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Starbucks Entertainment: Global Delivery of Music

Starbucks Entertainment: Global Delivery of Music. Sharan Dhaliwal Sasha Noorani John Rupp Dan Williams. Objective. To develop a strategy for introducing Starbucks Entertainment into two countries on distinct continents. Agenda. Current Situation. Current Situation.

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Starbucks Entertainment: Global Delivery of Music

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  1. Starbucks Entertainment: Global Delivery of Music • SharanDhaliwal • Sasha Noorani • John Rupp • Dan Williams

  2. Objective To develop a strategy for introducing Starbucks Entertainment into two countries on distinct continents.

  3. Agenda

  4. Current Situation

  5. Current Situation • Howard Schultz Transformation Plan • Refocus on coffee and café experience • Accelerating International Growth • How Starbucks Entertainment fits into the plan • Helps create the atmosphere that “re-ignites the emotional attachment” • Limited International sales- ready to grow

  6. Problem How and where do we implement a global expansion of Starbucks Entertainment?

  7. Strategy • Global vs. Local • Leverage existing catalog • Develop synergy to create personal atmosphere • Digital vs. Physical • Concentrate on physical • Higher margins • Develop digital for the future • Mobile Phones

  8. Strategy

  9. Country Selection Criteria 1: Strong Starbucks Presence

  10. Country Selection Criteria 1: Strong Starbucks Presence Starbucks Locations

  11. Country Selection Criteria 1: Strong Starbucks Presence Starbucks Locations

  12. Country Selection Criteria 2: Music Synergy Score Key Sales in US Dollars For the 2006 Fiscal year Global Trade Atlas

  13. Country Selection Score Key Sales in US Dollars For the 2006 Fiscal year Global Trade Atlas

  14. Country Selection Score Key Sales in US Dollars For the 2006 Fiscal year Global Trade Atlas

  15. Country Selection Criteria 3: Eliminate Countries with High Levels of Piracy and Low Gov’t Control • The U.K. • Japan

  16. Music Industry Share of World Market Value of Album Sales

  17. Country Analysis

  18. Japan • 722 stores since `96 • 2nd highest retail industry • 2nd highest music market • 30.5% retail value is food & beverages • Ranked 36 on per capita coffee consumption

  19. Japanese Music Industry

  20. Japan

  21. Japan

  22. United Kingdom • 580 stores since `98 • Ranked 45 on per capita coffee consumption • Café culture

  23. United Kingdom

  24. United Kingdom

  25. U K & Japan • Go back to roots of Starbucks Entertainment • Boost Local Talent • Barista’s to play local music • Between the peak hours of 4-6pm • Compile maximum request songs • 50% profit from local artist signed on the hear music label

  26. Financial Analysis 5-year NPV Analysis Assumptions: • Starbucks Entertainment sales based on percentage of specialty sales • Specialty sales experience constant growth • Sales in U.K. and Japan are based on percentage of international stores • Cost of Sales=53% of revenue • Initial investment of 3 million • 1.75 for Japan • 1.25 for U.K

  27. Financial Analysis NPV analysis (in thousands of US Dollars) using percentage of sales method to estimate revenues. *Includes an increase in U.S. sales based on synergy analysis.

  28. Financial Analysis Anticipated Payback Period Long payback period but… focus is on improving store atmosphere, not music sales

  29. Financial Analysis Cost Analysis (In thousands of U.S. Dollars) to determine the amount of available cash to be allocated to this project. Request 10 million dollars to be allocated to projected

  30. Timeline

  31. Conclusion

  32. Q & A

  33. Appendices Physical vs. Digital Synergy Analysis Piracy Music Sales Japan U.K. Financials DiagramsBest-CaseLikely-CaseWorst-Case

  34. Force Field Analysis Forces Pushing Forces Resisting 4 Strong Growth Higher Margins 5 Shift to all digital library 1 Easy Purchase Piracy Concerns 3 2 Large Library Customer Base 4 1 Sampling 1 Inventory Costs 9 12

  35. Digital Media Issues • Future of DRM • Apple switching to DRM free music • Amazon.com DRM free • 3G • Small Market • Price • Timeline • Adding value to small margins

  36. Starbucks Criterion for International Partners

  37. Synergy Analysis

  38. U.S. Format Industry Sales

  39. Popular Sales • Ray Charles • 3 million worldwide • Quarter in Starbucks sales • Paul McCartney • Over 1 million worldwide • 45% of initial sales in our stores • Joni Mitchell • Debuted at 14 on US Charts

  40. China • Chinese comprise very little of global market • Piracy Rampant - Chinese rate exceeds 99 percent

  41. Piracy List 1 1 IFPI 2006 Digital Piracy Report

  42. Mexican Piracy • Huge Physical Piracy Problems • Value of $180 million • Physical Rate of 65%

  43. Canadian Piracy • Highest per capita file swapping globally • Digital Music accounts for 3% of recorded music revenue instead of 6% globally • Between ‘99 and ‘05, 42% decrease in annual retail sales • 20% loss in employment

  44. Starbucks Entertainment Business Model Starbucks Entertainment

  45. Japan • Commuter customers • Kiosks in subways and malls • Mobile music • 91% of digital music download • Partner with NTT DoCoMo • 3G technology • Permanent Starbucks channel • Unique music industry • J-pop

  46. Japan • Launch • Hear music label • Compilation CD’s • Exclusivity contracts • Market in Japan and in U.S. & U.K. already • Popularity of J-pop • The 5.6.7.8’s • Kill Bill movie • Popular both locally and regionally

  47. NTT DoCoMo Partnership • Do Communications Over the Mobile Network • 52 million customers • i-mode & 3G • lifestyle tools • Heavily invested in multi national companies around southeast Asia

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