Early on, the then president of Asia for UMGI, Harry Hui, taught us a basic difference between the business styles and objectives between UMGI and the then and now runner-up for world music domination, Sony Music. Now Sony Music, being part of a larger company with businesses in media, electronics and so on, basically puts a lot of emphasis on market share as a business objective. This is basically a good principle - if you dominate market share, you will have a lot of money rolling in, as long as you can maintain that market share.
Now how do you maintain market share? There are many ways to do it:
- have a good product entering early in the market, and make people dependent on it
- basically throw billions of dollars into ad spend to enforce awareness
- create 'addiction' by tying in the consumer into the proprietary product ecosystem (especially for technology products)
- flood the market with products and dominate retail space
Now, from what I've seen from then to now, this principle still rings true for Sony Music and Sony in general. And, it's worked for them - the money rolls in. If not from one corner of the world, the other. The problem is, how much money goes into R&D, advertising, trade negotiations, and so on? Costs are high. So when recession hits, bam! Consumers lose interest in buying, sales go down, operating income is down, and that hard-earned market share means nothing. But don't take my word for it, read this. And the thing about music is, the product cycle that used to perpetuate established artists with new albums, just doesn't work anymore, hence the market share cannot be maintained with legacy products. New products must flood the market (whatever the quality and segment), but from there it's anybody's game.
Compare with UMGI. Harry Hui explained to us that UMGI is interested in maintaining profits, not market share (which was, in hindsight, the scenic tour that he gave us to explain recent downsizing in the company).
UMGI overhauled their global structure ahead of the financial crises of 21st century, down to the operating companies on the country level. Why? Because UMGI recognized they needed to be more nimble in the coming years. All artist contracts - probably hundreds or thousands - were revised to properly include digital content, and the company went into skeleton crew mode to make sure year-on-year profits were higher. Market share was not an objective then (although UMGI would be bragging about their market share now), but they concentrated on developing the recorded music business from the artistes, to developing business channels. Now, why would UMGI sacrifice market share and potential short-term profits? They knew that the recorded music business as we knew it - CDs, cassettes, etc - was bound to drop in sales due to piracy and less interest, and that at the least, they needed a cash cushion first. Now UMGI is a private company wholly owned by Vivendi so I have not found the financial reports yet (but here's the link to Vivendi's financial report), but this is basically a strategy where they needed to keep Vivendi's shareholders happy first. If the cash cushion was there, and the shareholders had faith in the vision of the top management, Vivendi and Universal could go on with the next stage of UMGI's transformation - acquisition.
The big four major labels have reacted to the decline in CD sales differently - of course, they all quickly developed their digital music businesses; and all dabbled in developing event organizing and artist management. UMGI did their dabbling as well, but they simply bought up - with the money from the cash cushion - the companies they deemed important to a more comprehensive music-oriented business (as opposed to recorded music business), buy getting a majority stake in Activision and purchasing Bravado, for instance. And of course, by investing cash to developing new artists for the new generation - names like Rihanna, Maroon 5, Lady Gaga, and Justin Bieber are names of the 21st century, which we definitely will not be hearing the last of. So, even if UMGI might at some point lose market share, I don't think they'd worry about it much, as long as they make money.
So this, actually, brings to mind another "battle of the titans" which has grown more interesting year by year: the obvious dominant market share owner, Microsoft, has a smaller market value than Apple, which is definitely not the market share leader. Microsoft worries about their lead products losing ground, whereas Apple is most likely not worrying about anything other than creating the next best Apple product for the next season (if even the improvements are incremental) and making sure the user experience is satisfying.
To look back a bit, it was obvious to assume that if you dominated market share, you dominated the industry - but that was back when the market was not as fragmented as today - and more importantly, communication mediums were not as fragmented as today (look up the Big Media days and how the internet and social networks is ruining it for them now). Nowadays, it is more important to dominate your niche, then expand from it, making sure you reap profits at every point on the scale. This, I think, is good - the dominance of the large corporations is only as good as the "war chest" that they have, and smart entrepreneurs can find their niche for businesses and keep it healthy at the same time.
Note: many of the points made in this article are my own personal conjectures and decuctions and may or may not reflect the actual situation. I wasn't really that high up in the food chain to know more details, if you know what I mean. None of the points above (except the external links) should be considered official information and this article is merely a case of interest.