1. Major Label Music Production: The Music Industry
By: Shane Savage, Nicholas Tandy, Rashad Campbell, & Elle Fenn

2. Quick Overview
Past
Present
Industry
Analysis
Future

3. the PAST

4. Music Timeline Industry had 6 major players 1960's
Sony and Warner still remain today
Players were comprised of several labels
each focusing on a unique musical ‘identity’
different process of talent management. 
Manufacturing, distribution and overhead were not differentiated
Same product - Vinyl Records
1960's

5. Music Timeline 1960's Beginning of record store chains.
stores stocked around 10 thousand titles each.
Introduction of cassette players
boosted sales in the industry.
1970's

6. Music Timeline
1960's
Introduction of compact disk technology; replacing casettes
Another boost in sales
Distribution: by 1982, 8 retail chains sold 17.5% of retail music sales.
1970's
1980's

7. Music Timeline
1970's
Revenues reach all time music industry high of 14.5 billion dollars by 1999.
1999 was the ‘peak’ for the industry, with revenues dropping since.
Distribution: major retailers increased to selling 57.8% of music sales
Trend of independent music retailers closing; larger chain stores emerging
Walmart & Best Buy start stocking music, using it as a loss-leader
1980's
1990's

8. Positive Feedback 1970's 1990's 2000's Cassettes CD's MP3's
Vinyl Technology
Cassettes
CD's

9. Structure & Product
Overall: cooperation between artists and business people
Corporations lead marketing, production and sales
Compositions created and owned by songwriters, usually licensed to production companies. 
Artists with the help of production companies create recordings. The companies usually own the recordings.
Consumers own physical media, such as compact disks and MP3s. Retailers distribute these from producers to consumers

10. Financing led by production companies:
Company covers touring, marketing, engineering, studio
Artists earn a portion of album proceeds
Companies integrated; outsourcing minimal
Exception: live performances booked by promotion companies
Livenation

11. Evolution of Napster Changed the music industry structure
Disruptive technology
Peer-to-peer file sharing network
Mass distribution of music files
Competition for classic record companies and retailers
50 million users
Environment facilitating this
Multimedia capabilities
Internet as a distribution platform
File compression; mp3
Legal action taken; copyright issues
Damage already done, the industry has changed
Other sites follow similar model
Source: Bergmann, 2004

12. the PRESENT

13. Revolutionizing Music: iTunes
Within last decade, CD sales have dropped by more than half
Digital music sales has yet to come close to recouping the losses from traditional sales.
Digital music has turned the music industry upside down
Technology
Evolution
Challenge to create growth in digital and other non-traditional revenue streams that are strong enough to offset the decline in physical album sales.  : 
Digital downloads grew at an average of 41.6% annually
CD sales fell at an average of 17.9% per year

14. Music Industry Role Players
Creative Talent
Major Labels
Publishers
Distribution Channels 

15. Creative Talent Artist Record on the track (Who you hear)
No Intellectual Property rights to the song (unless they wrote some of it)
Writer 
Writes the words to the music (The words you hear)
Split Intellectual property rights with Producer  
Producer 
Creates the musical soundtrack (Make the beats)
Split Intellectual Property Rights with Writer
Engineer 
Mix the track (make sure everything flows)
Mastering Center 
Make the audio "Commercial-Ready" (Adjust Hi-Lows to for Radio Play)

16. Major Labels 4 Majors, Many others Universal Music
Warner Brother Group
Sony Music
EMI
Other smaller Majors and Many independents
Job of Music Label:
Finding music talent
Manufacture of recordings
Production of master recordings
Purchase of reproduction and distribution rights to master recordings
Release, promotion, and distribution of sound recordings
360 Deals: provide brand management, merchandising, tour support and expanded artist services and in return get a higher percentage

17. Publishers
Vertically Integrated Companies: Universal (Vivendi), Sony, WB, EMI
Music publishers earn their revenue from licensing the right to use an artist's songs. They licensing them for inclusion on records (samples), film, TV and other media. Also seeking new uses for the compositions
Administer and collect the proceeds generated, then royalties are collected by Publisher and paid out to  songwriter/producers
Interesting Fact: In1909, royalties paid to songwriters were $.02 per song. Based on the Consumer Price Index, two cents in 1909 would be over $0.40 cents per song today

18. Distribution Channels
Role:
Bridge the gap between consumers and production companies
Purchase the recordings from the producers and selling to consumers.
Forms:
Digital Role Players
Online Radio
Physical Distributors
Evolution:
The distribution of recorded music CDs has shifted from specialty shops to mass-market, online retailers and more recently to online digital media retailers and other digital music services.  

20. Break Down of Download Costs
Digital Role Players
in price of many iTunes songs from $0.99 to $1.25 per track
Break Down of Download Costs
Labels
$ $0.70
Financial Transaction
$ $0.15
Marketing
$ $0.10
Staff
$ $0.05
Bandwidth and Hosting
$ $0.03
Start-up Costs
Total Costs
$ $1.03

21. Online Radio: Pandora Serves ages 13 to 90
Target market 18 to 34 years old
16 million registered users
1 million people listening per day
Spend between 2 to 3 hour sessions
65 million stations created
Increases by 10,000 a day
iPhone App
HUGE advertising opportunity
Offer precision targeting to advertisers
Use same model as Facebook & Google
New business model
Up to 40 hours of free radio
$0.99 for over 40 hours = one download

22. Physical Distributors
Decreasing market
Higher shelving costs
39,000 songs on CD’s in average store
Small consumer surplus
Can only sell hit albums

23. 5 Major Pricing Strategies
Versioning
A La Carte Downloading
Subscription
Tying
Mixed Bundling

24. #1: Versioning Creating different forms of the same product to sell:
Digital Full-Length Albums
Digital Singles
Product Placement
Movies, TV, Events, Video Games
Live Concerts
5. Physical CDs 6. Mobile Music Downloads 7. Music Videos 8. Vinyl LPs

25. # 2: A La Carte Downloading
Unbundling CD’s to maximize consumer surplus
Since 2005, consumers increasingly have turned to individual track purchases instead of bundled albums
Dominance of single-track downloads over album sales
Margins on new sales to narrow
Revenue to fall

26. # 3: Subscription
Certain online distributors require their customers pay monthly fees to access unlimited downloads
Major Labels are establishing partnerships to create subscription based streaming models
provides users with more access than free services
increases revenue from distribution rights for labels

27. iPods and MP3 players are need to play the music for the customer
#4: Tying 
iPods and MP3 players are need to play the music for the customer

28. Buying multiple artists from the same record label for a concert
#5: Mixed Bundling
Buying multiple artists from the same record label for a concert

29. Snapshot: Industry Analysis

30. Music Production Industry at a Glance
Key Statistics:
Snapshot
Revenue: $7.5 Billion
Profit: $188.1Million
Margin: %
Annual Growth 05-10: -9.7%
Annual Growth 10-15: 1.7%
How Major Labels Feel
Live Music
Revenue: 22.4 B
Profit: 1.6 B
Margin: 7.1%

31. Why is Music Declining? Devaluation of music Pirating
Access to free music makes consumers less inclined to pay high prices
Cheap digital songs devalue physical bundled albums
Big Time Artist Going Independent
Madonna's, Michael Jacksons, Justin Timberlake's, etc bring in big amounts of money for labels.
Radiohead
Pirating
Illegal downloading directly and indirectly caused the music industry to go into decline.
Consumer Behavior Changes
Since 2005, consumers have turned to individual track purchases instead of bundled albums, causing revenue to fall and margins on new sales to narrow.

32. the Facts of Modern Pirates!
The International Federation of the Phonographic Industry (IFPI):
Estimates 95% of music downloaded worldwide is done illegally!
Illegal piracy of music costs the broader US economy as much as $12.5 billion in losses and 71,060 jobs annually
Between 2003 through 2008, the industry sued over 35,000 individuals

33. Preventing File Sharing
Attacking the pirating systems
Napster, LimeWire, FrostWire, Kazaa, etc.
Updating digital file protective encryptions
Digital Rights Management (DRM)
software that can detect, monitor, and block the use of copyrighted material
limits or prevents the sharing of downloaded music
opened the door for new ways of legally distributing digital content
different versions of DRM allow different access to files
The effect of these efforts appears to be positive, with growth in legal downloading now exceeding illegal file sharing.

34. 4 Current Trends
Profit margins decrease Shift to Tech Based Business Models Long Tail Marketing Digital sales increase, growth slows
Pirating (world wide/ global figure).
Jobs and #’s exaggerated, because people wouldn’t buy as much music if it had a price.

35. Profits Margins Sucked Dry
Down from over 15% in mid 1990’s to 2.3% in 2010.
Year
Warner Brother Music Group Net Income Over the Years
2006
$60.0 Million
2007
($21.0) Million
2008
($56.0) Million
2009
($100) Million
2010
($143) Million
Mid 1990’s known as the CD Boom

36. Profit Margins Across Industries

37. Shift in business models: Tech is future
Physical  Digital
In 2010, the big four shift budgets
from physical distribution models
to investing in new technologies for
digital distribution.
Itunes
Advertising based models
Pandora
YouTube
Invest

38. The Long Tail Marketing Trend
Digital Music allows for greater variety amongst music groups and makes it easier for consumers to find lesser know artists of their liking up and coming artists to find a target market

39. Trends of Digital sales
Digital Sales are increasing but growth is decreasing
28.1% growth (08), 18.7% growth (09), 5.4% (10)
Mathematical terms: sales increasing but marginal sales decreasing
Digital Music Sales

40. Structure & Market Share
Industry Structure
Market Share & HHI
Life Cycle Stage- Decline
Revenue Volatility- Medium
Capital Intensity- Medium
Industry Assistance- Low
Concentration Level-
Regulation Level- Heavy
Technology Change- High
Barriers to Entry- High
Industry Globalization- High
Competition Level- High
Company
Market Share
Universal (Vivendi)
30.6%
Sony
26%
Warner Group
14.6%
EMI
10.7%
HHI=1,940.01
Math: ( )
HHI Categorization:
Less then 1,000= Competitive
1,000-1,800= Moderately Concentrated
Greater then 1,800= Highly Concentrated

41. Target Market & Product Segmentation
Target Market: Ages 15-45

42. the FUTURE

43. Preparation for the Digital Age
UMG: Adaptive pricing strategies for their most profitable sectors
Sony: Consolidation and innovation
WMG: Aggressive new cost management strategy to prepare for digital age
EMI: Enthusiastic about embracing the digital age, but very preoccupied with survival

44. Adaptive Pricing Strategies for their most Profitable Sectors
Universal Music Group
Adaptive Pricing Strategies for their most Profitable Sectors
The label will reduce the average wholesale price of albums from $10.35 to $7.50. This is equivalent to a Large Meal at McDonald's
UMG is actively working with cell phone manufacturers, including Apple and Google, to improve mobile digital music technology.
Sales for streaming services as well as full track and album purchases.
UMG is also the principal participant in VEVO, an online streaming music video service. 
    
Short advertisements before the music videos provide income for the labels and allow fans to access the                  service free of charge.  
     
Since  its launch VEVO has already grown to the #1 music video website, receiving 44.7 million unique viewers in July  

45. Consolidation and Innovation
Sony Music Group
Consolidation and Innovation
SME joined in a partnership with UMG for VEVO launch in December 2009
Reconstructing cost have been the bulk of their losses to date
These costs include severance of benefits as well as lease and contract terminations.
    
Sony has incurred restructuring charges of $14.2, $8.69 and $67.73 million in 2007, 2008, and 2009
Abandoning the Physical CD Despite:
      
SME experienced market share increases in physical sales of new releases and catalogue albums as a result of strong demand for Sony artist Michael Jackson and Susan Boyle.
Licensing Deals:
Sony benefits from its advances in digital distribution including licensing deals with Apple, Nokia, Vodafone, MySpace and Amazon.

46. Aggressive New Cost Management Strategy to prepare for Digital Age
Warner Music Group
Aggressive New Cost Management Strategy to prepare for Digital Age 
        
Unique Distribution: 
WMG has partnerships that enable distribution of the label's music online and through mobile services                           including partnerships with News Corp's MySpace Music and Nokia.
360 Deals:
Like its major competitors Warner Music Group has also expanded into artist image and brand management, which includes merchandising, sponsorship, touring and artist management. 
By utilizing in-house resources and some acquisitions the label has been successful in embarking in these expanded-rights deals with a number of represented artists.

47. EMI Enthusiastic about the digital age, but preoccupied with survival
EMI has attempted to embrace digital music more enthusiastically than their competitors.
     EMI removed Digital Rights Management (DRM) from their catalog well before its competitors, allowing files to      be traded easily.
   
EMI's current debt obligations to Citigroup, talks of a merger or, more likely, a licensing deal with Warner, Sony or Universal for the distribution of EMI's catalog in the US have resurfaced and been the focus of the EMI record label.
    

48. Industry Recommendations
Stricter Security of Intellectual Property
Cheaper Physical Products
Label Consolidation
Artists Social Media Site Management 
Free Music
Attractive Multiple Revenue Streams (360 Deals)
Encourage Diversified Works for Multiple Industries