research papaer on tv or film industry not both. business of media

Music Publishing Industry

Analysis and Report

Economic Indicators

Overview

The American music industry is undoubtedly at the heart of contemporary American culture as a whole. The United Sates is the world’s largest recorded music market by sales, followed by Japan, the UK, and Germany (Hoover’s). As with most entertainment industries, the music industry has continued to evolve with acknowledging and making use of technological advancements to increase overall profits, widen the scope of listeners around the world, and further enlarge the music industry’s market share amongst other sectors in the entertainment world, such as television, film, and radio.

Although there are many individuals and organizations that operate within the music industry, this report will focus on the Music Publishing industry as it is in the midst of an important transition. The decrease of physical album sales in the past five years has forced publishers to look for new revenue sources and “to become less dependent on traditional licensing platforms” (IBISWorld US). To meet the changing needs of the consumer, music publishers are constantly establishing licensing agreements with new revenue streams like mobile outlets, digital streaming services and wireless music subscription services, like Spotify. Adapting to these new models has helped to alleviate the losses caused by the decrease in consumer spending and unimpressive album sales during the recession. However, the lack of consumer demand for albums along with the declining physical album sales has not been forgotten, as its effects are still present throughout the industry.

Table 1

The Music Publishing Industry at a Glance

While the industry has been experiencing more positive trends over the past five years, the negative factors listed above have certainly outweighed the more positive developments, resulting in an estimated average annual revenue decline of 3.2% in the five years leading up to 2014, totaling $3.9 billion.

As industry operators continue to adapt to the changing media landscape and leverage online platforms, IBISWorld expects revenue for the Music Publishing industry to grow 0.9% in 2014, which could mark the beginning of a more positive trend within the music industry.

Digital platforms have undoubtedly created new revenue streams; however, the future performance of the industry relies on the ability to overcome certain obstacles, including the fact that, today, selling a song has become more challenging with the widespread availability of online music. IBISWorld also points out that the internet has become a practical way for an artist to manage, distribute, and promote his or her own songs and albums, which has ultimately decreased the need for a publisher.

Even with some of these challenges, it is expected that the industry will grow in the coming years. “In the five years to 2019, revenue is projected to grow at an annualized rate of 0.8% to $4.0 billion” (IBISWorld). The digitization of music will continue to help the industry's growth and additional measures taken by the government to fight piracy will benefit publishers. The increase of online regulation will help to secure that music publishers get proper licensing royalties that are often times eliminated through piracy and peer-to-peer file sharing. Furthermore, with more media outlets and greater oversight overall, the ability to license songs to a variety of media platforms will help to increase profit margins up to a projected 15.6% of revenue by 2019.

Industry Revenue

Table 2

Overall Music Publishing Industry Revenue

Consumers can access music today more than ever before. Songs and albums are heard and distributed on the Internet, over the radio, in advertisements, in movies, and on TV shows. The amount of money the owner of these songs gets paid when their song is played is central to the overall state of the Music Publishing Industry. While other music industries are facing steady declines and near collapses, music publishing has remained quite strong despite the technological boom in comparison to the more general music industry, benefitting from music publishers’ ability to target and implement mobile media outlets as new sources of revenue.

Table 3

US Revenue by Source - IFPI, 2012

In terms of the general US music industry, revenue is derived from digital musical recordings and physical recordings (including CDs), according to the International Federation of Phonographic Industry (IFPI). Licensing revenue includes performance rights from broadcast and public performances (4% of revenues) and synchronization, or the use of music in content such as films, TV programs, advertising, and video games (about 4% of revenue). It is important to acknowledge how this compares to the revenue factors for the more specific music publishing industry, outlined in the table below.

Table 4

Music Publishers’ Sources of Revenue

Music publishers earn most of their revenue from licensing the right to use an artist’s songs. Operators in this industry obtain the copyrights, or at least a share of the copyrights, of musical compositions or enter into agreements to manage copyrights. Revenue is derived from these compositions by licensing them for inclusion on records, film, TV and other media. In return for offering these services, companies are entitled to a percentage of the royalty income, which varies depending on the contract. The overall $3.9 billion revenue is derived from four main types of royalties, including mechanical royalties, performance royalties, synchronization royalties, and other types of royalties.

Mechanical Royalties

Mechanical royalties refer to the revenue from audio compositions (tape recordings, music videos, ringtones, digital songs, and music used in other recordings). In the US, music publishers collect mechanical royalties either directly from recorded music companies or from the Harry Fox Agency, a nonexclusive licensing agent affiliated with the National Music Publishers' Association. “Once the mechanical royalties reach the publisher (either directly from record companies or from collection societies), percentages of those royalties are paid to any co-owners of the copyright in the composition and to the writers and composers of the composition” (IBISWorld). In the US, the current mechanical royalties rate structure pays 9.1 cents per song, or 1.75 cents per minute, and a set rate of 10.5% of revenue for different subscription and free interactive-streaming services, like Spotify. These rates are agreed upon according to industry negotiations planned by the US Copyright Act. Setting these rates is extremely important to both music publishers and their songwriters. Recently, the Copyright Royalty Board's (CRB) decision to leave mechanical royalty rates as is has had a marked effect on forecast performance for the segment; The mechanical royalties segment will account for about 49.5% of industry revenue in 2014, and “recent agreements between the CRB and music industry trade associations have boosted this share” (IBISWorld).

Performance royalties

Performance royalties include the broadcast of music on TV, radio, cable and satellite, live performance at a concert or other venue, as well as the broadcasting of music at sporting events, restaurants or bars, online and wireless streaming and the performance of music in staged theatrical productions. Revenue comes at any time a licensed song is played across any one of these types of performances. Key factors of growth in this specific segment include the chart success of songs from songwriters and the spread of new media channels.

Performance rights organizations usually collect royalties for publishers and songwriters. The most notable of these performance rights organizations and collection societies in the US include The American Society of Composers, Authors, and Publishers, The Society of European Stage Authors and Composers and Broadcast Music Inc. These organizations pay a certain amount of the performance royalties to the copyrights owners or the publishers themselves. During the past five years, the performance royalties segment has grown and will most likely continue to grow due to television advertising, live performance, online streaming and advertising royalties.

Synchronization royalties

Synchronization royalties took up about 20% of the industry’s revenue in 2014. These royalties contain the use of music and song in combination with visual images (films, television program, television commercials, DVDs or video games). Synchronization revenue has experienced a decade of continuous growth.

Growth in this specific segment in the past five years can be attributed to greater presence in commercials and video games. Important licenses have been issued internationally for a number of major advertising campaigns, TV programs, and video games as a way to raise awareness for the artist and to increase demand for album sales. IBISWorld identifies three notable examples of this, including “Apple using Adele's song “Rolling in the Deep” to promote the iPhone 4S in 2011, Britney Spears making a cameo on an episode of the hit television show "Glee" dedicated to her music, and EA Sports using rock band Battles' “Ice Cream” as the flagship song for their FIFA Soccer 2012 video game platform.” As Internet mediums, especially YouTube and Vevo, gain popularity, this segment can expect continual growth.

Major Markets

Table 3

Major Markets for the Music Publishing Industry

Large record labels own most of the industry’s participants, and as a result work side-by-side with and offer music publishing to the artists and clients of these record labels. At 36%, the largest amount of revenue comes from the record production and distribution companies who lease and license intellectual property between the record companies. Typically speaking, these labels are subsidiaries of the industry's "big four" (EMI, Sony, Warner and Universal) and rights are often transported from one to the other. This sharing is likely to continue; however, it is predicted that many companies will begin to limit their charges in the interest of saving money.

Smaller segments within this space have experienced growth as well.. Those participating within this industry acquire copyrights through the purchase of entire catalogs of music or individual songs. “The music is then licensed to record companies, radio, TV, films, commercials and multimedia applications, in printed or digital form” (IBISWorld).

Television, movies and video games

While album sales have been steadily decreasing (Table 4), the music publishing industry has proven resilient because of increased publishing activity in segments like advertisers, motion picture producers, television producers and radio producers. Video game developers, particularly, are a major source of growth; Not only are there games dedicated to music that generate a great amount of revenue, but also developers of different video game genres have begun to recognize that it is important to pay for appropriate songs to enhance their gaming experiences.

Table 4

Album Sales Decreasing

Furthermore, TV and film producers are becoming more aware of the commercial importance of soundtracks. For example, if a TV show targeting a 20-25 age group, publishers recognize that they should include music that appeals to the same demographic. In cases like these, the artists and labels also benefit from this arrangement. Musicians and groups are starting to attempt to use mass media such as TV to reach their target demographic more and more, meaning that they are actively becoming more willing to sell the rights to their music at a lower price than the market may otherwise demand.

Advertisers

Advertisers, like TV and film producers, are increasingly using music to sell products as well. While this trend is not necessarily new, the success of campaigns that have used music has set a popular trend for other advertising companies to follow. However, this has also created issues for publishers; As advertisers (and TV, film, and game producers) have more access to new, previously inaccessible music, they have found artists and songs that may be lesser known, and therefore cheaper. In the past, the prestige of famous artists was a major appeal in using their songs in commercials. Today, as IBISWorld argues, it is the song and not the artist that is valued. Because of this, cheap, catchy songs are becoming extremely popular, “a trend that has contributed to a mild softening of revenue growth in this segment during the past five years” (IBISWorld).

Other markets (namely, Spotify)

The music industry overall has benefitted from the growing popularity of online media outlets, including limited download, free streaming services like Spotify or Pandora. This segment represents only an estimated 6% of industry revenue in 2014 but is expected for strong growth during the next five years. With the rise of the digital era, “publishing revenue from traditional radio producers has fallen during the past five years and will account for only an estimated 8% of revenue in 2014” (IBISWorld).

Top Ten Leading Firms

Most of the major companies involved in music production and distribution in the music industry operate internationally. Sony Music Entertainment's parent company is Sony, a Japanese company, and Universal Music Group is owned by Vivaldi, which operates in France (First Research). Each company markets its products worldwide. Warner Music Group, a US company, derives more than half of its revenue from international operations.

The Music Publishing industry, more specifically, carries a moderate level of market share concentration. IBISWorld estimates that the industry's three major players (Vivendi incorporating BMG and Universal Music Group, Warner Music and Sony, after its acquisition of EMI's publishing sector) together will generate 44.1% of industry revenue in 2014. Concentration in this industry has been unstable due to recent mergers and acquisitions involving major players; with these acquisitions, major companies have attempted to help the declining market by acquiring smaller, profitable competitors. Major players tend to own numerous smaller labels and publishers and only sign major names directly to the parent label.

Table 5

Top 10 Companies in the Music Industry (as a whole)

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Table 6

Major Players’ Market Share

In the Music Publishing Industry specifically, the major players include Sony/ATV Publishing qith 20.7% market share, Universal Music Publishing Group with 17.7% market share, and Warner Music Group with 6.4%. The rest of the Music Publishing industry is highly fragmented, and many players are small subsidiaries of the four major music labels Sony Music Entertainment, EMI Music Group, Universal Music Group and Warner Music Group. Several small and medium-sized music publishers also exist in this industry. Among some of the largest independent music publishers are BMG Rights Management, Hal Leonard (sheet music), Imagem, Bug Music and Kobalt Music Group. Additionally, independent artists can choose to publish their own music, eliminating the need to split royalties with a music publisher (IBISWorld).

Sony/ATV Music Publishing

Sony/ATV Music Publishing, the largest music publishing company in the world, is a business segment of Sony Corporation of America and the Michael Jackson Family Trust. Sony/ATV has offices in 40 countries and owns and administers the rights to titles from a broad range of artists including Bon Jovi, Beyoncé, and Bob Dylan.

After purchasing the Acuff-Rose country music catalog from Gaylord Entertainment for $157.0 million, Sony/ATV has the largest country music catalog. The company also owns the publishing rights to more than 250 of The Beatles' songs. Sony/ATV licenses its songs for use in movies, television, and advertising and collects royalties for its songwriters (IBISWorld).

In June 2012, Sony acquired the music publishing segment of EMI Group for $2.2 billion. As a result, Sony now has a 38% share in EMI's former publishing business. This acquisition secured Sony/ATV Music Publishing's rank as the world's largest music publishing company.

Table 7

Sony/ATV Financial Performance (2009-2014)

From 2009 to 2014, Sony/ATV Music Publishing's revenue from publishing operations has grown at an annualized rate of 1.2% to $801.1 million. IBISWorld review explains that Sony's revenue has fallen across its music production and distribution networks in recent years, but its publishing division has performed steadily in the past five years. As the music industry begins to rely more heavily on digitization, the opportunity to monetize music catalogue has increased. Sony/ATV has a great amount of hits and popular artists, but it also important to note that the publisher is also profiting from the success of many of its newest signed talents including Taylor Swift. According to Billboard, Sony is ranked as the top US publisher, based on the proportion of airtime given to the company's music.

Conclusion

As Edgar Berger, Chairman and CEO of Sony Music Entertainment International said, “Music has always been at the forefront of the digital revolution, leading the way for other creative industries and defining the future of digital entertainment. Today music’s digital revolution is moving to the next phase as consumers embrace streaming and subscription models in markets around the world.” In the light of the digital age, the music industry as a whole is starting to experience trends that will continue, including the increased use of streaming services, mobile music platforms, increased efforts to control piracy, and lower prices. Most notably, the introduction of streaming radio services, such as Pandora, Spotify and iTunes Radio, requires music publishers to negotiate royalty rates for these services. Subscription and ad-supported streaming services have grown from 9% to 27% of digital revenues in the last five years (Table 8). The shift in how listeners obtain and consume music will continue to alter how the Music Publishing industry generates revenue and markets itself. Combined with the prevalence of illegitimate distribution channels online, these factors will continue to drive industry innovation.

Table 8

Digital Revenue breakdown by format, 2008-2013

Works Cited

Crompton, J. (2014, December). Music Publishing in the US. IBISWorld Industry Report 51223. Retrieved February 20, 2014 from IBISWorld database.

IFPI Digital Music Report 2014. Rep. IFPI, 2014. Web. 21 Feb. 2015. <http://www.ifpi.org/downloads/Digital-Music-Report-2014.pdf>.

“Music Production & Distribution.” First Research. Hoover’s Inc, Jan. 1, 2015. Web. Feb. 2015

"Music Production & Distribution." Hoover's. Hoover's Inc, 2015. Web. 21 Feb. 2015.

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