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MUSIC INDUSTRY

The music industry is dominated by an oligopoly of four major players: Universal, Sony BMG, Warner, and EMI. This concentration allows for economies of scale and both vertical and horizontal integration. The market shares vary, with Universal holding 31.7%, followed by Sony BMG at 25.6%. Music sales trends indicate a decline in CD sales and a rise in digital downloads, with significant revenue losses attributed to piracy. This article explores the competition from piracy, promotional strategies essential for success, and the industry's evolving landscape as it adapts to changing consumer behavior.

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MUSIC INDUSTRY

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  1. MUSIC INDUSTRY

  2. Oligopoly – the Big 4 Universal Sony BMG Warner EMI • Economies of scale • Both vertical & horizontal integration

  3. MARKET SHARE Universal (Vivendi) 31.7% Sony BMG 25.6% Independents 18.3% Warner 15.0% EMI 9.5%

  4. Music Sales Trends U.S Music Sales (1/3 of worldwide sales) • 2007 $10.4bn (down 9%) • 2006 $11.5bn • Down from $12.3bn in 2005 • Down from $14.5bn in 1999

  5. MUSIC REVENUE TRENDS Sales of CDs are falling steadily Sales of digital tracks are rising Piracy / CD burning represents annual lost revenue of $4bn+

  6. Who’s Buying? • 45+ 26% • 15–19 13% • 25–29 13%

  7. What Are We Buying? • Rock 34.0% • Country 13.0% • Rap/Hip-hop 11.4% • R&B/Urban 11.0%

  8. SOURCES OF COMPETITION • Piracy of CDs and Cassettes. • In No.2 market, Japan, 236m CD-Rs were burned in 2002, while legitimate CD sales were 229m. • In Spain, two out of five records were pirated. • MP3 file swapping • Competition from new forms of entertainment including video games and DVD films

  9. Promotion • Promotion as important as production • Single largest expense • Includes attempts to influence positions on music charts, radio play time (“payola”), tours

  10. Conglomeration • Synergies through ties to film studios, TV networks, publishing, etc. • film scores developed from corporate-owned library • music video channels promote own artists • artists appear on talk shows • magazine articles

  11. Industry Strategies • commonly 5 renewable 1-album contracts, • royalty system pays the artist 7-15% payable after costs are met (plus songwriter publishing royalties), • Decisions according to track records and reputations: celebrity power • Pre-selection systems: selecting that which is most likely to succeed in light of recent successes

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