Note – Sony as a whole lost $2.16billion in the 3rd quarter of 2012. Music sales down 12.2%

Note – Bronfman Jr only paid $2.5 billion to buy it Bronfman salary and bonuses in 2010 $5million; $6.5m for Lyor Cohen (chair and CEO of recorded music division)

Robert Preston, BBC business editor

Levy sacked 2007.

Levy sacked 2007.

Levy sacked 2007.

The Music Industries: Recording – the case of the majors John Williamson 6th February 2012

The Recording Industry Context & Location of the recording industry History: expansion and decline The nature of control – contracts and copyrights The nature of the companies: corporations and investors EMI: a study of decline The future? Implications and Conclusions

Context / Recap The recording industry is part of the music industries, but may no longer be the dominant part. It can be viewed as a significant cultural industry, and shares most of the characteristics identified by Hesmondhalgh et al: Risk industry, with low (10% or less) ratio of success to failure. Conflict between artists and labels (Historically) high production costs and low reproduction costs – though this may be changing? Dominated by large corporations, with an interest in acquiring rights and creating surplus value around cultural products

History Widely regarded as having emerged at the same time as the advent of rock’n’roll – the 1955 theory – but record companies existed long before that. (EMI formed in 1931) However, changes in the economy in the post-war years did play an important part – demographics, technological changes and economic shift from being production based to consumption based. Power shift: “in the early 1950s, as records began to overtake sheet music as the leading source of revenue in the industry, the focus of power shifted from the publishers to the record companies” (Garofalo, 1987: 78).

History Cvetkovski: “the record companies produced, manufactured and distributed the music, and the baby boomer teenagers consumed it in vast quantities.” (2007: 61) “the sole concern for these record companies was to create a a completely marketable commodity capable of creating surplus value” (2007:63) “The term ‘sausage factory’ can be used to describe the way major companies operate generally. The product itself is irrelevant in terms of its intrinsic value as a commodity” (ibid) This goes back to Adorno’s pessimistic view of the culture industry – does this still hold?

The contemporary recording industry – a statistical snapshot In 2011, IFPI valued the global recording industry (in trade sales) at $15.9 billion. These numbers include physical and digital sales and performance rights income for record labels. Physical sales have dropped from $26.9billion (1999) to $10.4 billion (2010) Digital sales increased to $4.6 billion (2010), now make up 29% of recorded music revenues. [2011 reported up to 32%] Digital sales and additional revenues from performance rights have not replaced lost income from sales of CDs

The contemporary recording industry – a statistical snapshot

The contemporary recording industry Historically, the recording industry has been dominated by a small number of very large companies – hence talk of the “big six” (in the 1980s), “big five” (in the 1990s) and “big four” after the merger of Sony and BMG (2004). Now, the four remaining major recording companies are Universal Music Group, Sony Music, Warner Music Group and EMI. However, EMI is in the process of a merger with Universal Music Group, which will leave 3 major companies. In general, the market share of the major companies in recent years is somewhere between 70-80%: independents make up the remainder. (larger independents, e.g. Beggars Group > 5%)

The nature of control – recording contracts Before looking at the companies in more detail – it is worth looking at how they operate within the capitalist system – exploitation of employees, competition, monopolies and mergers, and the quest for profits, often through lobbying. Caves (2000) talks of creative industries as a ‘nexus of contracts’ – and record labels and artists are no different. Traditional artist contract with major labels covers copyright on recorded output for a number of records for a lengthy period of time covering all possible markets. Only artists with negotiating power can extract good terms.

The nature of control - contracts Artists – in return for signing over copyright – will receive an advance against royalties (and if they are one of the few who make a profit) royalties. Note advances are not repaid by the artists if they fail to recoup – but these are cross-collateralised against recording & marketing costs as determined by the labels. Future of Music Coalition note “artists sign contracts that seem to go against their own best interests as a concession for gaining access to the means of production, promotion & distribution that are increasingly controlled by five labels and their parent corporations” (2001)

The nature of control - contracts Hesmondhalgh: “the musician must fulfil certain criteria if s/he wants to be retained by the company but s/he cannot choose to leave” As the legal validity of contracts (and other recording industry practices) have been questioned the response has been increasingly political – for example, the industry’s campaigns for action against “piracy” and extension of copyright term. Contracts have changed significantly (though not necessarily quickly enough) in recent years – more next week. This has been augmented with increased emphasis on media spin / relations.

The contemporary recording industry – the companies In order to paint an accurate picture of the contemporary recording industry it is necessary to look at the nature of the individual companies, looking at the similarities and differences between them. Remember that in many instances they work together (IFPI, RIAA, BPI) on many issues, despite being competitors. Ownership is important to understanding how they work: the companies are / have been either part of large conglomerates/ floated on stock market / owned by private equity companies / wealthy individuals. What the companies actually do (as well as ownership) is fluid and ever-changing.

The contemporary recording industry: market share

The music publishing industry: market share

The contemporary recording industry – the companies Note the change in the nature of the companies – record companies loosely fall into one of four types: Part of a multinational conglomerate: Universal and Sony responsible for over 50% of all music sales Residual majors: long standing, large companies which have not been bought over by multinationals. (EMI and Warners are half the size of the other ‘majors’). These are likely to either be absorbed or become major independents. . . Major independents: the likes of the Beggars Group operate along the same lines as the majors – own several smaller labels and have small market share. Micro independents, as defined by Strachan (2007).

Universal Music Group Owned by the French company, Vivendi. UMG only makes up around 15% of group activity, which includes telephony and television interests in France. Labels include: Island, Def Jam, Motown, A&M, Mercury, Interscope. Artists include: Kanye West, Lady Gaga, Eminem, Pussycat Dolls, Rihanna, Elton John, Black Eyed Peas. Market Share: 28.7% (2010) Annual turnover : $6.4billion (2010)

Sony Music Entertainment Owned by Japanese electronics conglomerate, which is fifth largest media firm. SME is one of eight sub-divisions, makes up less than 10% of Sony. Includes recording and 50% of Sony ATV Publishing. CEO – Doug Morris, who has now headed 3 out of the 4 majors. Labels include: Arista, RCA Zomba, Epic, Columbia, Jive, J Records. Artists include: Alicia Keys, Bob Dylan, Bruce Springsteen, Leona Lewis, Santana, Beyonce, Susan Boyle, Foster The People, Kasabian, etc. Market Share: 23.0% (2010) Annual turnover : $6.29 billion (2010)

Warner Music Group Company began as part of the Warner film company (1929) and record label formed in 1958. Listed on NYSE US based and was owned by an equity company (Providence Equity) between 2003-2011. (chair: Edgar Bronfman Jr) Sold to Russian billionaire, Len Blavatnik in 2011. ($3.3bn deal) Now consists of 3 divisions: recording, publishing and artist services. Recording constitutes 82%. Labels include: Elektra, Asylum, Atlantic, Rhino, East West, Maverick, Sire. Artists include: Madonna, Paolo Nutini, Green Day, Biffy Clyro, Dr.Dre, Eric Clapton, Black Keys,Led Zeppelin. Market Share: 14.9% (2010) Annual turnover : $2.98 billion (2010)

EMI Only British owned major label. Owned until 2011 by Terra Firma – an investment company headed by Guy Hands which took over in 2007. Artists include: Lily Allen, Gorillaz, Katy Perry, Norah Jones, The Beatles, Pink Floyd, Robbie Williams, Katy Perry, Coldplay Labels include: Blue Note, Astralwerks, Capitol, Caroline, Parlophone, Virgin, EMI Classics. Market Share: 10.2 % (2010) Annual turnover : £1.65billion (2010)

EMI However, the EMI story is perhaps the most resonant of the four majors and the one with most implications for the recording industry. The company has arguably the longest history (Parlophone formed in 1897, EMI in 1931) and has often been seen as the establishment recording company (The Beatles, Sex Pistols, etc.) Historically, it has been involved in every part of the music industries and gone through much reorganisation / integration and disintegration.

EMI Between 1977 and 1996 was merged with Thorn (electronics company). Also acquired other successful independents – Chrysalis in 1989, Virgin in 1992. However, EMI has been beset with problems in recent years, and has not had the corporate back up of Universal and Sony to help it out. Huge cumulative losses in recent years - £1.75 billion in 2009.

EMI EMI has struggled in spite of new ownership and radical alterations to its business models in the last three years. Purchased for $6.7 billion by Terra Firma in 2007 – a move described in 2010 as resulting in “one of the biggest ever losses on a private equity investment” (Preston) The reasons for EMI’s decline are manifold – but worth examining some of them:

EMI Large scale deals with major artists based on previous levels of success – Robbie Williams (2002), Korn (2005) as they ventured in to “360 degree” deals. Pay off for unprofitable artists (Mariah Carey was paid £38 million in 2002) and for executives: Allan Levy (£4.6m), Eric Nicoli ($3.3m) after 8 months in the job. Also large number of artists dropped – 400 in 2002, reducing size of roster and jobs lost. 1800 jobs lost in 2002, a further 2000 in 2008.

EMI Terra Firma introduced a new regime that was centred more heavily than ever on ensuring profitability and return for investors. Guy Hands admitted to little prior knowledge of the recording industry but took a hands-on role in attempting to restructure the company. Reports of excesses – flowers, Christmas presents, Mayfair apartments etc. But Hands/ Terra Firma approach further alienated staff and artists

EMI Radiohead left the company at the end of their contract. Robbie Williams refused to deliver new album – “we don’t want to deliver an album to a company where we don’t know what their structure will be or how they will handle things.” Bryce Edge: “when you are dealing with creative talent there is a lot of risk taking that goes on. That’s where Terra Firma is going to struggle.”

EMI The failure of the Terra Firma ended in the courts and with EMI being taken over by CitiBank in February 2011 – at which point total debt was more than $4billion. Hands admitted in 2009 that he had overpaid for EMI and was shocked by the state of the company. He began legal action against CitiBank who had lent Terra Firma funds to buy EMI – claiming that they have fabricated the existence of a rival buyer to increase the offer. Hands admitted in 2009 that he had overpaid for EMI and was shocked by the state of the company. He began legal action against CitiBank who had lent Terra Firma funds to buy EMI – claiming that they have fabricated the existence of a rival buyer to increase the offer.

EMI The outcome of the court case was in favour of CitiBank – but Terra Firma have appealed this in January 2011. (This is ongoing / unresolved) At the end of the year, company split into 2 parts and was sold – records to Universal ($1.9bn) and publishing to Sony ATV ($2.2bn).

EMI: the implications & conclusions Some of the problems encountered by EMI are general to the other major companies – particularly Warners - which was also taken over by private equity. Across the recording industry: All the majors have smaller rosters than a decade ago And fewer staff – all have made redundancies All have attempted to cut overheads and introduce new business models. However, these are offset by continuing decline in sales, the increased power of artists and the failure of their industry organisations.

EMI: the implications & conclusions The majors have all attempted to adapt to economic changes with a combination of changing ownership, new business models and an increased interest in copyright and lobbying. As sales have declined, the importance of new sources of revenue has become apparent – digital revenues, streaming, performance royalties, live music, management, merchandise etc. This has resulted in both major structural changes within the major companies, but also the emergence of new major companies in the music industries – for example, Live Nation Independents have become bigger players – Adele / Beggars

EMI: the implications & conclusions While it is important to look at the history of the major recording companies, it is no longer viable to view this as helpful in understanding the music industries. Perhaps the major music industries’ companies now include Live Nation. . .and Apple . . . and Google, etc. Next week will begin the study of the recent reorganisation of the former major companies and look at the emergence of others.

Discussion What do you consider are the 3 main problems facing the major recording companies and suggest 3 strategies for improving their prospects in the next five years? Do you think any of the major recording companies will still exist in 2020? Why / why not?