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Popular Music: Industry Competitors Where audiences meet musicians other pages in this Pop Music web welcome | industry portrait | indies suppliers | buyers | substitutes and new entrants royalties | music software | WNY music | Kazaa | The Bigger Picture links Lessig's Means of Control Economics / Markets || Technological / Architecture Political / Laws || Social Culture / Norms this page The Big 5 Who has market share? | Who owns them? Universal Music Group | Warner Music Group | BMG Sony Music Entertainment | EMI Recorded Music Independents How the Music Business Works How do they make money? | How do they get and maintain power?  learn more

The Big 5

Concentration by Largest Firms: 2002

Source: 2002 U.S. Economic Census

BBC's Global Music Machine (highly recommended)

Up to 90% of the global music market is accounted for by just five corporations: EMI Records, Sony, Vivendi Universal, AOL Time Warner and BMG. Collectively, these corporations are known as ‘the Big Five’, and operate in all of the major music markets in the world. Each of the corporations maintains their headquarters in the US, the largest of the world’s markets. ...

Each of the corporations operates in a variety of fields beyond recorded music, incorporating publishing, electronics and telecommunications, thus extending their influence to cover more markets within the global entertainment industry.

In achieving their dominance in music sales, the Big Five each own a large portfolio of labels, from formerly independent labels to large regional operators in different territories.

US Music Industry Holding Steady
by Barry Willis
Stereophile, January 05, 2004

Is the music industry in the early stages of a turnaround? Sales of recorded music in the US declined by less than 1% in 2003, according to figures released December 31 by Nielsen SoundScan.

Who Has Worldwide Market Share?

source: IFPI

Sony BMG tie-up likely to trigger wave of music mergers
EU Business, 20 July 2004

The tie-up between Sony Music and BMG could spark a wave of mergers in the global music industry, as companies struggle to overcome a sector crisis sparked by pirate CDs and the explosion of illegal music downloading.

The European Commission gave its unconditional approval Tuesday to the merger of Sony Music and BMG, the music subsidiaries of Japanese giant Sony and German media group Bertelsmann, a move that will create the world's biggest music group, ahead even of Universal Music. ...

The EU Commission concluded it "did not have sufficiently strong evidence to oppose the deal".

Indeed, to overcome any potential objections, the two companies decided only to combine their catalogues ....

Other activities, such as production and distribution of compact discs, as well as copyrights would not be part of the merger.

EU OKs Sony-BMG Deal
Reuters, July 20, 2004

The deal's official closing could happen by August, people close to the situation said, at which point the companies would begin integrating their operations, which will include widespread job cuts to reach the approximate target of $300 million of annual savings.

Who Owns Them?

The summaries and most of the numbers below came from Hoover's on January 22, 2004. The logos, the lists of artists and labels, and a couple of numbers came from the corporate web sites linked from the table above.

Unfortunately, the numbers below are not all comparable in terms of what and when they cover. My intention here is to show the relationship to the parent companies. The four, now three, largest are still eminently expendable parts of their parents.

What else do they own? The conglomerates that own the music labels also own other media properties, such as magazines, radio stations, and TV/movie production companies that publish articles about and accept music ads for the label's musicians.

Universal

Warner

Note: Warner Music Group was sold to a private consortium lead by Edgar Bronfman Jr. in early 2004.

BMG

When Aging Music Companies Merge
by Rick Aristotle Munarriz
Motley Fool, July 20, 2004

It shouldn't have come as much of a surprise when the European Union finally approved the merger between major record label companies Sony and BMG last night. Sure, there were some competitive concerns, but when you really think about it this is a lot like trying to police prudence in an elephants' graveyard. If the two graying pachyderms want to hook up, just let it be their dying wish and learn to look the other way.

Sony

Bertelsmann Ag And Sony Corporation Agree On Music Merger
press release
New York / Guetersloh, December 12, 2003

The international media and entertainment companies Bertelsmann AG and Sony Corporation today announced that they have signed a binding agreement to combine their recorded music businesses in a joint venture. The newly formed company, which will be known as Sony BMG, will be 50% owned by Bertelsmann and 50% owned by Sony Corporation of America. Sony BMG will be based in New York.

EMI

Who Owns What - Columbia Journalism Review's Web guide to what the major media companies own

Other Competitors

new entrants

barriers to entry

Indies

substitutes

How the Music Business Works

The promotional mass media and the symbiotic relationship among the stars and their products -- Britney Spears is a brand, not a person -- are designed to sell stuff. The music industry is a big part of that whole system. Hot bands doing background music in movies. Music videos are an art form in their own right. The media like MTV are designed to sell you stuff via these "stars". Etc. Etc.

This not only creates a barrier to entry, but it makes it all the harder to compete with the Big Five and their parent companies' other media properties. If you beat the Big Five, do you replace them in this larger system? Or does this larger system, also built on intellectual property, change too. Can changing the larger system force a part of it -- the Big Five -- to change?

How likely are music consumers to switch from the Big Five? We know that fans have no brand loyalty to the companies. They have lots of brand loyalty to the stars. However, consumers are more than willing to buy into the next star who gets promoted.

To what extent does the star system manipulate the market? Are listeners getting exposed to the best music? The music they might like? Or the music the Big Five are trying to promote?

It didn't take much for the Home Depots to drive most of the mom and pop hardware stores off Main Street. Or the movies to close down most of the live theaters. What will it take to change the music industry?

Retail music outlets are probably going the way of the little book shop. Are they? Is the Internet going to replace locally broadcast radio stations? TV stations?

What do they do?

The Big 5 are vertically integrated. They own or control most of the supply chain, that is, the sequence of people and events between the musician's music and the listener's experience.

Putting the Big 5 in the center of Porter's model, what intermediary functions do they perform between the musician (their supplier) and the listener (their ultimate buyer)?

talent development (A&R)
rights acquisition
production
reproduction / manufacturing
distribution
promotion, esp radio
marketing, esp advertising

Their main asset is copyrights, aka a catalog, which the musicians have assigned to them, typically "throughout the universe in perpetuity".

In short, under protection of the US Constitution, the Big 5 record labels acquire monopoly rights and exploit the copyrights to musical performances.

They have influenced the US copyright laws to the extent that the Constitution's "limited times" in now counted in centuries, not years. In the words of Sonny Bono, after whom the latest copyright extension is named, "Copyright should last forever minus a day."

Here's everything that the US Constitution has to say:

To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.

That was in 1789. It took until less than a hundred years ago -- 1907 -- for that "writing" to include music. So the key for the record company is to acquire the copyrights from the composers and performers. In theory, they are licensing the copyright in exchange for a royalty. In practice, it doesn't work that way. At least, not many bands are declaring many royalties as part of their income.

Oligopoly Watch's Music Industry

The Big Five are one of those rare new oligopolies that are ripe for major disruption due to their inability to adapt to changing market dynamics, not because of music piracy. In this case, it's the dependence on blockbusters.

Strategy

If I'm a shareholder of the record companies' corporate parents, it's in my monetary interests for the parent to milk the old models as long as they can. CD's for twenty dollars each. Printed textbooks for a hundred. However, I don't want the parent neglecting the opportunity that may await to make even more return on my investment by opening up new markets with new business models.

For these large record companies, that corporate culture may be too hard to change. That profit imperative -- return on shareholders' investments -- is in Peter Spellman's mind the primary reason why that culture won't change.

The Real Reason Major Record Companies Suck
by Peter Spellman
Director of Career Development, Berklee College of Music, Boston

1. The Profit Imperative
2. The Growth Imperative
3. Competition and Aggression
4. Amorality
5. Hierarchy
6. Quantification
7. Homogenization

While Spellman is decrying these reasons, from the point of view of the record companies, they have been the blueprint for success.

Question | While this blueprint led to financial success of some large companies, has it been good for music in the larger social sense? Has it been good for our culture in the even larger historical sense?

Industry Trends

Trends in units produced, shipped, sold, returned; sales; etc.

The Recording Industry Association of America (RIAA) and the establishment press that supports it tell a sad tale of decline.

"We cannot stand by while piracy takes a devastating toll on artists, musicians, songwriters, retailers and everyone in the music industry."
—Cary Sherman, RIAA president, 25 June 2003

"The era of mechanization is indicted as 'the murderer of music' in a pamphlet issued yesterday by the American Society of Composers, Authors, and Publishers. [Various new devices] have 'murdered music', at the same time failing to compensate musical genius adequately for talent and melody that have been killed."
—New York Times, 19 July 1933

Manufacturers' Unit Shipments and Dollar Value
(In Millions, net after returns)

Hit Charade: The music industry's self-inflicted wounds.
by Mark Jenkins
Slate, August 20, 2002

The Recording Industry Association of America, which represents the five major labels that dominate CD retailing, would like to blame much of the slide on Internet music-file swapping. Yet there are many other causes, including the fact that the big five are all units of troubled multinationals—AOL Time Warner, Vivendi Universal, BMG, EMI, and Sony—that are focused on short-term gain and have no particular interest in the music biz. There's also been a recession, of course, and resistance to CD prices that have grown much faster than the inflation rate. Perhaps the most important factor, however, is the major labels' very success in dominating the market, which has squelched musical innovation.

learn more

Now you have a sense of how the music business works, how the dominant corporations make money and grow, and how they get and maintain power. Next would be to look at the industry in its current crisis, trying to defend itself against the forces of the Internet. What are the strengths, weaknesses, opportunities, and threats (SWOT) of the incumbents' position?