Polyphonic Preso

27
POLYPHONIC HMI Mixing Music and Math

Transcript of Polyphonic Preso

Page 1: Polyphonic Preso

POLYPHONIC HMIMixing Music and

Math

Page 2: Polyphonic Preso

2

Introduction

Polyphonic HMI- subsidiary of Grupo AIA

Founded in 2002

AIA’s first foray into entertainment sector

Established to market AI tools

Polyphonic was formed to predict the commercial success of music using Grupo AIA’s artificial intelligence tools

Experienced advisory board

Fixed annual operating costs ~$500,000

Product: HSS-Analyze > 25 mathematical characteristics of a song; compare with past hits; determine if song will be a success

Page 3: Polyphonic Preso

3

HSS Analysis Report

Song: Don’t Know Why

Page 4: Polyphonic Preso

4

Product Introduction

Determine a songs hit potential

Polyphonic HMI Human Media Interface

Compare with past music hits

Analyze mathematical characteristics

HSSHit Song Science

Page 5: Polyphonic Preso

5

HSS: Hit Song Science

“Hit Song Science is to the music industry what the X-ray machine was to medicine. The first time someone told a doctor he could look inside a patient’s body without cutting it open, it probably sounded like science fiction too.”

- Mike McCready, CEO of Polyphonic

Page 6: Polyphonic Preso

6

HSS: Hit Song Science

MISS!!

HIT!!

song being tested

Page 7: Polyphonic Preso

7

HSS: Hit Song Science

Artist Song Title HSS Ratin

g >7.00

Weeks in the

Singles Top 40

Highest Chart

Position

Outkast Hey Ya! Yes 29 1

Clay Aiken This is The Night Yes 6 1

Santana Feat, Alex Band Why Don’t You & I Yes 28 6

R. Kelly Step in The Name of Love

Yes 22 9

Monica So Gone No 13 9

t.A.t.U All The Things She Said Yes 26 12

Daniel Bedingfield If You’re Not The One Yes 15 12

Uncle Kracker Feat. Dobie Gray

Drift Away Yes 17 13

Brad Paisley I Wish You’d Stay No 0 --

Jennifer Hanson Beautiful Goodbye No 0 --Hit Song Science’s Success Rates: A Sample

Page 8: Polyphonic Preso

8

Objectives/Goals

To launch an innovative technology tool – Hit Song Science (HSS)

Poor initial response

Company facing financial issues

Devise a good marketing strategy to increase sales

Identify the right customer base, look at the pricing model, position the product and market it accordingly in the music industry

No direct competitors with similar tools to offer the music industry

Need to better position itself in the music industry

Page 9: Polyphonic Preso

9

SWOT Analysis I

N T

E

R

N

A

L

Strengths Weaknesses Product Uniqueness

Strong Origin

Knowledgeable Board

Members

Industry Resistance

Limited financial budget

Possible product deficiency

E

X

T

E

R

N

A

L

Opportunities Threats 32 billion dollar

industry

Increase profits

Falling music sales

Resistance to change

“Instinct & guts” technique

Page 10: Polyphonic Preso

10

Competitor Analysis

Few tools serve as competition Talented record execs like Clive Davis, use their

ears to determine if a song is a hit or not Many companies use gut instinct technique, but

limited by its ability to maintain talented & foreseeing executives

MR companies provide “call-out research” for record companies

Pre-scripted screening process limits research limits ability to predict crossover hits

Historic Success rate: 10% (only one of 10% of the 3000 singles make it to the top 40 Billboard singles charts)

Page 11: Polyphonic Preso

11

Polyphonic HMI

Environment

Social Social & &

Cultural Cultural

Political Political & &

LegalLegal

TechnologicalTechnological

EconomicEconomic

Page 12: Polyphonic Preso

12

Environment

Political & Legal

Economic

Bribery outlawed in the 1960s Dependency on independent promoters Widespread accessibility of music Internet power

Unknown artists Single costs > $300,000 Marketing established star cost > $1 million Only 15% of music titles profitable Only 10% of 3,000 singles make the Top 40 5 record companies control 75% of market

Page 13: Polyphonic Preso

13

Environment

Social & Cultural

Technological

Producers career tied to success of artists Typical A&R people career span of 3-4 years Talent agents extract 25-40% of artist’s income Executives unique ability to realize hits “Call-out research"

Majority of recorded music distributed on CDs Use of MP3s rising Number of digital downloads increased Online and offline piracy increasing

Page 14: Polyphonic Preso

14

Market SegmentationSegment 1: Record Companies

Opportunities & Threats

Biggest market segment

Huge potential

5 big record companies

10K companies in US

Small # of potential buyers

Easy production & marketing

High fixed costs

May antagonize producers

Bands may renegotiate contracts

Value Drivers

Shrinking music market

Selective consumer spending behavior

Expensive marketing cost > $300K for unknown artist

< 15% of music titles profitable

Need high predictability of success

Can save marketing costs

Reduce fixed costs

Less sensitive to price

Bigger budget

HSS success rate- 80%

Marketing PlanMarketing Plan

Page 15: Polyphonic Preso

15

Market SegmentationSegment 2: Producers

Opportunities and Threats 20-30 very successful

producers Few 100 occasional hit

producers Mass marketing – minor

producers Deal with thousands of artists Responsible for bringing out

best abilities in artists No success guarantee for

songs created based on experience

Large customer segmentation High frequency of use Challenge – May not be well

received Direct threat to their expertise

Value Drivers Like to know if song will be a

hit Difficult decision to choose

HSS Decision process- info search

& alternative evaluation won’t occur

Scarce post-purchase behavior

for lack of precedents Most songs not accepted by

listeners Need recognition not directly

connected to motivation HSS – Reduced risk Help diminish uncertainty

before releasing a song

Marketing PlanMarketing Plan

Page 16: Polyphonic Preso

16

Market SegmentationSegment 3: Unsigned Artists

Opportunities and Threats Very high potential and large

quantity New entrants tempted to buy HSS Multiple uses for HSS Market potential directly related

to size of market High cost of sales Not an effective target market Limited marketing budget Consider ability to penetrate

market cost effectively Demographic data – MR studies May reject ‘potential hit’ songs Could decrease artist creativity

Value Drivers Create & promote a

website Exploit demographic

knowledge Market in musical-oriented

& youth-oriented periodicals

Market on the internet Explore advertising to

normally much dispersed bands

Demographic – Computer literate, willingness to spend money on their music

Resistant artist mindset to ratings or scoring of a perceived piece of art

Marketing PlanMarketing Plan

Page 17: Polyphonic Preso

17

Proposed Marketing Strategy

Promotion

Price

Product

Place

TargetMarket

Page 18: Polyphonic Preso

18

Proposed Marketing Strategy

Target Segment - Record Companies Reduce capital risk profile of record company

invested per album/artist Improve company profits from summation- increase

in total number of hits per year Increase company profits from augmentation-

increase income per hit due to more effective marketing

Largest players in the music industry (supplier of capital)

In best position to pay for HSS Handle the most artists which would correspond to

the highest potential volume needed for HSS

Page 19: Polyphonic Preso

19

Market SegmentationSegment 1: Record Companies

BMG11%

EMI12%

SONY14%

Universal24%

Warner14%

Other25%

Major record companies’ share of music sales (2002)

Label President

Label President

A&RA&RMarketingMarketing Administration

Administration

ArtistsArtists ProducersProducers EngineersEngineers

PublicityPublicityAdvertisingAdvertising Promotion PromotionSalesSales

Typical organization of a record label

Page 20: Polyphonic Preso

20

Proposed Marketing Strategy

Product Based on spectral de-convolution Success measured by song reaching Billboard Top 40 Tool for deciding which songs be released as singles Direct connection between albums having a Top 40 single &

albums making a profit L, M, H income of a top 40 hit produces income 1x, 2x, 20x

of high estimate for a single not on Top 40   L, M, H income of album with a top 40 hit produces income

1x, 6.3x, 13.3x of high estimate of album w/o Top 40 hit Crucial in companies maximizing potential profits Offered as a consulting service on a per album basis Can consider licensing its software in future Need proper promotion, advertising and publicity

Page 21: Polyphonic Preso

21

Proposed Marketing Strategy

Price Polyphonic incurs the following costs

Fixed Costs : $500,000

Development Cost : $600,000

Cost per album : $300 In 2002, average price per CD was $14.99 In 2002, net revenue ~ $2,529M Big 5: each average revenue: ~ $379M Big 5: each will release 450 singles of which 45 will make the Top

40 Assuming marketing costs of $300,000 per single HSS can predict hits with an 80% success rate An album would comprise of 10 singles Big 5: each company need to spend about $135M

Page 22: Polyphonic Preso

22

Proposed Marketing Strategy

Price (continued) With 60% success rate- company need to promote 180

singles amounting to total savings of $81M Max price of $180K per album will allow record companies

to experience the same costs We propose an initial price of $25K per album ($2.5K per

song) Compares favorably with existing research methods

including Call-Out Research ($5-7K per song if performed by telephone, $3K if performed by internet)

Cost of focus group research- $100K per album ($10K per song)

Page 23: Polyphonic Preso

23

Proposed Marketing Strategy

1994 1995 1996 1997 1998 1999 2000 2001 2002

CD Album Units Shipped Dollar Value

6628465

7239377

7799935

7539915

8471141

6

9391281

6

9431321

5

8821290

9

8031204

4

CD Single Units Shipped Dollar Value

953

22111

43184

67273

56213

56222

34143

1779

520

Cassette Units Shipped Dollar Value

3452976

2732304

2251905

1731523

1591420

1241062

76626

45363

31210

Music Video Units Shipped Dollar Value

11231

13220

17236

19324

26496

17311

15202

10138

452

DVD Audio Units Shipped Dollar Value

--

--

--

--

--

--

--

06

09

DVD Video Units Shipped Dollar Value

112

366

380

8191

11236

Other Units

Shipped Dollar Value

106571

96528

90510

72527

60650

39419

23261

16191

996

Total Units 1123 1113 1137 1063 1124 1161 1079 969 860

Total Value 12068

12320

12534

12237

13711

14585

14324

13741

12614

US Music Manufacturers’ Unit Shipments & Dollar Value (in millions)

Page 24: Polyphonic Preso

24

Proposed Marketing Strategy

Projected Revenue

Year 1 Year 2 Year 3 Year 4

Income Albums Produced Per Year 2500 2500 2500 2500

Target Market (% of World Market) 14% 75% 75% 85%

Total Potential Albums 350 1875 1875 2125

Percentage of Potential Albums Analyzed 20% 20% 30% 40%

Albums Analyzed 70 375 562.5 850

Price Per Album(10 Singles) Analyzed $25000 $25000 $25000 $25000

Total Revenue $1,750,000

$9,375,000

$14,062,500

$21,250,000

Expense Variable Cost ($300 per album analyzed) $21,000 $112,500 $168,750 $255,000

Promotion 5 free albums/Record Co $1,500 $6,000 $45,000

Marketing Cost excluding 5 free albums $148,500 $194,000 $200,000 $155,000

Fixed Cost $500,000 $500,000 $500,000 $500,000

Development Cost $600,000

Volume Discount $290,500 $1,556,250 $2,334,375 $3,527,500

Total Cost $1,560,000

$2,362,750 $3,203,125 $4,437,500

Profits Gross Profits $190,000 $7,012,250

$10,859,375

$16,812,500

Discount Rate 1 1.16 1.35 1.56

Net Present Value Profit $190,000 $6,045,043 $8,043,981 $10,777,24

4

Cumulative Net Present Value Profit $190,000 $6,235,043

$14,279,025

$25,056,268

Cumulated Return on Investment (ROI) 12% 64% 254% 382%

DR=[1 +(i * rf )] * nrf=2, Interest rate 8%

Page 25: Polyphonic Preso

25

Proposed Marketing Strategy

Placement (Distribution) - Implementation Leverage the reputations of its board members Initially target only one of the five major record companies Gain credibility- present past samples of HSS analysis reports Communication- internet or phone Internet distribution channel allows time flexibility Helps reduce labor-intensive tasks Provide analysis report & advice on the marketing campaign Info on updated clusters of recent hits can give a direction about

new trends & style of music to focus Provide insight into the order of singles for marketing promotion

to maximize sales Unique consulting services makes it harder for market imitators

& creates higher switching costs

Page 26: Polyphonic Preso

26

Proposed Marketing Strategy

Placement (Distribution) - Market Coverage Big five players in the industry Mid-sized Record Companies

Promotion Public Relations

- Use existing network Advertising for HSS recognition

- website & product brochures Initial “freebies” for record labels

- Offer free trials to potential customers

- 4 historical albums and 1 current album

- Offer historical data of all songs

- Volume Discounts

Page 27: Polyphonic Preso

27

Conclusion

Polyphonic has the potential to revolutionize the music industry

HSS technology 80% success Better than Vegas