Sonic Records, a market-leading recording studio and production house, had witnessed declining demand for music CD’s. Five years ago, Sonic experienced record-breaking revenues totaling over $ 15 billion. However, over the past few years, CD burning, international piracy, and a shift in consumer preferences had reduced revenues by more than 30 percent. A recent market survey at universities across the nation (a key demographic for Sonic Records) revealed the over 80 percent of student had not purchased a CD in the last seven years. According to the survey, student either burned friend’s copies of CDs, illegally, downloaded music from private websites, or purchased tracks legally from online music portals for download to digital music players.
Although the past few years’ declining sales have been disheartening, some positive advantages in the fight against international piracy recently bolstered music revenues across the industry. The RIAA (Recording Industry Association of America) initiated lawsuits against hundreds of individuals and pirate file-sharing websites. The results so far have been positive. Fear of litigation has deterred illegal download volume. Further, the exceptionally successful launch of a number of on-line sites selling legal music downloads had demonstrated strong consumer demand. In fact, a recent computer company’s on-line music store launch results in astounding sales. According to the computer firm’s CEO, “We has hoped to sell a million songs in the first six months, but we did that in the first six days.”
Sonic Records, having experienced tremendous success in the recording and music distribution industry over the past 30 years, realized that the rule of the game were changing. No longer would music be distributed solely through the traditional retail store channel. Consumers desired instant delivery of music online and expected a selection of thousands of artists’ work at their fingertips. Further, consumer expected this music to be portable. Today’s listeners didn’t want to be constrained to the physical limitations of a CD. They wanted digital files that could be easily and legally transferred from computer to portable music player to home receiver interchangeably. Although downloads accounted for only 2 percent of music sales in 2004, industry analysis predicted a fundamental change in music delivery methods. Some estimated that up to 80 percent of all music sold might be delivered online in the next decade. Sonic executives understood that their business model needed to adapt quickly, lest they be left behind by other firms who had correctly anticipated this market shift.
In response, Sonic Recorded formed a subsidiary company named e-sonic. E-sonic would be responsible for creating an online music store capable for competing with established players in the industry. Key executives for Sonic Records were chosen to lead the new company. E-Sonic’s mission was to create the world’s leading online music store; ensuring Sonic Records’ prominence in the record industry’s future.
Backed financially by Sonic Records, a recording industry mogul, e-sonic possessed the resources and reputation necessary to build a world class company. The market recognized this. Just last month, e-sonic conducted a small, but very successful IPO. Although e-sonic had yet to even launch their outline music store, the reputation of its parent company, Sonic Records, bolstered demand for the new issue. E-sonic founders decided the firm should retain ownership of the majority of the shares, which could later be used as incentives for employees crucial to the organization’s long-term success.
E-sonic’s key business objective, as dictated by its parent company, Sonic Records, was to develop the world’s leading online music portal. Initially, e-sonic’s success would be measured by its ability to capture market share form competitors. Currently, two major players dominated the online music industry. These firms recognized the changing industry trends early and secured more than 85 percent of annual download market share, e-sonic needed to target there current customer while attracting newcomers to the world of online music.
Although the idea of offering digital music to millions of customer might initially seem complex, the formula for success in the industry has proven relatively simple. Superior marketing, a robust selection of artist, and a user friendly wed interface helped current firms establish their market leadership.
E-sonic executives, with decades of experiences in the recording industry, help established relationships with all of the major label and most of the smaller ones, affording them an advantage in the music offerings. However, as recording industry executives e-sonic’s management had little experience in software development. Further, although marketing expertise was important for success in the traditional music industry, company management had no experience with online marketing or marketing initiatives tailored to their new, tech savvy, customer base. Located in Los Angeles, e-sonic hoped to recruit the best and brightest of the music and software development industries. Further, they hoped to create a performance based culture where employees felt rewarded for their contributions.
Realizing the challenging task ahead of them, e-sonic executives had the foresight to recognize that despite their years of experience in the traditional recording business; outside consultants might offer them salient insights. Their new venture would require hiring employees I all business discipline, especially those with the marketing and technical skilled necessary to help establish e-sonic as the world’s pre-eminent online music store. In addition, e-sonic management understood well the importance of establishing a sound compensation system right from the firm’s inception. They knew that an internally equitable and market competitive compensation strategy could help e-sonci achieve their business objectives, but they had no expertise in this area. In response, the e-sonic’s management team has hired you as their compensation consulting staff. Congratulations and good luck with your new client!
Requirements of submission: Each section of the final project must follow these formatting guidelines: 5–7 pages, double spacing, 12-point Times New Roman font, one-inch margins, and discipline-appropriate citations.
D. Analysis of Internal Capabilities
1. Functional Capabilities
· Functional capabilities for a firm include manufacturing, engineering, research and development, operations, management information systems, human resources and marketing. Your consulting team should consider what functional capabilities will prove most crucial to e-sonic’s success. This information will assist your team in developing compensation strategies in line with e-sonic;s business objectives.
2. Human Resource Capabilities
· This assessment highlights the current strengths and weaknesses of e-sonic’s labor force while focusing upon future recruitment and retention strategies. An understanding of e-sonics human resources capabilities will allow your team to design compensation strategies consistent with talent acquisition and retention initiatives.