MUSIC INDUSTRY Oligopoly – the Big 4 Universal Sony BMG Warner 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+ 2. 15–19 3. 25–29 26% 13% 13% What Are We Buying? 1. Rock 2. Country 3. Rap/Hip-hop 4. R&B/Urban 34.0% 13.0% 11.4% 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