Music Industry Update

In his opening remarks at this year’s NARM (National Association of Recording Merchandisers) convention, President Jim Donio spoke about his concern over poor CD sales, the growth of the digital music industry, and the effects of piracy on the industry. His concern over CD sales centered on the fact that at the same time in 2004 sales had grown by 9% over the previous year, while at the present sales were down by 7% over last year.

The International Federation of the Phonographic Industry provided a quantitative snapshot of the worldwide music industry in their August report. The report revealed that over 100,000 album titles were released in 2004. The UK had the highest per capita album sales with an average of 2.9 albums purchased annually by every man woman and child in the country. The US was reported to have the highest percentage of households with DVD players, at 94% of the population. Canada had the highest broadband uptake in North America, and Singapore placed first for the country with the highest number of CD players per household (390%). The US placed second in this category with 257%.

The growth of digital services reached a landmark as over 180 legitimate musical download services launching in 2004. The total number of legitimate services now totals over 300, with over 200 of those located in Europe. In the world of record companies, Vivendi Universal was the biggest with a worldwide market share of 25.5%, followed by Sony BMG with 21.5%, EMI at 13.4%, and Warner at 11.3%. Warner’s highly publicized IPO at the beginning of 2005 was overshadowed this past month by the release of the company’s third quarter results. Warner reported a net loss for the quarter of $179 million, or $1.41 per diluted share. This compares to a net loss in the ‘same time last year’ period of $91 million.

Also in August, FCC Chairman Kevin Martin began an investigation into allegations of ‘payola’ violations (the practice of bribing radio stations to air specific songs from major label catalogues – historically bribes have consisted of cash, drugs and prostitutes) between record companies and radio stations. Sony BMG, the second largest music conglomerate, recently made a $10 million settlement with the New York Attorney General Eliot Spitzer for their alleged involvement in ‘payola’ violations. It has been reported that EMI Group, Warner Music Group, Universal Music Group, Clear Channel Radio, Cox Radio, Infinity Broadcasting, and Entercom have been subpoenaed in the industry wide investigation. It is expected that fines to each company found guilty of violations will follow the Sony BMG example and will also be based upon the company’s market share.