Posted in Marketing & Strategy Articles, Total Reads: 505
, Published on 02 February 2017
The last two decades have seen rise and rise of many new industries and decay of many existing. Some have wiped out of existence and some adapted and transformed to the newer form. One such industry that has silently gone through the metamorphosis is Audio Visual Industry. The underlying change in technology has ensured that the newer generation will grow up with entirely different experience than what the teenager of 90’s did.
The Audio Visual industry has been through a serious change since its advent. In 1821 Charles Wheatstone reproduced sound in a box, the first microphone and slowly it has grown into a multibillion industry till date. The history of digital data storage links to the discovery of Magnetophon by AEG (General Electricity Company, a German company) in 1935. Since then the industry has seen many evolutions from the invention of compact cassettes by Philips in 1962 to the compact discs co-developed by Sony and Philips in 1982 and now finally to an era of online music stores. Simultaneously with these changes in storage formats, the associated equipment has changed big time. Tape recorders gave way to Audio Cassette and Videos Cassette players and Walkmans; then to CD/DVD players, desktops and laptops.
The span of Audio – visual industry is huge, its associate industries from Film making, Photography, Gaming to the actual manufacturer of the audio-visual aids. The article speaks primarily of the business, trends observed and strategies of audio –visual aid provider for storage and distribution.
“Change is the law of life” John F. Kennedy
“Innovation—the heart of the knowledge economy—is fundamentally social." - Malcolm Gladwell
It’s evident in the wisdom of the above two renowned personalities that innovation and adopting change is the way forward. A brief about how this media manufacturing business in Audio – visual industry has been:
Audio Cassettes, Video cassettes
Online Music Stores, Online Content Providers
Major Players in Primary product category
HMV, Tips Industries Ltd., Universal Music India, T-Series, Sony Music Entertainment India, Nataraj Music Company, JMD Telefilms Industries, Super Cassettes Industry Ltd., Philips
HMV, Saregama India Ltd., Tips Industries Ltd., Universal Music India, T-Series, Sony Music Entertainment India, Nataraj Music Company, JMD Telefilms Industries, Super Cassettes Industry Ltd.
Apple's iTunes Stores, Amazon MP3, Saavn, Gaana.com, etc.
Video Cassette Player, Audio Cassette Player, Walkman
CD/DVD Player, Laptops and Desktops with CD/DVD drives, Various CD/DVD running softwares
Interner Service Providers, Mobile-App developers, Mobile phones, Laptops and Desktops
Major Players in secondary product category
Philips, Sony, Walkman, Santosh
Philips, Sony, Onida, JVC, Panasonic; Dell, Lenovo, HP etc.
Airtel, BSNL, Jio; Apple,
Associated small scale shops
Cassette sellers and rental service providers
CD/DVD sellers and rental service providers
<No direct associated stores as music is downloaded by user directly>
In our analysis, we have tried to separate the industry on the basis of three timeframes (refer to Table A). We are concentrating on three categories of sellers in the audio-visual industry namely the primary sellers who sell the primary product such as the cassettes and the CDs, the complementary sellers comprising of the sellers of equipment used to run the primary products and the small scale sellers who face the customers to sell the primary products. In each of these segments the transformation has been peculiar. As all these segments are related, one would expect a chain reaction to occur but the facts reveal a different result altogether. The major players in all the three eras have been changing and in the current era there has been a complete turnaround in these segments. In the first two eras, the players were the same more or less except the computers entering in the form of laptops and desktops for playing the CDs and DVDs.
But the major difference came in with the proliferated use of internet in audio-visual industry. All the 3 segments faced disruption. Neither CDs nor the cassettes could withstand the avalanche of internet. Mobile phones and internet service providers largely complemented the current primary market where online websites became a powerhouse of music. The most interesting transition came lower down the order with the small businesses like the CD/DVD sellers or CD/DVD rental service providers mostly left the industry. The consumers started directly downloading and using the data from internet. This left very less for these businessmen to trade at the bottom. An interesting observation is that most of these businessmen across India moved to 3 categories of business. These were:
i) Internet Cafes and Download stores
ii) Mobile handset or accessory stores
iii) Stationery stores
Such evolution in the market that players from the top to the bottom of the pyramid have shuffled up and down. Market shares have fluctuated. Leaders have changed. But following have remained constant i.e.
i) the core content whether it be the CDs or cassettes or the internet providers, and
ii) the customers
Audi Visual Industry Trends :
The underlying technological progress has been effecting the capacity of the incumbents and putting them in the middle of the dilemma of sticking with the existing technology, drive for newer technology or both.
a) Going Digital, Going Wireless: As we have seen in the exhibit, the CD-DVDs have replaced the cassettes and VCR and now we are in a phase where their usage is also becoming redundant. Companies are looking for newer and more sustainable ways for storing their data and the proliferation of internet and rise of cloud storage in its wake have proposed a viable option to the industries. For instance - I-tunes to music industry, e-purchases in entertainment industry (gaming, movies) and user can enjoy the content straight to the devices, has posed a fair threat to the use of conventional modes. The availability of the substitutes for the below primary usages can be seen as:
i) Entertainment: The rise of substitutes like NetFlix, Hotstar now even do not require the content of to be owned.
ii) Personal Storage: Moving to cloud storage for personal data
iii) Mobile storage: The availability of high storing mobile devices.
There has been a declining trend in the physical music sales suggests lesser demand of CD-DVD
b) Enhanced Quality: The shine of the new technological progress, however big or small is taken by the next competitors before the hard earned achievement is milked and cherished. The new is short-lived and companies are looking for more enhancements, newer products to maintain the regular footsteps of the consumers. The reach of mobile devices, the accessibility to richer camera and easy learnability of skills due to abundant material online has increased the individual demand of storage capacity and more so because of high quality content. The 1080p & 4k (Ultra High Definition) videos, the high resolution photographs all are more suited to newer form of storage challenging the existence of CD-DVD players.
Strategic challenges for the Audio Visual Industry:
Since the end product of AV industry is primarily Entertainment based and facilitating storage. The producer has to take into consideration several factors before forecasting the future demand:
a) Willingness to pay: The consumption may differ from consumer to consumer and the aggregate of it will decide how the company should go about the production. Also the pirated black market for entertainment and music distribution openly accessible also deter consumers to pay more.
b) Changing consumer preference: For instance, a music seller like T- Series could produce only CD- DVD but the consumer may prefer to purchase the music online.
c) The availability of the AV products which can be used to distribute and reach the consumer will determine the industry focus:
The end products for Video/DVD as depicted above are many, yet it is now being challenged by newer technology itching to substitute the conventional ways to store and distribute.
d) Market size: An analysis of market size is required to take the strategic decision. The problems that concerns the companies along with the past trends are the high Licensing fee across geographies, increasing advertisement cost etc. For instance, European Union which accounted for 31% of the world AV market in 1999 has higher licensing fee compare to other geographies.
e) R&D Investment: Companies are investing their time and money in various R&D programmes but many a times they have to drop it because some other firm produces that particular product. At this moment, again the R&D sets new targets and works for something new.
This article has been authored by Abhijit Kar & Sumit Sancheti from XIMB