Digitone Aps - the Case of the Danish online Music Industry

DIGITONE APS: THE CASE OF

THE DANISH ONLINE MUSIC INDUSTRY

Arindam Mukherjee Rajanish Dass

Indian Institute of Management Calcuttaв?--

CONTACT INFORMATION:

Arindam Mukherjee

Fellow Programme Office

Indian Institute of Management Calcutta

Joka

Diamond Harbour Road

Kolkata 700 104

India.

Email: arindamm@iimcal.ac.in

Contact: +919830379133

Rajanish Dass

Fellow Programme Office

Indian Institute of Management Calcutta

Joka

Diamond Harbour Road

Kolkata 700 104

India.

Email: rajanish@iimcal.ac.in

Contact: +919830175118

в?-- This case was prepared by Arindam Mukherjee and Rajanish Dass, Doctoral candidates of the Indian

Institute of Management Calcutta at the Copenhagen Business School, as the basis of class discussion

rather than to illustrate either effective or ineffective handling of an administrative situation. The authors

may have disguised certain names and other identifying information for anonymity and to protect

confidentiality.

2

DIGITONE APS: THE CASE OF

THE DANISH ONLINE MUSIC INDUSTRY

It was a chilly winter evening in 2002 and it was snowing heavily. As he looked outside his

window, Christensen began to feel warm, positive and strong in the heated room. The future of

his online Danish music portal, Digitone ApS, had looked as bleak and misty as the evening

outside not too long ago, but the new-found warmth gave him a fresh resolve. It was true that

even after two and a half years, he had failed to find any sustainable source of revenue for his

business. But his problem was a common one among start-ups вЂ" the initial business plan was

weak. Eventually, the survivors had found ways to increase their profitability, and Christensen

felt sure that it was just a matter of time before he too turned around. He reflected on the

direction in which the business was heading. It was clear that he needed some immediate cash

to sustain and promote his company. But he could not follow most of the viable alternatives for

want of funds. He thought that the time was ripe enough for some bold steps towards meeting

the competition and framing a long-term strategy for Digitone ApS. The company had to

devise entry and mobility barriers, to pre-empt the competition in Europe, which would create

market power, provide him business and generate revenue.

Christensen took a deep breath. The famous quote of Erica Young came to his mind "And the

trouble is, if you don't risk anything, you risk even more."

The problem, thought Christensen, was that the company was not yet breaking even. A

subsequent source of start up capital from Technological Innovation A/S had dried up and

Digitone was making very low profits. The main sources of revenue, sales of banner

advertisements, compilation of customized CDs, and payments from customers through

subscriptions didn’t meet expectations. Digitone had been relying too much on a pure B2C

strategy that never paid off.

Christensen was, in a way, correct. The Internet had become the nursery for the sale and

promotion of products and services, and digital products were especially suited for online sales

where the Internet technologies could provide a strong basis of distribution. Being highly

suited for online promotion, the potential of the music industry had caused a buzz worldwide.

Internet technologies had forced traditional record companies to adapt to a whole new set of

market conditions. The established music industry had slowly begun to move, but it remained

uncertain about the timing of the first wave of legal online music distribution, and the effects

on the interests and rights of artists. However, consumers were a step ahead of the traditional

music industry, adapting to new technologies. The consumers had the power and it was the

responsibility of the companies to fulfill their consumers’ needs, instead of protecting their

own traditional, turf which in any case was fast becoming obsolete with the emergence of the

Internet.

Christensen, even in this situation, felt confident about implementing his innovative ideas. He

had to adapt quickly to this new era of music promotion. However, the turbulence in the music

industry as well as the changing habits of the online user had placed him in deeper trouble than

what he had anticipated.

3

THE COMPANY

Jans Christensen, a twenty-two year old fresh