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Final Task: How Will a Business React?

We have now covered a large amount of information about the nature of competition. We know that competition exists and is not going to go away so any business will have to decide how it is going to cope with the competition it faces. At the start of this resource, we showed a picture of Sir Richard Branson announcing the start of a new digital music downloading service being offered by Virgin Digital.

The digital music market is a growing one. There were plenty of high profile news stories about the issue in its early days when CD sales were falling and music companies were blaming illegal downloading of music through sites like Napster and Kazaa.

The industry recognised that this was competition - but it was also illegal, so they decided to use the legal process to help deal with it. Several individuals were prosecuted for illegally downloading music and sharing it with others. These actions have helped to change the market; in addition, the industry had to think about ways in which they could respond to this competition.

Screenshot

The development of technology has meant that buying music is now a completely different experience. Will there be any such thing as a record store in 10 years' time? Source: Jami, Stock.xchng

This was the background to the music industry providing legal means of downloading music - it had to recognise finally that the industry was changing and that it had to embrace technology rather than fight against it.

Some of the statistics about digital music downloading make interesting reading:

  • There were more legal downloads of music than illegal for the first time in 2005.
  • 795 million tracks were downloaded in 2006.
  • The value of the industry is now worth over $2 billion worldwide.
  • There are now 335 legal online music service providers now available.
  • Over 2 million songs are currently available for downloading through these various sites.
  • Over 30,000 people have been prosecuted to date over illegal downloading of music.
  • Despite a reduction in illegal file sharing, illegal downloads still outumber legal ones by 5:1.
  • The global music market is worth around $33 billion (£18 billion).
  • The digital music market share of this is about 10%.

(Source of data: BBC news)

Given the above information, what are the implications for new services like Virgin Digital?

Task

  • Why do you think Richard Branson believes this is a good time to release a new digital download service?
  • Where do you think that Mr Branson's main competition will come from?
  • What do you think will be the main ways in which Virgin Digital could gain a competitive advantage over its rivals in the digital download market?
  • Evaluate TWO ways Mr Branson might use to respond to the threat of new competition in this market.

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