Music Recording Industry: Background Information

Industry Definition and Overview

The music industry can be defined as the industry representative of firms that record, produce, publish, distribute, and market music. Within this industry four market leaders know as the “big four” have emerged: Electric & Musical Industries Ltd (EMI), Sony Music Entertainment, Universal Music Group, and Warner Music Group. These big four firms control 80% of the United States music market and 70% of the world music market estimated to be a $30 to $40 billion industry. Prior to December 1998, the “Big Six” dominated the industry as Sony Music and BMG had not merged and PolyGram had not yet been absorbed into Universal Music Group.

Record companies, labels, and music producers that are not affiliated with the “Big Four” are considered “independents,” no matter the size or complexity of the organization’s structures. Though smaller in market share there is still a wide variety of these independents such as Curb MCG, Allegro Corporation, Delta Entertainment, TVT Records, and Navarre to name a few. For the sake of this project, I took the viewpoint of large music groups that act as corporate umbrella organizations for smaller record labels. Typically, music groups are owned by conglomerate holding organizations that consist of music publishing companies, record manufacturers, and record distributors. For example, the Sony Corporation owns Sony Music Entertainment. The music groups have various subsidiary record labels. Examples of some labels that fall under Warner Music Group include Atlantic Records, Rhino Entertainment, and the Independent Label Group. Most musicians chose to sign with a large record label, which can be leveraged to help finance the recording process in return for a partial or full share of the rights to the recording. For more, check out the "music industry" on wikipedia.


Value Chain

The process begins with the talent pool which includes artists, producers, composers, ghostwriters, among others. These artists are then contracted to a record label to produce music recordings. Sony BMG, Universal, Warner and EMI are examples of large music companies that own smaller record labels. The rest of the record label industry is made up of independent labels such as Sub-Pop, Epitaph, and Muse Music. Record labels add to the artist’s product by augmenting it with marketing campaigns, promotions, concerts, and most importantly, access to and bargaining power with distributors. Artists often find it beneficially to leverage the resources of a record label in order to reserve shelf-space amongst retailers. Best Buy and Wal-Mart are the two largest brick and mortar (versus digital) music retailers. The big four own their own distribution channels while smaller independent record labels rely on separate systems of distribution. Finally, the music is finally delivered to the end-user or the consumer. Though there are many separate steps in the value chain, many record labels and music groups, including the “Big Four” participate in several of these stages. For instance, Sony BMG may enter into a contract with an artist, then publish, manufacture, and distribute that artist’s work. Please see the diagram below for additional details. Or for another view on how players within the music industry interact, look at the diagram on this site.

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