Music Production & Distribution
Buy This Industry Report
Get more in-depth industry information with a First Research industry report containing business challenges, trends, executive insight, call prep questions, and so much more!
Industry Overview
The US music production and distribution industry includes about 3,700 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $15 billion. Major companies include Universal Music Group, Sony Music Entertainment, and Warner Music Group. The industry is highly concentrated: the top eight companies account for 80 percent of industry revenue.
The US is the world's largest recorded music market by sales, followed by Japan and Germany. Physical records, such as CDs and vinyl, account for 71 percent of worldwide sales; digital music sales comprise 29 percent, according to the International Federation of the Phonographic Industry (IFPI). Leading music production and distribution companies based outside the US include UK-based EMI Group, GMM Grammy of Thailand, and German firm edel.
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 $550,000.
Most of the major companies involved in music production and distribution are operate internationally. Sony Music Entertainment's parent company is Sony, a Japanese company. Universal Music Group is owned by Vivendi (France) and EMI is a UK company. Each markets its products worldwide. Warner Music Group, which is a US company, derives just over half of its revenue from international operations. Smaller, integrated studios form affiliations with foreign counterparts and distributors to reach international markets.
Products, Operations & Technology
Major products of the industry are musical recordings (50 percent of revenue), licensing of rights to use musical compositions (20 percent), and in-broadcast performance revenue (10 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 standalone products 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.
Just as vinyl records gave way to CDs, CDs are yielding to MP3s, or digital tracks. Most music is purchased online as single tracks from sites such as iTunes and Amazon.com, resulting in a decline in music stores as a major venue for recorded music sales. Digital music sales have gained steadily on physical formats in recent years, and are expected to eclipse CD shipments for the first time in 2012, according to Strategy Analytics. However, even digital track sales began to slow in the late 2000s. The International Federation of the Phonographic Industry (IFPI) found that physical CD sales dropped more than 14 percent in 2010, while digital sales rose only 1 percent.
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. If an album is recorded, 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.
