Recording industry analysis
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Transcript of Recording industry analysis
RECORDING INDUSTRY ANALYSIS
By J.Rolix
INTRODUTION
Since 1925 when the Bell company introduced the first electric recording and playback devices the changes in the music industry have been very fast.
Over the past 20 years, we’ve seen a metamorphosis in the traditional structure of the music industry and record market. There has been an extremely rapid change in the world of new technologies and processing information. Very quickly these changes have transformed the way to listen, enjoy and, above all, understand the music. An example of the relevance of these changes can be seen in the different types of musical support media: Vinyl's, cassettes, CDs and lately, musical DVD.
However, the real revolution has been the Internet, when it became established in the mid-80's, although the production and distribution of music in this sector, until recently weren't considered an appropriate environment to undertake the sale of music over this network. The United States is the current pioneer in the Internet market, ahead of Europe. The internet and the era of digital content is providing new opportunities for the recording music sector.
DEFINITION OF THE SECTORThe sector we are analyzing is the record industry or the music production industry, i.e., it is made up of companies that are responsible for:
• Detection of talented artists.
• Management of repertoire of the artists and searching for suitable compositions.
• Promotion of artists which is perform by the marketing department.
• Management of the process of production and distribution of music content, with collaboration from thirds parts i.e., recording, manufacturing, logistics, etc..
Producers trigger the process of music content creation. Investing in artists, according to their possible acceptance and their popular musical quality and accompanying them throughout the process, assuming an economic risk.
Their income and therefore their profitability is linked to:
• Sale of discs and music content.
• Percentage of merchandising, image rights, etc. from the artists with whom they contract and their live music.
• Secondary Rights from music producers.
There are three major music producers (four until 2012,the year in which EMI music was absorbed by Universal Music), that account for 91.18% of the world market (Emi Music Group Warner, Sony-BMG, Universal Music). The rest are small and medium sides enterprises, including many of them with less than ten employees, specialized in certain specific niche markets.
LABEL TYPES
The Majors: major distribution; dominant market
share.
Independents: a lacking of major distribution; can
be large or small, ‘Major Minors’.
Sub-labels & Imprints: separate companies or
divisions owned or distributed by major labels.
Specialty labels: non-traditional distribution;
focused on non-mainstream genres (i.e. classical,
gospel).
Distribution channels & market share define record
label types.
THE MAJORS
Six Major Labels – 1995
Time Warner (Atlantic, Elektra) 22.1%
Polygram (A&M, Mercury) 13.8%
Sony (Columbia, Epic) 13.6%
Bertelsmann (Arista, BMG) 12.0%
MCA (Geffen, GRP) 10.1%
Thorn EMI (Capitol, Virgin) 9.2%
THE MAJORS: INDUSTRY LEADERS TODAY
Universal Music Group (UMG Recordings Inc.) is the largest corporation in the
world. An American-based, French-owned multinational music corporation, it
currently operates as a subsidiary of Paris-based media conglomerate Vivendi
(French multinational mass media and telecommunication company
headquartered in Paris, France).
Sony Music Entertainment (SME) is an American music corporation owned
and operated by Sony Corporation of America, a subsidiary of the Japanese
conglomerate, Sony Corporation. In 1929, the enterprise was first founded
as American Record Corporation (ARC) and, in 1938, was renamed Columbia
Recording Corporation, following ARC's acquisition by CBS. In 1966, the
company was reorganized to become CBS Records. In 1987, SCA bought the
company and, in 1991, renamed it SME. It is the world's second largest music
company.
Warner Music Group (WMG), also known as Warner Music, is an American
major global record company headquartered in New York City. The largest
American-owned music conglomerate worldwide, it is one of the 'big three'
recording companies (the third largest in the global music industry). The
company operates some of the largest and most successful recording labels in
the world, including its flagship labels Warner Bros Records, Parlophone
Records and Atlantic Records. WMG also owns Warner/Chappell Music, one
of the world's largest music-publishing companies.
MAJOR MUSIC COMPANY CORPORATE
STRUCTURE
Corporate Conglomerate
Music Group
Record
Label(s)
Music
Publishing
Company
Distributions
Media-TV,
Telecom
Gas, Water
other
non-music
activities
ADVANTAGES OF MAJOR LABELS:
Size
WELL FINANCED: Can afford better…
Production
Distribution- major networks
Marketing
Talent Acquisition
And, sometimes, manufacturing
INDUSTRY BONUS: Can Offer artists…
Stability
Prestige
Advances
Top production resources
ADVANTAGES OF INDEPENDENT LABELS:
Vision & Knowledge
MORE CREATIVE:
Able to find more raw talent
Can use creative development, marketing and financing tactics
Able to build better brand loyalty among fans
SPEED:
Unencumbered by long corporate approval processes
Understand artists and trends faster
REGIONAL CONNECTIONS:
Better regional connections for publicity and sales
RECORD LABEL: KEY ACTIVITIES
Internal:
Talent Development
Artist Product Marketing
Legal
Providing services to artists
External:
Sales & Distribution
Marketing and promotions
Providing services to distributors and retailers
RECORD LABEL BUSINESS STRUCTURE: KEY
FUNCTIONS
Leadership/Vision
Talent
Adquisition
Marketing &
Sales
Admin Manufacturing
A&R
Product
Management
Marketing
Promotions
Sales/Distribution
Creative Services
Business
Affairs
Legal
Accounting
Royalty/Affiliate
Management
Pressing
Packing
Inventory
Management
RECORD LABEL BUSINESS STRUCTURE: DEPARTMENT HEADS
CEO/President(Chief Executive Officer)
General
Counsel
Legal
Affairs
Business
Affairs
COO
Administration
Human
Resources
Marketing &
Sales
CFO
Finance
Accounting
CTO
Technology
Information
Management
Online Security
ACCESS TO DISTRIBUTION CHANNELS AND
ECONOMIES OF SCALE
Distribution has a very important role in the business model of the
industry. Regarding disks or hardware, a large infrastructure is
necessary to reach the point of sale. This activity supposes a
important logistics and the existence of scale economies in
distribution, ie an optimum size needed large scale in order to
perform this activity advantageous. For many years this has been a
significant barrier to entry due to only the large companies could
face a distribution as complex. Being, thus, significantly their
importance to hinder the entry of new competitors. But the
changes happened in the channels of music distribution, ie the
emergence of new formats and technological advances have
produced that distribution, mainly through the Internet, no longer
suppose a barrier to entry to the sector due to access to this
channels is simpler and does not require from a large size.
INVESTMENT IN PROMOTION AND
MARKETING
A record label destines to promotion and marketing a very high
percentage of its budget, especially related to the release of some
artists or albums. On this lies that this factor is relevant to considered a
barrier to entry, since not all companies in the sector have the financial
capacity to face with these expenses. The promotion traditionally
performed through radio formulas, press overview, music press, video
clips, advertising in radio or television, billboards promotional on the
street and in stores. This effort could only be carried out by companies
with a significant size and market share. The internet has posed a
considerable change, not only because it represents a new channel for
content suppliers, but it is a channel with new marketing tools against
the traditional. These new resources for the promotion: you can send
over the Internet small samples of the songs from an album to decide if
you like it before purchasing; there is also the possibility of choose
between buying a whole album or just a song; or you can rent the
online music by files are deleted after a certain time.
DOMAIN OF TECHNOLOGY
Currently with using Internet as the main tool for
obtaining audio and video, it is there for necessary that
participants in this sector develop technology that
protects the musical contents, and thus it born, Digital
Rights Management (DRM content),i.e. all the means
which control the use of musical reproduction by
electronic or digital means through the Internet; The
development of all this technology is not easy, and this
coupled with the need to learn and master new
technology (linked to the formats and forms of
reproduction) makes it as an important barrier that can
prevent the entry of new competitors.
BARGAINING POWER TO THE CLIENTS
Wholesalers: Wholesalers ensure distribution to
small record labels who have limited ability to
negotiate directly with music producers. In every
country, there are usually not many wholesalers
music, but for the importance by volume that these
products represent to the recording industry its
power is limited. The trading power that the record
label have over wholesalers is very relevant to the
turnover that it generate and the costs and the
saving can be pass on to the customers.
BARGAINING POWER TO THE CLIENTS
Traditional Markets: Using wholesalers in the
distribution of music has increased the cost of the
product to the shops independent of size. Whereas
previously it was the music producer who was
responsible for providing them directly. Most
smaller size stores lack a sufficient sales volume
and have to use this kind of wholesale companies,
which in term, greatly reduces their trading power in
important factors such as price. The power of labels
over the small shops is very high due to they
belong to a very fragmented sector and low sales
volume.
BARGAINING POWER TO THE CLIENTS
Large areas and chains: The trading power of large
chains, specialty stores and chain stores is much higher
than independent stores, so they get special prices and
conditions; due to they negotiate and buying music
directly to music producers and in a much larger
volume.
Being half the power of the record on the distribution of
the large chains since their sales are very dependent on
them (in Spain, for example 53.7% of sales depends in
large stores).
BARGAINING POWER TO THE CLIENTS
E-tailers: Retailers are traders who focus their business on the Internet. With the change in business model of selling music retailers have become a channel for reaching the final consumer with high growth examples include iTunes and los 40.com. As customers are now gaining more power over the record companies, since selling songs. Satellite Internet pages have gained a significant amount and therefore sales to these retailers represent a growing trend in the sector. The big record companies also have a high bargaining power since they are most supply source and also songs often advertisers on these pages.
BARGAINING POWER TO THE CLIENTS
Final Customers: Final customers, collectively, have
increased their bargaining power due to changes
occurred which gave a tendency to consume music for
free, and more information on prices, products and
costs, which have strengthened their power and industry
requirements. All this combined with the importance of
taste and fashion in this sector has led to necessary
changes raise traditional industry model: passing from
offering their product directly to consumers, through
Internet, to lower the price of music. The industry has a
medium bargaining power of the exclusivity of certain
products offering to be very different, but as we
mentioned this power is threatened by changes sector.