MUSIC INDUSTRY

Oligopoly – the Big 4

Universal Sony BMGWarner EMI

Economies of scale Both vertical & horizontal integration

MARKET SHARE

Universal (Vivendi) 31.7%

Sony BMG 25.6%

Independents 18.3%

Warner 15.0%

EMI 9.5%

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

MUSIC REVENUE TRENDS

Sales of CDs are falling steadily

Sales of digital tracks are rising

Piracy / CD burning represents annual lost revenue of $4bn+

Who’s Buying?

1. 45+ 26%

2. 15–19 13%

3. 25–29 13%

What Are We Buying?

1. Rock 34.0%

2. Country 13.0%

3. Rap/Hip-hop11.4%

4. R&B/Urban 11.0%

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

Promotion

Promotion as important as production Single largest expense Includes attempts to influence positions

on music charts, radio play time (“payola”), tours

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

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