This word file was made for Strategy for Innovative Business class in KAIST School of Innovation. I enrolled this class on Fall 2013. Naxos, Changing The world of Classical Music , was one of case studies that we discussed in this class. Within this word file I Provide a brief background on Naxos Porter's 5 Forces analysis and adding some future strategy recommendation.

1. Assignment #2 : Naxos, Changing the world of Classical Movies
Prepared by : Riri Kusumarani
ITM540 : Strategy for Innovative Business, Prof. Jay Ohm
Background
Naxos is a recording label focusing on classical music’s with
unknown musicians. It offers rare pieces of classical music that is
difficult to find and the four major labels overlook. At first, Naxos
focused on selling their pieces using CD format. But then they
follow current technologies such as digital format.
When CD technology was first introduced (1983), the price for one
empty CD was sold around $38, while CD player was sold from
$165 to $250. However, manufacturing price of CD later decreased which make Heynman decided to
enter classical music industry with using CD as media. Naxos offers CD-based budget classical music
using barely unknown musicians and orchestra with a one-time fee for recordings. This way, Naxos can
push manufacturing cost as low as possible.
Naxos low-budget CD comes with several unique point:
Performing new-young and barely unknown musicians and orchestra
Offering rare pieces of classical music
Bland design, easily recognizable, unpretentious cover design template used for all recordings
Klaus Heynmann is known to have an entrepreneurial eye. Naxos was an early adopter to webcommerce and also 5 years earlier to adopt live-streaming even before Apple introduced iTunes. This
practice allows Naxos to stay ahead of the competition
Classical Music Industry using Porter’s 5 Forces
Most classical music pieces were released in CD format, accounting for around 90% of retail revenue.
Four major labels already shared a total of 72% of global music sales in 2003. While at the same time,
independent labels must compete over the rest 28% chunks.
Competitor (High Threat)
In classical music industry, Four major labels namely Japanese/German joint venture Sony BMG Music
Entertainment, UK-based EMI group, US-Based universal Music group and Warner Music Group had
already tighten their competition among each other. Major labels own their own distribution channels
with knowledge on classical music’ and trends.
To tackle this threat, Naxos focuses only on rare repertoire and also lowers its CD price. It also
competes with major label by cooperating with new comers on classical music industry. Something that
major label overlooks.

2. Substitute (Low Threat)
In classical music industry, the presence of youtube might probably become a threat. Free and
considerably ‘just enough’ quality for voice *and video* , somehow must be considered as future threat
for Naxos as sound quality becomes better and better in the near future.
To overcome this threat, Naxos has entered the digital media unfortunately only for advertising its
collection. Their account on youtube ‘NaxosVideos’ is filled with quick preview of its collection. Naxos
also provide ‘Naxos Radio’ which allows classical music enthusiasts to listen and choose from 80
commercial-free channels. This last strategy allow them to lower youtube threat for free music.
New Entrants (low Threat)
New entrants in budget Classical music Industry is only a few, since the entry barriers are high. New
companies that want to join the competition have to build up their collection of music and also access to
certain musician. Startup budget for classical is relatively high.
To secure their position, Naxos seldom admits that their income is not secure through several interviews,
which is an actual condition of Naxos. That sometimes they records repertoire that gain very low
interest. This makes new entrants more reluctant in entering this industry.
Supplier (low threat)
Naxos at first used CD as their only media, but then move towards digital version such as MP3,DVD and
even live streaming. As for CD and other hard-version of media, Naxos can easily swap from one supplier
to another and so does with digital version. Supplier threat is only little.
Naxos realizes that they can’t be dependent to only one media format. Therefore, each times there’s
new technology on digital media being introduced, Naxos will surely be the early adopter of that specific
technology. This strategy was proven to be effective as Naxos become more flexible in juggling on media
type.
As for musician as their supplier for the collection, Naxos offers opportunities for them to build up their
reputation by charging a onetime fee for each recording. Naxos also well known for its talent-looking
company in which they dig up for new talents in classical music industry. Since they try not to rely on
specific artists, Naxos has the freedom to records repertoire with random musicians.
We consider supplier for musicians has low threat since Naxos have relatively low switching cost to
change between one musician to another.
Buyer (Medium)
Buyer has higher purchasing power which they can juggle between major labels. Naxos profit also
derived mainly from how much classical music CD that they can sell. However, what Naxos offers is a
huge collection of rare classical music repertoire with lower price compared to its competitor. Therefore,
at the same time, buyers are bonded to buy these kinds of collections only from Naxos.
Judo Strategy
Naxos applies what we called judo Strategy in which they use Major Label weaknesses:

3. Refused to take full advantage of CD technology
Focused on artists instead of repertoires
They also gain credibility by common retailer that refused to put their CD inline with major
label’s
Naxos’ Competitive Advantages
Superior
Quality
Superior
efficiency
Competitive
Advantage
Superior
Customer
responsivene
ss
Superior
Innovation
Quality
Naxos collections range from CD to digital formats with similar quality that other major labels
offer.
Naxos lowers the cost of its collection also with similar quality.
Naxos CD collection is well-known for its simple design which makes it easier to locate in music
shelves.
Efficiency
In order to publish one recording, Naxos will look for new talented musicians that were
sometimes overlooked. This way, Naxos gain advantages in both efficiency and also innovation.
Naxos also focuses on the repertoire without the need to re-use already available classical music.
Since they focus on recording, they do not spend much for CD design and promotional items.
However, nowadays they try to promote classical musics through Naxos Audiobooks.
Innovation
Naxos was the first one to enter internet business model in the industry
Naxos utilizes digital format to all its collections
Naxos offers unique collection, in which it does not, offers same collections to be recorded all
over again.

4. Naxos promotes new musician to enter the industry, something that new musicians usually have
to pay to get promoted.
Customer Responsiveness
No information regarding customer responsiveness, Any suggestion?
Diversification Strategies
Naxos diversified its business into several parts. First they make their collection to be available in CD
format and digital format. Naxos collections can be downloaded through iTunes and other music
websites. This strategy makes it easier for them to catch-up with current trend in digital media
technology. Second it’s leveraging its business to non-music product such as books about certain
classical musician. Naxos Radio allows their subscriber to stream free classical music collection that is
pre-programmed by them.
Future Strategy Recommendation
Copy Amazon Strategy: Get Big , Fast!
One of Naxos differentiation with other major labels is that its collection for rare classical music.
Therefore, I believe it can copy Amazon strategies for getting bigger collection of music and also
musicians while at the same time gaining more customer.
Re-build Website
Naxos has several websites available which originates from its diversification strategy. However, all of
these websites seems not related one to another. My recommendation is to build up one big main
website that can cover all features.
Talent-Searching Competence
Naxos is now famous because it uses unknown musician to its recordings. I see this practice as Naxos
Competitive advantage that not so many music labels can gain easily. An eye for quality is very much
needed to this practice.
The Unforgotten Music
I recommend Naxos to expand to traditional music from countries. In my opinion, traditional music’s
are sometimes being abandoned even in their own original country. If Naxos promotes this type of
music and re-package the music, they will get more attention and also gain more customer segment. It’s
also important for them to make their collection share the same design and concept. If it’s possible,
there are chances that Naxos can do M&A with local classical music labels which offers broader
collection.
Licensed Music
Since Naxos owns all the licensing for recorded collection. It’s best to license these collections to TV
series or even games.