Music Industry of United States of America - Research Paper Example

Industry Analysis: Music Industry of United s of America Industry Overview: Music is considered as the words of soul and is the most easily available source of entertainment that is cherished by almost all the human beings. Considering the immense popularity of music as a medium of entertainment, it is obvious that an industry will flourish centring on music. In terms of economics the business and industrial prospect of any product is directly correlated with its associated effective and aggregate demand. Music became an automatic choice for an industrial venture as it has an immense demand both effective and aggregate worldwide. The lion’s share of the demand side originates from USA; the country is way ahead in terms of album sales share and share of world market value than the immediate second Japan. The nature of the music industry is monopolistic, since mainly four companies namely Universal Music Group, Sony Music Entertainment, Warner Music Group and Emi Group operates in global scale and enjoys the greater portion of the market with no exception of the USA market as well. Industry Structure: An industry is not only a culmination of a few firms rather the actual structure is far more complex. The music industry in America comprises of singers, firms, non profit associations, musicians, conductors and composers, trade unions, sound engineers and many other players; each with their associated responsibilities. Trade unions play a major part in determining wage of the musicians. Broadcast Music Incorporated, American Society of Composers, Authors and Publishers and Society of European Authors & Composers are three of the performance rights organizations in USA entrusted with collection of fees for music publishers, songwriters and composers. Music companies often pay royalties to the singers and musicians as per the contract on the copies of recording sold apart from the signing amount. Once the recording companies do a recording they reach the stores through a recording distributor company. It should also be mentioned that any form of music that generates revenue does fall under the music industry. Following this definition any live performance and any type of broadcasting of music associated with monetary transaction should be considered as the part of this industry. The band manager, business manager, booking agencies, tour manager and people associated with lighting, sound reinforcement and many other aspects are the part and parcel of the greater USA music industry. Industry Statistics The US market distribution for music industry is well illustrated by the Nielson Sound Scan as reported by Paul Cashmere. According to Nielson Sound Scan report the Universal Music enjoyed a market share of 31.61% in the year 2006 and the biggest music firm as far as the market share is concerned. The mentioned firm even occupied a higher market share in terms of topped current albums and that accounted for 34.73%. The closest follower was Sony-BMG that occupied 27.44%and 28.13% in terms of over all market share and current topped album sold respectively. Warner Brothers Music enjoyed a share of 18.14% and 16.85% in terms of over all market share and current topped album sold respectively. EMI regarding the variables mentioned in exact order occupied a share of 10.2% and 9.23% respectively. Other smaller firms together with Indies covered a share of 12.61% in terms of over all market share and 11.43% of current topped album sold. These data reveals the skewed nature of the USA music market mentioned before and supports the fact the monopolistic power prevails in the market. (Cashmere) In a more recent publication by IFPI named “Recording Industry in Numbers 2010” it has been sighted that in the year 2009 the trade revenues to record companies has declined by 7.2% and US together with Japan two of the largest markets are responsible for 80% of this fall. The fall in revenue beyond US and Japan is only 3.2%. The report further highlighted the importance of digital music sales. (Kennedy) On global perspective in the year 2003 number of licensed music services was only 50 that increased to more than 400 in the year 2010 and the digital revenue has increased from $20 million to $4.2 billion. In the year 2003 the industry revenue generating from digital sales was negligible but now it’s around 27%. The scenario for USA regarding digital music sales is even brighter. In USA 43% of the recorded music market comes from the digital music sales. iTunes the biggest music retailer in USA accounts for 25% of the music market followed by Walmart, Best Buy and Amazon. (Kennedy, 6, 10) According to Hoover the USA music industry comprises of about 3700 establishments and generates annual revenue of about $15 billion. The top five companies in terms of sales value are Sony Broadband Entertainment Corporation, Sony Music entertainment Inc., Universal Music Group Inc., BMG Entertainment and Warner Music Group Corp. The values of sales generated by them are $11,500M, $4830M, $4650M, $3404.10M, $3176M respectively. The total numbers of companies engaged in this industry are 97,821. This is a capital-intensive industry; average annual revenue generated per employee is around $550,000. Considering the fact that US consumer spending has increased by 1.5% in July, 2010 over July, 2009; it is expected that music sales has increased over the same period. (Music – Industry Description; Music) Industry Opportunities & Challenges: USA enjoys a number of advantages over the rest of the world regarding music industry. The tax level is lower in USA comparing to Europe. The royalty structure is far more coherent and USA also has well defined rights. Thus licensing process in USA is less resource intensive and less complicated. High street retail consolidation started in USA at a much earlier time than Europe. This paved the way from music lovers to online music retailers at a much earlier time for USA than in Europe. The $0.99 a-la-carte model provides a low margin or profit thus better suited to large players and economies of scale. Such players are more prominent in USA market than in the fragmented European market. (Kennedy) The biggest challenge to USA music industry like any other country is piracy. Digital format of music on one hand provided easy storage and consumer ease and on the other made it easier for illegitimate copying and distribution. IFPI has mentioned that the decline in music sales is mainly due to piracy. Though, the government and even many private agencies devoting their special interest to curb such misdeed, yet the white coloured pirates are finding new avenues to erode the fruits of this industry. As an example, P2P is by far the most devastating form of digital piracy but 2009 has experienced a substantial rise in other form of digital piracies. (Kennedy) Conclusion: Undoubtedly the music industry in USA has immense potential and also has a comparative advantage over the other parts of the world. However piracy is a continuous headache that might impair further growth. Already awareness generation among consumers playing a big role in taming piracy, strict legal action and public announcement of the lawsuit is also playing strong role for the same. In USA “private deals have been struck between some individual rights holders and ISPs that incorporate a commitment by the ISP to put in place a system of graduated response”. (Kennedy, 25) Such graduated responses are considered as a ray of hope for the music industry in years to come against piracy. If much broader level of ISP cooperation can be assured along with the cooperation of USA government regarding legislation focused on digital piracy and its implementation then a brighter future is waiting ahead for the USA music industry. Works Cited Music, Hoovers, 2010, available at: http://www.hoovers.com/industry/music/1459-1-0-1njg0z.html (accessed on October 12 2010) Music – Industry Description, Hoover’s, 2010, available at: http://www.hoovers.com/industry/music/1459-1.html (accessed on October 12 2010) Kennedy, John, Music How, When, Where You Want It – But Not Without Addressing Piracy, IFPI, 2010, available at: http://www.ifpi.org/content/library/DMR2010.pdf (accessed on October 12 2010) Cashmere, Paul, Universal The Biggest Label of 2006, Undercover, available at: http://www.undercover.fm/news/1203-universal-the-biggest-label-of-2006 (accessed on October 12 2010) Read More