MUSIC
PRODUCTION &
RETAILING
Kelly Hansen
Chelsea Karpenko
Katie Kenealy-Bredice
Stephanie Pratt
TABLE OF CONTENTS
 Introduction
 Industry Structure
 Background
 Competition
 Organization
 Major Companies
 Pricing Strategies
 Brick & Mortar
 Rhapsody
 Amazon
 iTunes
 Analysis & Recommendations
 Investment
 Pricing Strategy
MUSIC PRODUCTION IN THE U.S.
Major Music Label
Companies
Distributors: Retailers &
Outlets
 Sony (BMG)
 Brick and mortar stores
 Warner
 iTunes
 Vivendi/Universal
 Subscription based distributors
 EMI
 Rhapsody
 Other providers of online music
streaming services
 Amazon
ANSWER QUESTIONS….
 How are the market shares
expressed in the industry?
 How is this industry unique in how
the product gets to the consumer?
 What are the consumer buying
preferences when it comes to
buying music?
 How do iTunes and other online
music providers play into the mix?
 How do they affect consumer
purchasing behavior and habits?
TABLE OF CONTENTS
 Introduction
 Industry Structure
 Background
 Competition
 Organization
 Major Companies
 Pricing Strategies
 Brick & Mortar
 Rhapsody
 Amazon
 iTunes
 Analysis & Recommendations
 Investment
 Pricing Strategy
INDUSTRY
Primary Activities
Major Products Offered
 Manufacturer of recordings
 Digital full-length albums
 Production of master recordings
 Digital performance rights and
 Purchase of reproduction and
distribution rights to master
recordings
 Release, promotion and distribution
of sound recordings
subscriptions
 Digital singles
 DVDs
 Full-length CDs
 Mobile applications
 Music Videos
 Vinyl LPs
PRODUCT SEGMENTATION
Due to the increase in the digital environment, there has been a large shift in the
ways that the music production industry delivers its products to consumers.
• In 2011, digital music formats comprised 50.3% of total recorded music purchases.
• Digital single sales increased by 8.5% from 2010 to 2011 and digital album sales
increased 19.5% in the same year.
CHANGES IN THE INDUSTRY
 The peak of the music industry struck in 1999, just before the digital
music boom.
 In 2008, annual sales were 428 million units, less than half of the levels in
2000.
 Consumers were beginning to use file sharing and other options to
attain music.
 By mid-2009, iTunes was the largest single retailer of music in the US,
and accounted for 65% of all music sold. However, 95% of digital music
downloaded in 2008 was not paid for.
Downloading
Buy
51%
Illegal
49%
WHO’S GETTING PAID?
 Since the beginning of vinyl records,
the music industry has earned much
of its revenue from selling physical
products.
 Music labels contract with artists to
record albums, and provide the
funding for all of the necessary items
associated with production.
 The artists typically receive a
percentage of their sales, ranging
from 6-18% depending on the artist
(this is paid out after the label
regains their fixed costs).
SALES/GROWTH FIGURES
The industry generates the majority of their sales from the leasing
and licensing of master recordings.
 The industry is suffering from
decreases in revenue and profit. In
the mid 1990s, profits exceeded 15%,
however in 2010 the profit margin
was estimated to be 2.3%.
 2012 is forecasted to have the first
industry increase in revenue in seven
years.
CONSUMER AGE SEGMENTATION
• It is common to associate the music industry with products meant for younger consumers
(aged 15-24).
• The 15-19 year old age group has shown a decrease in purchasing habits, holding 16.8% of
sales in 1997 and dropping down to 10.9% of sales in 2009.
• Younger age groups are more likely to download or illegally share music than older groups.
COMPETITIVE OUTLOOK
The music production industry is very heavily concentrated with
almost 80% of market share falling under the top four firms.
HHI = 1898.12
• The “Big Four” are all headquartered in different countries, but have large operating
offices in the US. They own and control more than 100 subsidiary labels.
• The increase is digital technology is a potential threat for these large players, which would
reduce the effectiveness of the current economies of scale they obtain.
• Barriers to entry are high due to increased capital investment required, in addition to an
industry that is heavily based on the ability to network.
ORGANIZATION OF THE MUSIC
INDUSTRY
 Artists and composers
 Managers
 Lawyers, business manager, accountant,
etc.
 Producers
 Recording companies
 Publishing companies
 Retailers
 Distributors
 Brick and mortar
 Internet/online
 Consumers
ARTISTS
PRODUCERS
RETAILERS
CONSUMERS
 In the US, Universal Music Group is
owned by French media
conglomerate Vivendi (acquired in
2006).
 Vivendi is responsible for more than
1 in 4 records sold around the world.
 Declining revenue in 2011, despite
increases in digital sales.
 Major labels include: Interscope
Records, Def Jam Recordings. UMG
Nashville, and Geffen Records
 Some recording artists include:
Taylor Swift, Nine Inch Nails, Fergie,
James Brown, Nicki Minaj, Jack
Johnson, Elton John, Bob Marley, JayZ, Nirvana, and Kanye West
 30.4% Market Share
 *Currently waiting for regulatory
approval to purchase EMI
 Sony is headquartered in Japan.
 After taking a huge hit in revenue in
2006, Sony increased its efforts in
digital formats and increased costcutting to bounce back in recent
years.
 26.6% Market Share
 Major labels include: Epic, RCA, and
Columbia Nashville
 Some popular artists include: Chris
Brown, Adam Lambert, Jimi
Hendrix, Kellie Pickler, Michael
Jackson, and The Foo Fighters
 Warner Music Group is the only
US-owned major player in the big
four.
 WMG has experienced steady
decreases in revenue each year
since 2006.
 By 2011, digital sales represented
32% of WMG’s revenue.
 13.2% Market Share
 Major labels include: WB Records,
Atlantic, and Warner Music
Nashville
 Popular artists include: T.I.,
Metallica, Jason Mraz, Ray Charles,
Zac Brown Band, Fleetwood Mac,
Red Hot Chili Peppers and Cee Lo
Green
 EMI is a UK based company
 EMI’s total revenue has decreased
at an average rate of 6.1% per year
for the last five years
 EMI was obtained by its creditor
Citigroup and auctioned off in late
2011. A deal is currently pending
with Vivendi.
 9.6% Market Share
 Major labels include: Capitol,Virgin
Records, and EMI Records.
 Some popular artists include: The
Beatles, The Beastie Boys, Luke
Bryan, David Guetta, Pink Floyd,
Snoop Dogg, and Katy Perry.
INDUSTRY REGULATIONS
The industry is dependent on legislation to protect operators’ rights against reproduction,
distribution, performance or rental of its products. There is no specific government assistance
for this industry.
Federal
State
International
•
•
•
•
•
The Fair Use Doctrine
The Audio Home Recording Act of 1992
The Digital Performance Right in Sound Recordings Act of 1995
The Performance Rights Act
The Digital Millennium Copyright Act
• Anti-piracy laws
• CA, FL & NY have specific legislation for disk manufacturing
• The Berne convention for the Protection of Literary and Artistic Works
• Trade Related Aspects of Intellectual Property Rights
• World Intellectual Property Organization Copyright Treaty
TABLE OF CONTENTS
 Introduction
 Industry Structure
 Background
 Competition
 Organization
 Major Companies
 Pricing Strategies
 Brick & Mortar
 Rhapsody
 Amazon Music
 iTunes
 Analysis & Recommendations
 Investment
 Pricing Strategy
DO CONSUMERS BUY OR LISTEN TO
MUSIC ONLINE?
Percentage
Consumer Preference
100
90
80
70
60
50
40
30
20
10
0
Own (iTunes, Rahpsody, Physical
Music Stores)
Radio (Pandora, listening on
YouTube, AOL Radio)
RETAIL OUTLETS
Survey: Consumer Purchases in the Last 12 Months
Brick & Mortar
Stores
15%
Amazon Music
20%
iTunes
63%
Rhapsody
2%
BRICK & MORTAR STORES
PRICING STRATEGIES: BRICK & MORTAR
 Third Degree Price Discrimination
 Consumers choose between:
 Buying the whole CD
 Buying single CDs, which are comprised of 3-5 songs from the artist
PRICING STRATEGIES: BRICK & MORTAR
 Versioning:
 Early adopters buy the initial album
 Deluxe Versions released with added songs or more features
SONG PRICING – ONLINE RETAILERS
Song
Genre
Amazon
iTunes
Rhapsody
Part of Me –
Katy Perry
Pop
$0.99
$1.29
Subscription
$9.99
Honey Bee –
Blake Shelton
Country
$0.99
$1.29
Subscription
$9.99
Super Bass –
Nicki Minaj
Rap
$0.99
$1.29
Subscription
$9.99
With or
Rock
Without You –
U2
$0.99
$1.29
Subscription
$9.99
Drive By Train
$1.29
$1.29
Subscription
$9.99
Pop
RHAPSODY
PRICING STRATEGIES: RHAPSODY
 Versioning
PRICING STRATEGIES: RHAPSODY
 Confusing pricing: Once you stop the monthly subscription you lose all
of the unlimited downloading you had done previously
 Quantity Discount: Save money by purchasing premium plus for more
devices
AMAZON MUSIC
PRICING STRATEGIES: AMAZON
 Third Degree Price Discrimination:
 Different prices for songs may vary from Free to $1.29
 Free songs from upcoming artists
 Album deals (ex. 100 albums for $5 each)
PRICING STRATEGIES: AMAZON
 Second Degree Price Discrimination
 Quantity Discounts – buying in bulk (whole album) vs. buying per song
Purchase Preference
28%
Per Song
Per Ablum
72%
Rolling in the
Deep
Price of
Individual Song
Price of Song (with
Purchase of Album)
Adele
$1.29
$0.99
ITUNES
PRICING STRATEGIES : ITUNES
 Third degree Price Discrimination
 Variable pricing: Three tiers
Spending Patterns
Yes
 $1.29 (New Releases)
No
 $0.99 (in-between pricing)
 $0.69 (Weekly specials)
 Survey Results: Have your purchased
habits changed when the iTunes
pricing changed from $0.99 per song
to $1.29 per song?
41%
59%
PRICING STRATEGIES: ITUNES
 Bundling
 Combines single songs onto one album (cheaper price per song)
 Sometimes bundles include music videos or behind the scenes footage
TACIT COORDINATION:
ITUNES & AMAZON
TACIT COORDINATION:
ITUNES & AMAZON
 Price Leadership:
 iTunes, price leader, announces price changes ahead of others (April 7th, 2009)
 Amazon, price follower, soon follows the price changes by matching the leaders price (April 9 th, 2009)
TABLE OF CONTENTS
 Introduction
 Industry Structure
 Background
 Competition
 Organization
 Major Companies
 Pricing Strategies
 Brick & Mortar
 Rhapsody
 Amazon
 iTunes
 Analysis & Recommendations
 Investment
 Pricing Strategy
FUTURE
 Industry is moving towards a more digital platform
 Uncertain future
KEY SUCCESS FACTORS
 Control of distribution





arrangements
Having a diverse range of clients
Production of goods currently
favored by the market
Access to the latest available
and most efficient technology
and techniques
Aggressive
marketing/franchising
Having a wide and expanding
product range
RECOMMENDATIONS
 Rhapsody should alter their
subscription to allow users to
keep songs after having it for a
specific period
 iTunes offering bundles:
 New Release with and older song:
$1.99
 Create Your Own Album: Buy any 10
songs $10.99
 Name Your Own Price?????
 Radiohead strategy
QUESTIONS