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The music industry or music business consists of the companies and individuals that make money by creating and selling music. Among the many individuals and organizations that operate within the industry are: the musicians who compose and perform the music; the companies and professionals who create and sell recorded music (e.g., music publishers, producers, recording studios, engineers, record labels, retail and online music stores, performance rights organizations); those that present live music performances (booking agents, promoters, music venues, road crew); professionals who assist musicians with their music careers (talent managers, business managers, entertainment lawyers); those who broadcast music (satellite, internet and broadcast radio); journalists; educators; musical instrument manufacturers; as well as many others.
The current music industry emerged around the middle of the 20th century, when records had supplanted sheet music as the largest player in the music business: in the commercial world, people began speaking of "the recording industry" as a loose synonym of "the music industry". Along with their numerous subsidiaries, a large majority of this market for recorded music is controlled by three major corporate labels: the French-owned Universal Music Group, the Japanese-owned Sony Music Entertainment, and the US-owned Warner Music Group. The largest portion of the live music market is controlled by Live Nation, the largest promoter and music venue owner. Live Nation is a former subsidiary of Clear Channel Communications, which is the largest owner of radio stations in the United States. Creative Artists Agency is a large talent management and booking company.
The music industry has been undergoing drastic changes since the advent of widespread digital distribution of music. A conspicuous indicator of this is total music sales: since 2000, sales of recorded music have dropped off substantially while live music has increased in importance. The largest music retailer in the world is now digital: Apple Inc.'s iTunes Store.  The two largest companies in the industry are Universal Music Group (recording) and Sony/ATV Music Publishing (publisher). Universal Music Group, Sony BMG, EMI Group and Warner Music Group are collectively known as the "Big Four" majors. Labels outside of the Big Four are referred to as independent labels.
|This section requires expansion. (July 2012)|
Until the 18th century, the processes of formal composition and of the printing of music took place for the most part with the support of patronage from aristocracies and churches. In the mid-to-late 18th century, performers and composers such as Wolfgang Amadeus Mozart began to seek commercial opportunities to market their music and performances to the general public. After Mozart's death, his wife (Constanze Weber) continued the process of commercialization of his music through an unprecedented series of memorial concerts, selling his manuscripts, and collaborating with her second husband, Georg Nissen, on a biography of Mozart.
In the 19th century, sheet-music publishers dominated the music industry. In the United States, the music industry arose in tandem with the rise of black face minstrelsy. In the late part of the century the group of music publishers and songwriters which dominated popular music in the United States became known as Tin Pan Alley.
At the dawn of the early 20th century, the recording of sound began to function as a disruptive technology to the commercial interests publishing sheet music. Commercially released phonograph records of musical performances starting in the late 1880s, and later the onset of widespread radio broadcasting starting in the 1920s, forever changed the way music was heard. Opera houses, concert halls, and clubs continued to produce music and perform live, but the power of radio allowed obscure bands to become popular on a nationwide and sometimes worldwide scale.
The "record industry" eventually replaced the sheet music publishers as the industry's largest force. A multitude of record labels came and went. Some note-worthy labels of the earlier decades include the Columbia Records, Crystalate, Decca Records, Edison Bell, The Gramophone Company, Invicta, Kalliope, Pathé, Victor Talking Machine Company and many others.
Many record companies died out as quickly as they had formed, and by the end of the 1980s, the "Big 6" — EMI, CBS, BMG, PolyGram, WEA and MCA — dominated the industry. Sony bought CBS Records in 1987 and changed its name to Sony Music in 1991. In mid-1998, PolyGram merged into the Universal Music Group (formerly MCA). Since then, Sony and BMG merged in 2004, and Universal took over the majority of EMI's recorded music interests in 2012. EMI Music Publishing, also once part of the now defunct British conglomerate, is now co-owned by Sony as a subsidiary of Sony/ATV Music Publishing.
Genre-wise, music entrepreneurs expanded their industry models into areas like folk music, in which composition and performance had continued for centuries on an ad hoc self-supporting basis. Forming an independent record label, or "indie" label, continues to be a popular choice for up-and-coming musicians to have their music heard, despite the financial backing associated with major labels.
Despite increasing digital sales, the largest record labels have all reported a considerable decline in overall revenues from sales of recorded music to consumers in the first decade of the 21st century. Revenues in the U.S. dropped by half over a decade, from a high of $14.6 billion in 1999 to $6.3 billion in 2009, according to Forrester Research. Atlantic Records reports that digital sales have surpassed physical sales. Worldwide revenues for CDs, vinyl, cassettes and digital downloads fell from $36.9 billion in 2000  to $15.9 billion in 2010 according to IFPI. The Economist and The New York Times report that the downward trend is expected to continue for the foreseeable future This dramatic decline in revenue has caused large-scale layoffs inside the industry, driven retailers (such as Tower Records) out of business and forced record companies, record producers, studios, recording engineers and musicians to seek new business models.
In response to the rise of widespread illegal file sharing, the record industry took aggressive legal action. In 2001 it succeeded in shutting down Napster, and threatened legal action against thousands of individuals who participated. However, this failed to slow the decline in revenue and proved a public-relations disaster. Some academic studies have even suggested that downloads did not cause the decline. Legal digital downloads became widely available with the debut of the iTunes Store in 2003. The popularity of internet music distribution has increased and by 2012 digital music sales topped physical sales of music. However, as The Economist reports, "paid digital downloads grew rapidly, but did not begin to make up for the loss of revenue from CDs." The 2008 British Music Rights survey showed that 80% of people in Britain wanted a legal P2P service, however only half of the respondents thought that the music's creators should be paid. The survey was consistent with the results of earlier research conducted in the United States, upon which the Open Music Model was based.
The turmoil in the recorded music industry changed the twentieth-century balance between artists, record companies, promoters, retail music-stores and the consumer. As of 2010, big-box stores such as Wal-Mart and Best Buy sell more records than music-only stores, which have ceased to function as a player in the industry. Recording artists now rely on live performance and merchandise for the majority of their income, which in turn has made them more dependent on music promoters like Live Nation (which dominates tour promotion and owns a large number of music venues). In order to benefit from all of an artist's income streams, record companies increasingly rely on the "360 deal", a new business-relationship pioneered by Robbie Williams and EMI in 2007. At the other extreme, record companies can offer a simple manufacturing and distribution deal, which gives a higher percentage to the artist, but does not cover the expense of marketing and promotion. Many newer artists no longer see a record deal as an integral part of their business plan at all. Inexpensive recording hardware and software made it possible to record reasonable quality music in a bedroom and distribute it over the internet to a worldwide audience. This, in turn, caused problems for recording studios, record producers and audio engineers: the Los Angeles Times reports that as many as half of the recording facilities in that city have failed. Changes in the music industry have given consumers access to a wider variety of music than ever before, at a price that gradually approaches zero. However, consumer spending on music-related software and hardware increased dramatically over the last decade, providing a valuable new income-stream for technology companies such as Apple Inc. As of now, consumers are witnessing the beginning of the end for record labels. Services such as Pandora, Spotify, and Apple’s iTunes Radio hasten the death of the modern music industry with their “pay to stream” services. However, the industry is not just dying from how music is formatted and distributed, but also from increasingly inexpensive audio recording equipment and the help of the Internet to distribute self-produced albums. Companies like Kickstarter help independent musicians produce their albums through fans funding bands they want to listen to.
The music industry is a complex system of many different organizations, firms and individuals and has undergone dramatic changes in the 21st century. However, the majority of the participants in the music industry still fulfill their traditional roles, which are described below.
There are three types of property that are created and sold by the recording industry: compositions, recordings and media (such as CDs or MP3s). There may be many recordings of a single composition and a single recording will typically be distributed into many media.
Compositions are created by songwriters or composers and are originally owned by the composer, although they may be sold. For example, in the case of work for hire, the composition is owned immediately by another party. Traditionally, the copyright owner licenses or "assigns" some of their rights (e.g. distribution and sales) to publishing companies, by means of a publishing contract. The publishing company (or a collection society operating on behalf of many such publishers, songwriters and composers) collects fees (known as "publishing royalties") when the composition is used. A portion of the royalties are paid by the publishing company to the copyright owner, depending on the terms of the contract. Sheet music provides an income stream that is paid exclusively to the composers and their publishing company. Typically (although not universally), the publishing company will provide the owner with an advance against future earnings when the publishing contract is signed. A publishing company will also promote the compositions, such as by acquiring song "placements" on television or in films.
Recordings are created by recording artists, often with the assistance of record producers and audio engineers. They were traditionally made in recording studios (who are paid a daily or hourly rate) in a recording session. In the 21st century, advances in recording technology have allowed many producers and artists to create "home studios", bypassing the traditional role of the recording studio. The record producer oversees all aspects of the recording, making many of the logistic, financial and artistic decisions in cooperation with the artist. Audio engineers (including recording, mixing and mastering engineers) are responsible for the audio quality of the recording. A recording session may also require the services of an arranger or studio musicians.
Recordings are (traditionally) owned by record companies. A recording contract specifies the business relationship between a recording artist and the record company. In a traditional contract, the company provides an advance to the artist who agrees to record music that will be owned by the company. The A&R department of a record company is responsible for finding new talent and overseeing the recording process. The company pays for the recording costs and the cost of promoting and marketing the record. For physical media (such as CDs), the company also pays to manufacture and distribute the physical recordings. Smaller record companies (known as "indies") will form business relationships with other companies to handle many of these tasks. The record company pays the recording artist a portion of the income from the sale of the recordings, generally known as a mechanical royalty. (This is distinct from the publishing royalty, described above.) This portion is similar to a percentage, but may be limited or expanded by a number of factors (such as free goods, recoupable expenses, bonuses, etc.) that are specified by the record contract. Session musicians and orchestra members (as well as a few recording artists in special markets) are under contract to provide work for hire; they're typically only paid one-time fees or regular wages for their services, rather than royalties.
Physical media (such as CDs) are sold by music retailers and are owned by the consumer. A music distributor delivers the physical media from the manufacturer to the retailer and maintains relationships with retailers and record companies. The music retailer pays the distributor, who in turn pays the record company for the recordings. The record company pays mechanical royalties to the publisher, composer, and songwriter via a collection society. The record company then pays royalties, if contractually obligated, to the recording artist.
In the case of digital downloads or streams, there is no physical media other than the consumer's hard drive. The distributor is optional in this situation; large online shops may pay the labels directly, but digital distributors do exist to service vendors large and small. When purchasing digital downloads, the consumer may be required to agree to record company and vendor licensing terms beyond those which are inherent in copyright; for example, some may allow freely sharing the recording, but others may restrict the user to storing the music on a specific number of hard drives.
When a recording is broadcast (either on radio or by a service such as Muzak), performance rights organisations (such as the ASCAP and BMI in the US, SOCAN in Canada, or MCPS and PRS in the UK), collect a third type of royalty known as a performance royalty, which is paid to composers and recording artists. This royalty is typically much smaller than publishing or mechanical royalties. When recordings are used in television and film, the composer and their publishing company are typically paid through a synchronization license. Subscription services (such as Rhapsody) also provide an income stream directly to record companies, and through them, to artists, contracts permitting.
A promoter brings together a performing artist and a venue owner and arranges contracts. A booking agency represents the artist to promoters, makes deals and books performances. Consumers usually buy tickets either from the venue or from a ticket distribution service such as Ticketmaster. In the US, Live Nation is the dominant company in all of these roles: they own most of the large venues in the US, they are the largest promoter, and they own Ticketmaster.
Choices about where and when to tour are decided by the artist's management and the artist, sometimes in consultation with the record company. Record companies may provide tour support; they may finance a tour in the hopes that it will help promote the sale of recordings. However, in the 21st century, it has become more common to release recordings to promote tours, rather than book tours to promote records.
Successful artists will usually employ a road crew: a semi-permanent touring organization that travels with the artist. This is headed by a tour manager and provides stage lighting, live sound reinforcement, musical instrument tuning and maintenance and transportation. On large tours, the road crew may also include an accountant, stage manager and catering. Local crews are typically hired to help move equipment on and off stage. On small tours, all of these jobs may be handled by just a few roadies, or by the musicians themselves.
Artists may hire a number of people from other fields to assist them with their career. The artist manager oversees all aspects of an artist's career in exchange for a percentage of the artist's income. An entertainment lawyer assists them with the details of their contracts with record companies and other deals. A business manager handles financial transactions, taxes and bookkeeping. Unions, such as AFTRA in the U.S., provide health insurance and other services for musicians. A successful artist functions in the market as a brand and, as such, may derive income from many other streams, such as merchandise or internet-based services. These are typically overseen by the artist's manager and take the form of relationships between the artist and companies that specialize in these products.
In addition to these traditional business relationships, new ways of doing business are being developed in the 21st century. The traditional lines that once divided artist, publisher, record company, distributor, retail and consumer electronics have become blurred. Artists may own their own publishing companies, artist management companies may promote and market recordings on behalf of their clients, artists may promote and market themselves using only free services such as YouTube or social media, consumer electronics companies have become digital music retailers, and so on, in many variations. New digital music distribution technologies have also forced both government and industry to re-examine the definitions of intellectual property and the rights of all the parties involved. Also compounding the issue of defining copyright boundaries is the fact that the definition of "royalty" and "copyright" varies from country to country and region to region, which changes the terms of some of these business relationships.
According to IFPI, the Digital album volume sales growth in 2011.
Source: Nielsen SoundScan, Official Charts Company/BPI, GfK and IFPI estimate.
After absorption of EMI by Sony Music Entertainment and Universal Music Group in December 2011 the "big three" were created and on January 8, 2013 after the merger there were layoffs of forty workers from EMI. European regulators forced Universal Music to spin off EMI assets which became the Parlophone Label Group which was acquired by Warner Music Group. Nielson SoundScan issued a report in 2012, noting that these labels controlled 88.5% of the market, and further noted:
Six years earlier, the global market was estimated at $30–40 billion in 2004. Total annual unit sales (CDs, music videos, MP3s) in 2004 were 3 billion. Additionally, according to an IFPI report published in August 2005, the big four accounted for 71.7% of retail music sales:
Prior to December 1998, the industry was dominated by the "Big Six": Sony Music and BMG had not yet merged, and PolyGram had not yet been absorbed into Universal Music Group. After the PolyGram-Universal merger, the 1998 market shares reflected a "Big Five", commanding 77.4% of the market, as follows, according to MEI World Report 2000:
Note: the IFPI and Nielsen Soundscan use different methodologies, which makes their figures difficult to compare casually, and impossible to compare scientifically.
The following table shows album sales and market value in the world in 2012. Source: Figures within the table are based on IFPI 2012 annual report published in 2013.
|% Change||Physical||Digital||Performance Rights||Synchronization|
In its June 30, 2000 annual report filed with the U.S. Securities and Exchange Commission, Seagram reported that Universal Music Group made 40% of the worldwide classical music sales over the preceding year.
Interim physical retail sales in 2005. All figures in millions.
|Country info||Units||Value||Change (%)|
|Ranking||Country name||Singles||CD||DVD||Total Units||$ (in USD)||Local Currency||Units||Value|
Approximately 21% of the gross CD revenue numbers in 2003 can be attributed to used CD sales. This number grew to approximately 27% in 2007. The growth is attributed to increasing on-line sales of used product by outlets such as Amazon.com, the growth of used music media is expected to continue to grow as the cost of digital downloads continues to rise.
The sale of used goods financially benefits the vendors and online marketplaces, but in the United States, the first-sale doctrine prevents copyright owners (record labels and publishers, generally) from "double dipping" through a levy on the sale of used music.
In mid-2011, the RIAA trumpeted a sales increase of 5% over 2010, stating that "there’s probably no one single reason" for the bump.
The Nielsen Company & Billboard’s 2012 Industry Report shows overall music sales increased 3.1% over 2011. Digital sales caused this increase, with a Digital Album sales growth of 14.1% and Digital Track sales growth of 5.1%, whereas Physical Music sales decreased by 12.8% versus 2011. Despite the decrease, physical albums were still the dominant album format. Vinyl Record sales increased by 17.7% and Holiday Season Album sales decreased by 7.1%.
Global trade revenue according to the IFPI.
|2011||$16.2 billion||-3%|| (Includes sync revenues)|