Music Recording Industry

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Music Recording Industry

  1. 1. The Music Recording Industry<br />
  2. 2. A Micro-History<br />1850s -- first successful recording device - Édouard-Léon Scott de Martinville - the Phonoautograph<br />
  3. 3. Thomas Edison - 1877sound recording<br />"I was never so taken aback in my life--I was always afraid of things that worked the first time.”<br />Thomas A. Edison on hearing his voice play back to him from his first tin foil phonograph<br />
  4. 4. late 1880s, Emile Berliner invented the gramophone<br />
  5. 5. electric record player - early 1920’s<br />vinyl records - World War II<br />audiotape -- World War II<br />stereo -- 1958<br />cassette tapes -- <br />digital recording -- 1970s<br />CDs -- 1983<br />
  6. 6. Oligopoly<br />Edison had a 9 year monopoly from invention of “talking machine” in 1877<br />1909 -- three companies controlled market<br />Edison<br />Columbia <br />Victor<br />Edison crashed out in 1929, Decca rose<br />
  7. 7. Rock ‘n’ roll, 1955, brought competition<br />40% increase in sales from 1955-56<br />Albums began to replace singles in early 60s<br />New technology helped.<br />
  8. 8.
  9. 9. Oligopoly returns<br />1962 -- 42 labels had at least one charted album<br />top 6 companies controlled less than 50% of market<br />Next 20 years brought branch distribution and mergers<br />1972 -- top five labels controlled 31.4% of album charts<br />but top five corporations controlled 58.2% of charts<br />
  10. 10. More Recently<br />1998 -- Universal & PolyGram merge<br />2004 -- Sony & BMG merge<br />
  11. 11. The Records Business<br />Six Major Labels -- 1995<br />Time Warner (Atlantic, Elektra) 22.1%<br />Polygram (A&M, Mercury) 13.8%<br />Sony (Columbia, Epic) 13.6%<br />Bertelsmann (Arista, BMG) 12.0%<br />MCA (Geffen, GRP) 10.1%<br />Thorn EMI (Capitol, Virgin) 9.2%<br />
  12. 12. Industry Leaders Today<br />Universal Music Group<br />Sony BMG Music Entertainment<br />Warner Music Group<br />EMI Group<br />
  13. 13.
  14. 14. A Global Industry<br />Universal Group <br />Sony/BMG<br />Warner Music Group<br />EMI Group<br />French<br />German<br />Japan<br />U.S.<br />British<br />
  15. 15. Global Industry<br />$40 billion worldwide<br />U.S. accounts for over 1/4<br />Piracy estimated at $4.3 billion<br />
  16. 16. Global Market Share<br />Sony/BMG 25.2%<br />EMI 12.0%<br />Warner 11.9%<br />Universal 24.7%<br />Independents 25.0%<br />
  17. 17. Top Artists of All Time<br />Who? <br />
  18. 18. ELVIS IS KING!<br />
  19. 19. And The Beatles<br />
  20. 20. Michael Jackson<br />
  21. 21. Abba<br />
  22. 22. Queen<br />
  23. 23. UNIVERSAL MUSIC GROUP<br />Parent Company: Vivendi<br />Labels: numerous<br />A&M, Geffen, Interscope, Deutsche Grammophon <br />Artists: Bon Jovi, Mariah Carey, Eminem, Elton John, Luciano Pavarotti<br />Publishing: Universal Music Publishing Group, one of the largest music publishers (administers more than 1 million copyrights)<br />
  24. 24. SONY/BMG<br />Parent Company: Sony 50% & Bertelsmann 50%<br />Labels: numerous<br />Arista, RCA Victor, Sony Urban Music<br />Artists: Carlos Santana, Christina Aguilera, Britney Spears, Beyoncé<br />Publishing: no<br />
  25. 25. WARNER MUSIC GROUP<br />Parent Company: orphan - sold by Time Warner in 2004 for $2.6 billion<br />Labels: Atlantic, Bad Boy, Elektra, Sire, Reprise<br />Artists: Madonna, Green Day, Faith Hill, Red Hot Chili Peppers<br />Publishing: Warner/Chappell Music (1,000,000+ copyrights)<br />
  26. 26. EMI<br />Parent Company: independent<br />Labels: Angel, Blue Note, Capitol, Virgin<br />Artists: The Beach Boys, Beastie Boys, The Beatles, Moby<br />Publisher: more than one million<br />any form, any time, any place<br />
  27. 27. Corporate Structure<br />Part of larger media company<br />film, television, magazine publishing, etc.<br />Independent<br />Music Group<br />Music Publishing<br />Record Group<br />
  28. 28. Significant Vertical Integration<br />own and control all aspects of business<br />from raw ingredients of production<br />to retail sale to consumers<br />labels control creative inputs from artists<br />publishing companies control creative inputs from songwriters<br />
  29. 29. own manufacturing facilities<br />own distribution companies to get recordings to retailers<br />EMI owns retail stores<br />Sony BMG & Warner have ownership interests in record clubs<br />all involved in digital delivery<br />
  30. 30. Seek horizontal integration<br />buy up competing labels to insure a larger total share of recording market<br />
  31. 31. Record Group<br />Record labels<br />Record distribution system<br />Record manufacturing<br />
  32. 32. The Record Label<br />acquire master recordings of performances by artists<br />want exclusive agreement with artist<br />market those masters<br />
  33. 33. Music Publishers<br />Monitor and Promote Music<br />sheet-music sales<br />live performances<br />recordings<br />
  34. 34. A&R<br />artist & repertoire<br />the talent scouts of the music business<br />
  35. 35. Label Structure<br />President (often from A&R or business affairs)<br />Business Affairs<br />Accounting<br />International Division<br />Marketing<br />Sales<br />
  36. 36. Promotion<br />Advertising<br />Publicity<br />Artist Relations<br />A&R<br />A&R Administration<br />Producers<br />
  37. 37. engineers<br />music attorneys<br />
  38. 38. Indies<br />development area for record labels<br />new talent<br />new direction<br />
  39. 39. Indie Survival<br />megastores<br />keep production costs low<br />keep marketing costs low<br />high profit margins possible with CDs<br />
  40. 40. Royalty Streams<br />Performances<br />ASCAP, BMI, SESAC<br />Mechanical Royalties<br />Harry Fox Agency<br />Synchronization Fees<br />Harry Fox Agency<br />Copyright<br />
  41. 41. Selling Records<br />Wal-Mart - 15.8%<br />Best Buy - 13.8%<br />iTunes - 9.8%<br />Amazon - 6.7%<br />Target - 6.6%<br />CD sales - 86.2%<br />
  42. 42. Record clubs<br />Supermarkets and Starbucks<br />
  43. 43. Going Digital<br />Why did it take so long?<br />Piracy -- $4.2 billion / year<br />visit www.riaa.com<br />
  44. 44. Troubled Times <br />Between 1999 and 2003 -- sales declined 20% (one-fifth)<br />Was it all piracy?<br />US loss to piracy in 2004 est. rose 17.5% to $2.66 billion<br />
  45. 45. But Good News . . .<br />By the end of January 2005, the iTunes store had downloaded 250 million songs.<br />cornerstone of industry -- publishing<br />
  46. 46. Price and Demand<br />Oligopoly -- little price competition<br />Factors of Demand<br />taste<br />exposure<br />artist’s status<br />new release, hot artist, higher price<br />others follow<br />
  47. 47. Profitability<br />$200,000 recoupable production marketing costs<br />Wholesale price of $10.50<br />
  48. 48. Manufacturing Costs<br />$1.00<br />Artist and Producer Royalties<br />$0.00<br />Mechanical Royalties<br />$0.70<br />Distributor Charges<br />$1.50<br />Gross Margin<br />$7.30<br />Manufacturing Costs<br />$1.00<br />Artist and Producer Royalties<br />$2.00<br />Mechanical Royalties<br />$0.70<br />Distributor Charges<br />$1.50<br />Gross Margin<br />$5.30<br />
  49. 49. $200,000 -- recoupable p & m costs<br />$300,000 -- total p & m costs<br />sale 100,000 units for artist royalties to equal recoupable costs<br />label has made $730,000<br />over $400,000 in actual profits<br />
  50. 50. overhead<br />economic break-even = 41,096 units<br />
  51. 51. Where Does the Money Go?<br />$4-5<br />recording label profits<br />$3-4<br />wholesale distributors and retail store profits<br />$1-2<br />promotion and advertising<br />$1-2<br />design and packaging<br />
  52. 52. $1-2<br />recording and studio costs<br />$1-2<br />shipping, musicians’ fees, trust fund<br />50¢ - $1.50<br />artist’s royalty<br />
  53. 53. Manufacturing Cost for a CD<br />Cost/unit<br />raw media $ 0.10<br />pressing/recording costs 0.30<br />jewel box/plastic case 0.10<br />printed material 0.05<br />other 0.05<br />Total Cost $ 0.60<br />
  54. 54. Artist’s Royalty -- Gold Record<br />Album units @ $7.98 list less 10% breakage and 10% packaging fee<br />10% on first 150,000 units $ 95,700<br />12% on next 350,000 267,960<br />15% on all additional<br />
  55. 55. Gold-record royalties $363,660<br />less advance $100,000<br />Artist Net $263,660<br />
  56. 56. Doing it yourself<br />$15 CD<br />$5.00 to store<br />$2.50 to wholesaler<br />$2.50 for manufacture<br />Remaining $5.00<br />Studio costs, promotion, marketing, shipping, handling<br />
  57. 57. The $0.99 iTunes split<br />55 ¢<br />Label<br />34 ¢<br />Apple<br />10 ¢<br />Artist<br />
  58. 58. Today<br />Most artist deals with record labels are for 5 or 6 albums<br />there will be a lot of options that the record company gets to exercise<br />options are for 1 or 2 records at a time<br />artists don’t see a lot on the royalty end (backside)<br />
  59. 59. usually see all in advances which are deducted from royalties<br />advance is used to pay for recording costs<br />$300,000 to $400,000<br />so if advance is only $300,000, won’t see any money<br />if artist wants to see any money, need to specify in contract $xx to be paid directly to artist (and try to make non-recoupable)<br />
  60. 60. Records & Radio<br />at first Radio competed with Records<br />Radio formed owned orchestras to avoid paying royalties<br />Record sales dropped (Depression also a factor)<br />Repeal of Prohibition and introduction of jukeboxes helped Records<br />1950s -- Radio turned to Records<br />

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