Music Production and Distribution
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Industry Overview
The music production and distribution industry includes about 2,600 companies with combined annual revenue of about $15 billion. Major companies include Universal Music Group, Sony/BMG, EMI, and Warner Music Group. The industry is highly concentrated: eight companies account for 80 percent of industry revenue.
Competitive Landscape
Demand is driven by consumer spending. The profitability of individual companies depends on discovering and promoting new musical talent and generating revenue from the company’s asset base of recordings and publications. Large companies have advantages in marketing and distribution. Smaller companies, referred to as Indies, compete by focusing on artists within local markets or music genres. The industry is capital-intensive: average annual revenue per employee is about $475,000.
Products, Operations & Technology
The major products of the industry are musical recordings (70 percent of revenue) and the publication of lyrics and musical scores (20 percent). Other products and services include the production of master recordings, the manufacture and packaging of physical CDs, and the production of databases to distribute downloads of recordings.
Major studios have musical artists – singers, rappers, and musicians – under contract to produce recordings that are either marketed as stand-alones or combined with other recordings as albums. The studios then promote the new recordings by sponsoring concert tours; providing music to radio stations to play on air; and advertising via radio, TV, print, and the Internet. Studios also promote the sale of music from their catalogs of recordings that are more than 18 months old.
Small studios may only produce sound recordings or may also promote and distribute them. Small, integrated studios focus on finding new (undiscovered) talents and promoting them in selected markets. The studios may specialize in a particular music genre, such as hip-hop or jazz, and develop relationships with local entertainment businesses, such as nightclubs, casinos, and concert halls. Smaller studios also develop relationships with radio and TV stations that specialize in particular genres. The studios also acquire rights to the lyrics and scores produced by and for their musicians.
Some musical groups, such as the Rolling Stones, are popular enough that all of their work is in demand. These groups usually retain rights to their own works, may have their own recording studios and labels, and contract with integrated studios to distribute their recordings.
About 85 percent of music is distributed on CDs to retailers for sale to the public. Traditionally, stores specializing in music were the major venue for music sales, but the entry of discount retailers and Internet-based retailers with huge selections at discounted prices has driven many music specialty stores out of business.
The process of creating music CDs can involve several different companies. A performance by an artist is recorded in a sound studio on multiple tracks (two to 24 tracks are common). Sound engineers can then enhance each track and optimize the mix to create a sound track on a premaster CD. The sound engineers in the mixing process can edit individual tracks, even correcting notes, and can add or delete tracks as desired. The premaster CD, along with packaging materials, is sent to a CD production plant (or CD replication plant) that creates a glass master for the production process. Once replicated, individual CDs are then wrapped in the production packaging and shipped to distributors.
The digital distribution of music through the Internet is growing and replacing physical distribution of CDs. After the premaster CD is created, it's forwarded to electronic distribution centers operated by content providers that maintain a library of recorded music for sale to consumers.