Understanding The Music Industry

Posted: September 11, 2012 in Uncategorized

The music industry is part of the creative arts business; it is an oligopoly, ruled by four main industries. The creative arts business also includes film and theatre as music is an integral part in their production. The aim is to make money from music and sell it at a higher cost than what it costs to produce the album/EP. The profit from this pays the creators.

The process used within the industry involves:

Creation – this is where the material is created by musicians, composers and writers

Production – this material is then produced by a record production company

Distribution – the finished product is delivered to the public in a form they can access it; CD/Download as recorded music.

The record company pays for production, promotion and distribution, because this is expensive the money to fund it comes out of the royalties paid to the musician, producer, composers, and the record company itself, when the music is exploited (for example played on the radio/T.V pub and clubs, or bought as CD’s or downloaded.) As this is a very competitive industry marketing and promotion is essential to inform the public of what types of music and artists are available to them.

The four main companies are

Universal Music Group:

UMG logo
Universal Music Group’s Logo

Universal Music Group

Featured Artists: Lady GaGa, Rihanna, Drake, The Wanted and LMAFO

It has 27% Market share.

In 1912, Universal Film Manufacturing Co. was founded by the pioneer film maker Carl Laemmle in Chicago in the U.S this mainly dealt with films and the music element was mainly filmed based. In 1962 MCA INC. and Universal Pictures created a joint venture, interested in music when MCA acquire Decca Records. In 1964, the public are allowed a special ‘behind the scenes’ look at T.V and film production at the newest studio building as well as opening a theme park boosting the company’s reputation and publicity. In 1972 the Universal Amphitheatre opens, this is the beginning of Universal’s interest of ownership and operation of concerts and music venues. In 1999 Universal Music Group expands abroad to places like Turkey and India as well as Universal Music Enterprises creating a new music catalogue in central America. A new marketing entity is created. Universal then form with BMG to create an internet sales and content partnership, with the e-commerce site ‘getmusic.com’ being formed. In the same year, UMG also purchases the remaining interest in Def Jam Records. In 2000 UMG acquires ‘Rondor Music International Publishing Company’. In 2001 UMG formed an exclusive distribution and world-wide licensing agreement with Univision Music Group. In a ground-breaking first for the music industry, in 2002 UMG achieved a year-to-date success of current album market share of more than 30% according to SoundScan. In this year also, UMG offers music fans a catalogue of downloads with more than 750,000 tracks. In 2003 UMG gained Dream Works Records and teams with e-bay to launch the ‘Universal Music Store’ and in 2009 UMG formed Vevo. Finally, in 2010, Lady GaGa becomes the first artist to have all first five singles reach number one.

UMG own ten U.S labels including – Interscope, Geffen, A&M, The Island, Def Jam Music Group, and Universal Republic Records.

They own, 41 labels outside the U.S which include – Decca Records, Universal Music Canada, Universal Music Australia, and Universal Music UK.

In May 2007 UMG was accused of abusing the Digital Millennium Copyright Act which forced Youtube to remove videos that contained UMG music.

Sony Music:

Sony Music Logo

Featured Artists: Paloma Faith, Michael Jackson, Usher, Labyrinth.

Featured Labels: 12 U.S labels including – Epic Record and Legacy Recordings

It has a 23% music share.

Sony was started as a result of a 50-50 joint venture between Sony Music Entertainment  (part of the Sony branch) and Bertlesmann Music Group completed on the 4th of March 2004. Financial analysts covering the merge (which affected BMG and Sony Music’s companies worldwide except Japan) anticipated up to 2000 jobs cuts as a result. It was also thought that this would save the company $350 million annually. The company’s share of the music industry dropped from 33% to 26% with a new CEO Rolf Schmidt-Holtz according to SoundScan.

On August 5th 2008 Sony Corporation agreed to buy Bertelsmann AG’s 50% stake in the music company for $1.2 billion in order to gain full control. The music company is going to be renamed Sony Music Entertainment Inc. and it will become a unit of the Sony Corporation of America. This in turn will allow Sony the rights on the current and historic BMG roster and would allow the Sony Corporation to better integrate its functions with the Play Station 3 and up-coming new media initiatives.

EMI

EMI
EMI Logo

Featured Labels: EMI Records, Virgin Records, Blue Note

Featured Artists: Pink Floyd, Kanye West, Adele, Katy Perry, Coldplay, Thirty Seconds to Mars, Iron Maiden and Jet.

It has $1.3 million in the EMI music publishing catalogue and they have had one thousand U.K and U.S number ones in the past 85 years.

It is a British multinational music company, however it also deals majorly with publishing. EMI traces its historic roots back to the beginnings of recorded sound and music as one of their original companies was found by Emile Berliner, the inventor of the gramophone.  EMI have been at the forefront of most technological advances when it comes to tangible music products because they have also invented stereo recording as well as being involved with the development of the magnetic tape, television and radar technologies. EMI’s first music websites went live in 1993 and 1994 and in 1998 EMI streamed the first complete digital album which was David Bowie’s ‘…Hours’. EMI was also the first major music company to make its music available without Digital Rights Management software (DRM).

Warner Music Group

Warner_Music_Group
                                                          Warner Music Group Logo
 

12.2% market share

Featured Artists: Green Day, Avenged Sevenfold, CeLo Green, Led Zeppelin, My Chemical Romance, R.E.M, Death Cab for Cutie, Wiz Khalifa.

Featured Labels: RYKO, Chappell and Co. Warner Bros Records

WMG is a recognised leader for its environmental initiatives. WMG are currently in a company wide campaign to convert CD/DVD products to environmentally friendly packaging as well as:

-Practice ecologically superior paper procurement

-Reduce waste

-Enhance recycling

-Reduce greenhouse gas emissions and offset its carbon footprint

-“Green” its large scale corporate events

WMG traces its roots back to 1811 with the formation of a British music shop called Chappell and Co. on Bond Street in London. It sold sheet music and instruments.  In 1819 Ludwig Van Beethoven himself praised the shop to a friend in a letter. In 1958 Jack Warner founds Warner Bros Records as a soundtrack factory for movie soundtracks. In 1970, Warner which has grown in size and reputation creates Warner-Electra-Atlantic (WEA corp) which is the first major distribution company in the U.S – marking the origin of WMG. In 2000, WMG offers a library of digital downloads with the creation of mew music technologies in the U.S and Canada for the first time. In 2001, WMG begins selling music through iTunes, creating more digital income. In 2005 WMG is listed on the New York Stock Exchange with the ticker of WMG. In the following year of 2006 WMG purchases RYKO and forms Independent Label Group with the mission of empowering independent labels and artists in the independent music community. In the year after this WMG announces it will begin selling DRM-free music through Amazon.com’s MP3 music store as well as being named by ‘Future Magazine’ as one of America’s “Most Admired Companies”.  In 2008, Atlantic (a label represented by Warner) is recognised in the New York Times as the first label to sell more than 50% of its products in digital form. In 2009, Fast Company Magazine names WMG as one of the world’s “50 Most Innovative Companies”. Finally in 2011, Access Industries  buys WMG, this means it is now owned wholly and is no longer publically traded on the New York Stock Exchange.

However to make money successfully the industry must react to two things:

  • Changing music technology in how music is recorded and played
  • Us, the audience and customers, and how we receive and listen to our music
Invention of the iPod

Most of the twentieth century companies made money by selling a tangible product in the form of vinyl discs or CD. You owned music by having a disc collection.  Although, with the development of the internet the music industry has had to adapt as CD sales are falling more and more as each year goes by. The product is now being sold online as a single song or as part of an album or EP. It only exists as an item on an iPod, computer, laptop or any other portable MP3 device. The new issues for the industry are involved with how it can earn money to pay bands and music creators if consumers do not pay for their music. It’s far easier for them to sell a tangible product in high street shops than a virtual product such as a download. This newer technology has also made it a lot easier for people to pirate it. Consumers will tend to not want to buy something if they can gain it for free. In 2009 as much as 95% of the music downloaded was illegal.

The music industry is still in crisis, but it is finding ways to sell its products in the digital universe. Legal downloads in 2011 accounted for about 6% of the music downloaded that year, not fantastic, but it was major progress from the 0% in 2009.

I believe that music fans should pay for all their music to not only support their favourite artists but for the ethical moral reasons involved in illegal downloads, as it is a form of stealing. The ethics of pirate websites are founded with good intentions, to share great music with those who cannot afford to support and pay for their favourite artist’s music; however, it’s a form of stealing. Therefore, the intention is subverted and instead no support is offered. This only means that the customers gain a direct benefit and the creators lose. If the creators lose benefits, they will eventually stop creating music because they aren’t getting a livable income off of it, as this is their means of livelihood.

I feel that in order to combat illegal downloads, sites like amazon.com MP3 store, iTunes and Spotify should sell more songs at cheaper prices to target all socio-economic grades of listeners as nearly everyone in today’s society are music fans. Therefore more people would be interested in purchasing songs, this would also appeal for those higher up the socio-economic grade that illegally download because of high prices. I also believe sites like Spotify could develop customer benefits in the same way iTunes has started to do with free tickets to the iTunes festival, this would make it more alluring for customers to pay for songs and register pay monthly accounts with them. I think it should be combated with marketing strategies, and harsher pirating punishment, because people will eventually find ways to try and pirate music and most media products.

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