The music industry is dominated by four major record labels: Universal, Sony BMG, Warner, and EMI. These labels have significant market share and benefit from economies of scale and vertical/horizontal integration. Music sales have been declining steadily since 1999 as CD sales fall but digital track sales rise. Piracy and CD burning cost the industry an estimated $4 billion annually in lost revenue. The industry focuses heavily on promotion to influence charts and radio play. Record labels are tied to other conglomerate businesses like film studios to promote artists across different media.

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?
1. 45+ 26%
2. 15–19 13%
3. 25–29 13%

7. What Are We Buying?
1. Rock 34.0%
2. Country 13.0%
3. Rap/Hip-hop 11.4%
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