testing. Those options are time consuming and cost between $3,000 and $10,000 to evaluate a song potential with a success rate of only 10% in detecting a future “hit”.
This situation in particular in the US market, where sales growth is strongly declining in 2002, raises the concern among business actors in the industry which emphasizes the HSS’s strong business opportunity in this $32 billion market. Launch Strategy:
In 2002, Polyphonic HMI has a unique product and no direct competition. However, as said before, HSS will compete indirectly with the research methods currently used by record companies. Additionally, if HSS begins to be successful, the low barriers to entry for software products may result in direct competitors who could take a share of the market. Polyphonic HMI lacks time to seize the opportunity and must quickly define its target and positioning in the market to be successful. 1)
Define a Beachhead: How to enter the market?
For now, the company has identified three potential customer segments – artists, producers and record companies.
Target 1:The Five major Record companies
Those five companies account for 84% of the retail sales of the entire music market which is values as $32 billion, they have also the largest share in particular among the 2500 album marketed in the “mainstream” music market which are the most lucrative and where HSS technology is more likely to be used. Value drivers: Polyphonic should more...
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