NETTWERK: DIGITAL MARKETING IN THE

MUSIC INDUSTRY
Cristina Beghian
Tamara Dabic
Aakash Dang
Danial Esseltine
Denise Kam
Mathew Spencer

Introduction
Key Issues
Analysis
Alternatives
Recommendation
Implementation Plan
Contingency Plan

Agenda
One of the largest and most influential independent
record labels in the world.
Witnessed major record labels shed their low end artists
as a new business venture Polyphonic.
Polyphonic: A simple partnership governed by contract
rather than corporate structure.
Introduction
Key Issues
Primary Issues:
1. Limited budget: Polyphonic can collaborate with only so many
artists and give out finite funds to each
2. Limited 10 year cash flow
3. ROI not high enough to attract venture capitalists


Secondary issues:
1. Cash reserves to expand further
2. Attaining potential artists
High / High
Insufficient ROI
Low / Low Limited Budget
Limited Cash Flow
Importance
U
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Key Issues
SWOT Analysis
Strengths Weaknesses
Well established industry reputation. Founders
have 25+ years of existence
Collapsed copyright
Robust and in-depth knowledge of music
industry
Associated with successful brands and artists
ROI not high enough to attract venture
capitalists
Limited 10 years for both cash flows and
copyright
Opportunities Threats
Digitization and evolving market
Events of higher than expected sales
Profit sharing model could potentially attract
established artists with higher album sales.
Untested business model
Not enough sales

Polyphonic is a profitable business opportunity started by people with an in-depth knowledge
and understanding of music industry. Polyphonic can leverage its exponentially growing
target market to expand its consumer base and maximize profits.
4Ps: Marketing Mix
Product
- Cash advance
- 50-50 split
- 10-year life cycle
- Collapsed copyright encourages
a diverse product offering.

Place

- Social media (Facebook, MySpace)

- Artists webpages
Promotion

- Tap into Global network of like-
minded individuals via social
media.

- Fans listening habits are
changing
Price
- Digitized music and the internet
would combine to create new, low-
cost ways ways to promote music

-Promote multiple offerings at different
price points (Singles vs Albums vs
Discography)
4Cs: Marketing Mix
Customers

Illegal downloading = Willingness to
Pay

Source: Download Services, Big Box,
Streaming Services
4C
Collaborators

Music Bloggers
Nettwerk Music Group
ATC Management
Social media (MySpace, Facebook)
Streaming Services (Spotify, Slacker, etc)
Digital Distributors ( Topspin)
Competitors
Illegal downloading services.

Major record labels and other
Independent labels.

Company
Industry experts - demonstrated best
practices in social media marketing.

Long tail strategy multiple rev streams
PEST Analysis


Legal cost of pursuing
music piracy is high
Obligation to pay
royalties
Political-
Legal
Economic
Technological Social
Consumer preferences and
behaviours
Tech-savvy demographic
Audience: people with computers,
download access, ability to save on
hard drives, iPods, phones etc.
More revenue generated via shows,
merchandise, and licensing rather than
album sales and royalties

Geographic barrier to promotion
are broken.

Album sales less dependent on
traditional marketing techniques
Digital transformation of music
files = less reliance on
traditional album sales

Alternatives
1. Make it mandatory for partnering artists to use Nettwerk and
ATCs publishing and management services when possible.
These mitigates the downside risk associated with Polyphonics
investment.

2. Do Nothing
Move forward with Polyphonic as is

3. Dont move forward with Polyphonic
Alternative 1: Make it mandatory for artists to use
founders resources
Advantages Disadvantages
Higher ROI
Mitigates risk with use of
experienced industry professionals
Successful artists can obtain more
funding in the future
Rolling artists funding provides
increased profits
Less flexibility for artists
No suitable artists
Unsuccessful artists
Advantages Disadvantages
Highly flexible for artists
Innovative, new business model
Low ROI
Risk of unsuccessful artists
Low budget
Limited cash flows
Alternative 2: Do Nothing
Advantages Disadvantages
$20M seed capital not foregone
No financial risk for founders
Potential to lose out on profitable
business model
Alternative 3: Halt Polyphonic
Decision Matrix
Weightage Nettwerk
Collaboration
Do Nothing No Polyphonic
ROI
0.5 2 1 3
10-Year Cash Flow
0.3 2 1 2
Limited Initial Budget
0.2 1 1 2
Total
1.0 1.8 1.0 2.5
Recommendation
Alternative 1: Polyphonic will be launched with the requirement that
artists to use Nettwerk and ATCs resources when available . The
founders will be able to exploit a new business model but will not be
exposed to the same degree of financial risk as in the original
Polyphonic business model.

Justification: This alternative allows the revenues to be reinvested in
funding additional artists and existing artists have the opportunity to
obtain more funding in the future.

What If: If artists have a strong desire to use third party resources,
requests may be submitted to management and will be evaluated on a
case-by-case basis.
2009 2021
2009 2010 2011 2012 2013 2021 2019 2021
TIMELINE
Contract is created with the 3
different companies to use their
services, artists are scoped out
and screened based on target
market
First 20 artists are
signed to the label
20 more artists
are provided
with funding
20 more artists
are provided
with funding
Provide rolling
funding to 5 artists
per year
Awareness bumps
(For artists who
have crossed $XXX
in sales)/ incentive
to stay for another X
years
Implementation Plan
A four-phase implementation plan will be executed between August 2009 and
December 2021, as well as periodic evaluations.

Primary set-up and negotiations: Polyphonic will set up negotiations with
the companies of the three founders. These negotiations will create a
partnership between Polyphonic and the companies, such that artists will be
required to use Nettwerk and ATC Management services, which will provide
10% of the revenue made from the Polyphonic artists in order to have an
increase in ROI to 148%.


Primary artist recruitment and selection: Artists selection will occur in
three rounds of twenty artists over three years. 50% of recruited artists will be
those dropped from their record label, while the other 50% will be new artists
in order to have a good mix of talent. Applicants will be sought after by talent
scouts as well as online social media and webcasters.
Implementation Plan
Rolling artist selection: Beyond the first three years, a rolling artist selection
will occur of five artists per year. This will ensure polyphonic will have
continuous revenue beyond the ten year period of the original twenty artists,
as well as reduce the long-tail in order to produce higher quality level of artists


Awareness bumps and contract extensions: A monetary reserve will be
implemented for artists who have high success rates of over $200,000 in
revenue per year for two or more consecutive years. These reserves will hold
$1,000,000 per artist for awareness bumps. If the artist requires an additional
advance for awareness bumps a contract extension of two to five years,
depending on the size of the awareness bump is required.
Measures of Success
Trigger: Polyphonic is unable to find 20 suitable artists to sign to the label.

Response: Evaluate the current recruitment strategy to include a larger range of bands
(between 60 to 120 thousand sales) that are dropped from their current label as well as
increasing flexibility for bands to seek out their own services and having a lower revenue
split of 30% for polyphonic and 70% for the artist in order to make polyphonic more
attractive to the artists.


Trigger: Twenty signed polyphonic artists are unable to reach $1,000,000 by the end of
2010

Response: No new bands will be signed in 2011. Instead, bands that have been able to
attain revenue of over $90,000 will have the option of being extended additional
advances based on their revenue strategy. Furthermore, a laddered approach will be
implemented beginning 2013 where bands will be offered advances of 100,000 per year
for three years given that bands attain a certain level of success per year.
Contingency Plan