1. The Music Recording Industry

2. A Micro-History 1850s -- first successful recording device - Édouard-Léon Scott de Martinville - the Phonoautograph

3. Thomas Edison - 1877sound recording "I was never so taken aback in my life--I was always afraid of things that worked the first time.” Thomas A. Edison on hearing his voice play back to him from his first tin foil phonograph

4. late 1880s, Emile Berliner invented the gramophone

5. electric record player - early 1920’s vinyl records - World War II audiotape -- World War II stereo -- 1958 cassette tapes -- digital recording -- 1970s CDs -- 1983

6. Oligopoly Edison had a 9 year monopoly from invention of “talking machine” in 1877 1909 -- three companies controlled market Edison Columbia Victor Edison crashed out in 1929, Decca rose

7. Rock ‘n’ roll, 1955, brought competition 40% increase in sales from 1955-56 Albums began to replace singles in early 60s New technology helped.

9. Oligopoly returns 1962 -- 42 labels had at least one charted album top 6 companies controlled less than 50% of market Next 20 years brought branch distribution and mergers 1972 -- top five labels controlled 31.4% of album charts but top five corporations controlled 58.2% of charts

10. More Recently 1998 -- Universal & PolyGram merge 2004 -- Sony & BMG merge

11. The Records Business 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%

12. Industry Leaders Today Universal Music Group Sony BMG Music Entertainment Warner Music Group EMI Group

14. A Global Industry Universal Group Sony/BMG Warner Music Group EMI Group French German Japan U.S. British

15. Global Industry $40 billion worldwide U.S. accounts for over 1/4 Piracy estimated at $4.3 billion

16. Global Market Share Sony/BMG 25.2% EMI 12.0% Warner 11.9% Universal 24.7% Independents 25.0%

17. Top Artists of All Time Who?

18. ELVIS IS KING!

19. And The Beatles

20. Michael Jackson

21. Abba

22. Queen

23. UNIVERSAL MUSIC GROUP Parent Company: Vivendi Labels: numerous A&M, Geffen, Interscope, Deutsche Grammophon Artists: Bon Jovi, Mariah Carey, Eminem, Elton John, Luciano Pavarotti Publishing: Universal Music Publishing Group, one of the largest music publishers (administers more than 1 million copyrights)

24. SONY/BMG Parent Company: Sony 50% & Bertelsmann 50% Labels: numerous Arista, RCA Victor, Sony Urban Music Artists: Carlos Santana, Christina Aguilera, Britney Spears, Beyoncé Publishing: no

25. WARNER MUSIC GROUP Parent Company: orphan - sold by Time Warner in 2004 for $2.6 billion Labels: Atlantic, Bad Boy, Elektra, Sire, Reprise Artists: Madonna, Green Day, Faith Hill, Red Hot Chili Peppers Publishing: Warner/Chappell Music (1,000,000+ copyrights)

26. EMI Parent Company: independent Labels: Angel, Blue Note, Capitol, Virgin Artists: The Beach Boys, Beastie Boys, The Beatles, Moby Publisher: more than one million any form, any time, any place

27. Corporate Structure Part of larger media company film, television, magazine publishing, etc. Independent Music Group Music Publishing Record Group

28. Significant Vertical Integration own and control all aspects of business from raw ingredients of production to retail sale to consumers labels control creative inputs from artists publishing companies control creative inputs from songwriters

29. own manufacturing facilities own distribution companies to get recordings to retailers EMI owns retail stores Sony BMG & Warner have ownership interests in record clubs all involved in digital delivery

30. Seek horizontal integration buy up competing labels to insure a larger total share of recording market

31. Record Group Record labels Record distribution system Record manufacturing

32. The Record Label acquire master recordings of performances by artists want exclusive agreement with artist market those masters

33. Music Publishers Monitor and Promote Music sheet-music sales live performances recordings

34. A&R artist & repertoire the talent scouts of the music business

35. Label Structure President (often from A&R or business affairs) Business Affairs Accounting International Division Marketing Sales

36. Promotion Advertising Publicity Artist Relations A&R A&R Administration Producers

37. engineers music attorneys

38. Indies development area for record labels new talent new direction

39. Indie Survival megastores keep production costs low keep marketing costs low high profit margins possible with CDs

40. Royalty Streams Performances ASCAP, BMI, SESAC Mechanical Royalties Harry Fox Agency Synchronization Fees Harry Fox Agency Copyright

41. Selling Records Wal-Mart - 15.8% Best Buy - 13.8% iTunes - 9.8% Amazon - 6.7% Target - 6.6% CD sales - 86.2%

42. Record clubs Supermarkets and Starbucks

43. Going Digital Why did it take so long? Piracy -- $4.2 billion / year visit www.riaa.com

44. Troubled Times Between 1999 and 2003 -- sales declined 20% (one-fifth) Was it all piracy? US loss to piracy in 2004 est. rose 17.5% to $2.66 billion

45. But Good News . . . By the end of January 2005, the iTunes store had downloaded 250 million songs. cornerstone of industry -- publishing

46. Price and Demand Oligopoly -- little price competition Factors of Demand taste exposure artist’s status new release, hot artist, higher price others follow

47. Profitability $200,000 recoupable production marketing costs Wholesale price of $10.50

48. Manufacturing Costs $1.00 Artist and Producer Royalties $0.00 Mechanical Royalties $0.70 Distributor Charges $1.50 Gross Margin $7.30 Manufacturing Costs $1.00 Artist and Producer Royalties $2.00 Mechanical Royalties $0.70 Distributor Charges $1.50 Gross Margin $5.30

49. $200,000 -- recoupable p & m costs $300,000 -- total p & m costs sale 100,000 units for artist royalties to equal recoupable costs label has made $730,000 over $400,000 in actual profits

50. overhead economic break-even = 41,096 units

51. Where Does the Money Go? $4-5 recording label profits $3-4 wholesale distributors and retail store profits $1-2 promotion and advertising $1-2 design and packaging

52. $1-2 recording and studio costs $1-2 shipping, musicians’ fees, trust fund 50¢ - $1.50 artist’s royalty

53. Manufacturing Cost for a CD Cost/unit raw media $ 0.10 pressing/recording costs 0.30 jewel box/plastic case 0.10 printed material 0.05 other 0.05 Total Cost $ 0.60

54. Artist’s Royalty -- Gold Record Album units @ $7.98 list less 10% breakage and 10% packaging fee 10% on first 150,000 units $ 95,700 12% on next 350,000 267,960 15% on all additional

55. Gold-record royalties $363,660 less advance $100,000 Artist Net $263,660

56. Doing it yourself $15 CD $5.00 to store $2.50 to wholesaler $2.50 for manufacture Remaining $5.00 Studio costs, promotion, marketing, shipping, handling

57. The $0.99 iTunes split 55 ¢ Label 34 ¢ Apple 10 ¢ Artist

58. Today Most artist deals with record labels are for 5 or 6 albums there will be a lot of options that the record company gets to exercise options are for 1 or 2 records at a time artists don’t see a lot on the royalty end (backside)

59. usually see all in advances which are deducted from royalties advance is used to pay for recording costs $300,000 to $400,000 so if advance is only $300,000, won’t see any money if artist wants to see any money, need to specify in contract $xx to be paid directly to artist (and try to make non-recoupable)

60. Records & Radio at first Radio competed with Records Radio formed owned orchestras to avoid paying royalties Record sales dropped (Depression also a factor) Repeal of Prohibition and introduction of jukeboxes helped Records 1950s -- Radio turned to Records