SIC 3652
PHONOGRAPH RECORDS AND PRERECORDED AUDIO TAPES AND DISKS



This category includes establishments primarily engaged in manufacturing phonograph records and prerecorded audio tapes and disks. Establishments primarily engaged in the design, development, and production of prepackaged computer software are classified in Computer Programming, Data Processing, and Other Computer Related Services; and those reproducing prerecorded video tape cassettes and disks are classified in the Motion Picture industries.

NAICS Code(s)

334612 (Prerecorded Compact Disc (Except Software), Tape and Record Reproducing)

512220 (Integrated Record Production/Distribution)

Industry Snapshot

After a rocky start in the first decades of the twentieth century, the business of recording and selling music has grown into an international industry worth billions of dollars. Analysts from the International Federation of the Phonographic Industry (IFPF) estimated that, in 1990, international record sales, a category that includes audiotapes and disks, grossed $24.1 billion. By 2000, this total had grown to $37.0 billion.

Though five major companies dominate the industry, the nature of the music business has always guaranteed a place for the small record company attuned to new forms of popular music and specialized interests. By 2003, the Internet was having a major impact on the recorded music industry. The rise of online file-sharing networks that allowed consumers to obtain popular music for free, along with writable CD drives that allowed music to be recorded from online and prerecorded sources, was rapidly eating away at the industry's financial health. In fact, during the early 2000s a number of industry analysts questioned whether the industry would remain intact in its current form.

Organization and Structure

The business of producing recorded music is like digging for gold—a record company has to pan many streams before it hits the jackpot. The principal work of each recording company consists of locating promising musical acts, producing them in the most commercial way, promoting them to fit into a rapidly changing market, producing the physical recorded product, and providing efficient distribution. Record companies lose money on recordings that do not sell as well as anticipated, but those that become "hits" provide such immense profits that they make up for the failures.

Industry Organization. Although the Recording Industry Association of America (RIAA) claims about 220 members, five of those corporations account for more than 90 percent of the U.S. market and 75 percent of the world market. In 2002, the leading five recording companies were Bertelsmann Music Group (BMG), EMI, Sony, Universal Music Group (UMG), and Warner Music Group. Together, these firms sold about $20 billion worth of recorded music in 2002.

Recording companies are often referred to as "labels," though that term became less accurate when large companies began marketing music under several different labels or brands. Originally, the label was synonymous with the company, for each recording company had one label that identified its records. During the years, however, big companies have bought little companies, and single firms have acquired several smaller companies and their labels. When CBS bought the American Record Corporation in 1938, for example, it acquired both the Brunswick and Vocalion labels. After the very large corporate mergers and buyouts of the late 1980s and early 1990s, each one of the five companies that dominated the market owned many labels. For example, PolyGram had 27 and Sony had 25. The industry's dominant companies are known as the major labels or simply "the majors." Many of the individual labels owned by a large corporation retain their own staff, which enables the large companies to maintain better and more personal relations with the artists, who record on only one label. Independent record companies are usually still identified with a single label and are referred to as "the independents" or "the indies."

Single labels often produce only one kind of music. For example, Deutsche Grammophon is a classical music label, Mercury carries country-western music, and Motown is a rhythm and blues (R&B) label; all are owned by UMG. Occasionally, a major label will create, rather than buy, a new label to produce one specific genre, as when Warner launched Warner Western in 1992. On the other hand, not all labels are thus limited. Koch International, an independent label, produces classical, country, pop, and jazz.

Company Organization. The first job of any recording company is to sign up musicians. This job is handled by the Artists and Repertoire (A&R) department, which scouts for and signs contracts with new talents, finds them songs if they do not write their own, and finds the right producer to oversee their records. In the first few decades of the industry, the A&R department hired singers, found new songs for these singers to perform, and produced the record. These functions made the A&R department one of the largest and most powerful in any recording company.

Rock and roll music changed much of the music industry and affected A&R departments more than any other type of music. Rock musicians often wrote their own songs and found their own producers. The role of the A&R department subsequently became much more limited; it relied heavily on the independent producer for the sound of the final product.

The producer of a record, as the name implies, oversees the production of the master recording. The producer serves as the artistic director and business manager for the recording. The record company, through the A&R department, contracts with the artist and producer and provides the advance money for both. The producer then handles the main business aspects of recording the record. These tasks include budgeting for the project, arranging the copyright licenses when necessary, booking the recording studio, and hiring any extra musicians and equipment as needed. While recording companies frequently own studios, independent studios are also used for a variety of reasons, including the local musical styles of an area. Most records are still made in one of the three major musical cities—Los Angeles, New York, and Nashville—but the studios of smaller cities with unique musical roots are often hired for their particular sounds.

The producer also oversees the rehearsing, recording, and mixing of the musical tracks. Depending on the musicians involved, the producer sometimes has an enormous artistic role in the recording. The producer may hire out or write an arrangement, choosing how the accompaniment will sound. Working with the musicians in rehearsal, the producer frequently contributes to the musical interpretation. No matter the size of the group, each instrument and voice is recorded separately on its own track. The producer oversees the mixdown of the tracks, combining the individual instruments into the final ensemble sound. The final balance of instruments and voices, as well as the use of different electronic effects such as tone-quality filters, reverberation, delay, and echo, is determined by the producer. Musicians who want complete control over their own artistic productions will sometimes produce their own work, but many recordings are still governed by producers who are trained in sound engineering.

After the master recording is made and delivered to the record company, the production and promotion departments take over. The production department makes the physical items that the consumers will buy, both the recording and, just as important, the packaging. Both the producer and the promotion department may have roles in the artwork for the packaging. A given music video (music videos are a major form of promotion on music television networks) may have the same producer as the recording.

Because the ultimate goal of record companies is to sell a record, the marketing department is frequently the largest and most important. In this intensely competitive industry, promotion and marketing play a large part in the final success of any recording. Marketing departments use two primary avenues of publicity: radio promotion and media advertising.

Airplay is the most effective form of promotion for any popular recording, whether it be on radio or television, and having a new record programmed onto the playlist is the goal of all promoters. While there are several thousand music-format radio stations across the United States, only several hundred are important. Record promoters may send promotional copies to all stations, but they concentrate their efforts on the important few—the stations that determine the poll lists in the trade publications, such as Billboard's Top Ten. Most radio stations, however, usually play less than 40 songs in rotation in a week. Because the recording industry produces several hundred new recordings each week, the competition for these spots is fierce. Since the early 1960s, "payola," or money paid to radio stations to play music, has been outlawed, but legal giveaways to radio station program directors and other personnel include records, T-shirts, concert tickets, and invitations to press parties. Music television works much the same way. To become a hit, a song must be played on the radio and be shown in video format on television.

Since 1957, when Dick Clark introduced hit after hit on his dance show, American Bandstand, television has been an effective promotional tool to supplement radio. In 1981, Warner Amex Cable Communications, which has since become Time Warner, introduced rock music programming to cable television in the form of MTV, and music videos revolutionized the industry. During the first few years, when not every pop musician made videos, MTV provided an avenue for new artists to reach audiences. By the middle of the 1980s, however, MTV became as playlist oriented as radio, and competition to have a video shown became as fierce as on any top-40 radio station. Other channels have also shown music videos, including VH-1, the adult-oriented MTV spin-off; Video Music Channel; Country Music TV; the Nashville Network; and NBC's Friday Night Videos. In fact, videos have become essential to music promotion.

Publicity and advertising departments also cultivate the popular music press when releasing records. Press kits for new artists include carefully prepared biographies presenting the most profitable image for the artist. Established and beginning artists alike go on publicity tours, although the rising costs of concert tours have kept record companies from providing full financial support for this element of publicity. In the late 1980s, retail outlets started sponsoring in-house concerts of relatively unknown artists as part of the promotional package. National and local radio and television interviews help to publicize new releases; moreover, music critics receive advance copies of the new records with the hopes that favorable reviews will sell disks. Music trade publications carry much advertising for artists and their recent releases.

Large companies distribute their records through branch distributors, independent distributors, and mail-order record clubs. In major musical cities, branch offices of the recording company distribute their recordings locally in conjunction with local promoters and advertising specialists. In smaller areas not covered by branch offices, record companies use the services of independent distributors, one-stops, and rack jobbers, who deal with many different record companies and distribute to record stores, department stores, and other record outlets (see SIC 5735: Record and Prerecorded Tape Stores ). While retailing is considered a different industry altogether, some major labels own retail outlets; however, they do not limit their distribution to these stores, of course.

The first company foray into record-company-owned retail was the record club, pioneered by Columbia Records when it formed Columbia House in the mid 1950s. RCA soon followed, and both have remained the biggest sponsors of direct-mail distribution. Because direct mail avoids middleman costs, the companies can make more profit while still giving consumers a discounted price. From their inception, record clubs have proven profitable for the majors. Shortly after Sony bought CBS Records in the late 1980s, it entered into an agreement with Time Warner, owners of Warner Records, to jointly operate Columbia House Records. In 1993, the two conglomerates announced a new joint ownership and operation of two other direct-mail operations, Warner's Music Sound Exchange for the U.S. market, and Sony's Music $More in Germany.

Corporate Structure of Independents. Independent labels, while varying greatly in size and complexity, generally have few of the administrative capabilities of the major labels. Their strong point is signing and producing new or special interest music, and they often contract out other elements of their business. The small companies, like the rap-music label Flavor Unit Records, which released its first recording in December of 1992, have a skeletal administrative and production staff. Major label Epic Records agreed to promote and distribute Flavor Unit's records. The small company benefits from such an arrangement by gaining access to the publicity power of a major label; the larger company reaps the benefits of an expanding market without much company investment. Small labels that do not connect with major labels often hire out for such services, contracting with independent public relations firms, distributors, studios, and disk factories.

Background and Development

A few years after Thomas Edison invented phonograph recording using wax cylinders in 1877, Emile Berliner developed the disk format of recording. These two formats competed in popularity for a few years, but by the beginning of the twentieth century, the disk format had won. The earliest music recorded was classical, opera, popular tin-pan alley music, and Broadway songs. In 1917, the first jazz recordings were made, and in 1920, the first blues were recorded. These recordings signaled the industry's discovery of music performed by and for African Americans, which influenced the industry and American popular music greatly throughout the century. By the 1940s, the genre was universally known as "rhythm and blues."

From the outset, the industry has been dominated by a few large companies. The two earliest recording companies have remained among the majors throughout the century. The Victor Talking Machine Company, formed as an offshoot of the English Gramophone and Typewriter Company in 1901, eventually became RCA records; the Columbia Gramophone Company became Columbia Records in the late 1930s. Together, RCA and Columbia have shared the majority of the market for decades. Although by the early 1990s they were owned by different corporations, they still belong to the majors. The industry grew rapidly after 1900, peaking in 1921 with sales of $106 million. By 1922, however, radio had destroyed the market with the free music it offered over the airwaves. Sales fell throughout the entire decade, and when the stock market crashed in 1929, most of the smaller companies either went out of business or were bought by the two larger companies.

Although radio almost destroyed the industry in the 1920s, it saved the industry in the 1930s. The two rival radio networks, Radio Corporation of America and Columbia Broadcasting System, bought the rival record firms, Victor and Columbia Gramophone, respectively. The large profits from the radio industry financed recorded music. New technologies developed for radio, such as the electronic microphone, enhanced music recording as well. Record stars became radio stars, and radio became the main promotional tool for selling records. In the mid-1930s when Jack Kapp—of the newly formed, independent label Decca—reduced the price of records from 75 cents to 35 cents, people could afford to buy them again, and the demand for recordings began to pick up. Music popular in the late thirties and early forties included big-band jazz and popular Broadway and movie songs and (in limited but growing regional markets) country music and rhythm and blues. The record format during these early years was the shellac disk playing at 78 rotations per minute (rpm) with only one song on each side (singles).

The social and economic changes accompanying World War II created changes in the music world that would impact the industry forever. Because of warinduced shortages of shellac, RCA and CBS limited their record production to mainstream popular music, thus ignoring the R&B and country market. Small independent labels grew to fill the gap left by the majors.

Radio also filled this gap between supply and demand. Some stations began programming R&B between the pop music programs, some began to program country music, and new stations formed to play only R&B or country. While both R&B and country records had previously sold only in small and isolated areas of the country, both could now be heard everywhere on radio. A few companies, like Capitol Records, continued to produce both R&B and country and succeeded in spreading this music into the pop market. Young people, mostly teenagers, began buying all three: R&B, country, and pop. Thus, the market diversified. Record formats changed from the 78 rpm single to the 45 rpm single with better sound, and the 33-1/3 rpm Long Playing album (nicknamed the "vinyl") started gaining popularity as well, especially for classical music.

The kids who listened to a variety of popular music in the 1940s became the musicians of the 1950s who played a new kind of music that synthesized all three: rock and roll. Elvis Presley's "Heart Break Hotel," an early rock and roll hit, topped pop, R&B, and country charts. This new music drew even bigger teenage audiences, who were, in the affluence of the 1950s, able to spend more on luxuries like records than were their predecessors. Sales soared. The new music, with its stronger rhythms and stronger lyrics than Broadway pop tunes, scandalized conservative critics and frightened the major labels. Independent labels, growing more numerous and larger than ever before, cashed in on the new music while the majors tried to control the market by making records of their contracted popular crooners singing the new hits. By the end of the decade, the frenzy for the new music had subsided, and the majors were moving back onto the charts with watered-down versions of the rock songs, thanks in part to Dick Clark and his dance show, American Bandstand, which captivated thousands of teenagers by bringing the recording stars into their homes through the medium of television.

The arrival of The Beatles in the early 1960s injected a new fever of activity into the industry, benefiting both the independents and majors. Independent producers, who seemed to understand the new music better than the staff producers of the major companies, became the "wizards" of the industry, discovering and recording the new talents that fed the business. Sales patterns began to change as well. Albums started replacing singles as the dominant format. A wide spectrum of popular musical styles flourished, and FM radio grew in popularity as it played and promoted different types of rock and pop.

Even with the economic recession of the 1970s, which slowed record sales and bankrupted many of the smallest independents, the market continued to grow after the advent of rock and roll. In an effort to produce something for everyone at great profits, record companies expanded the types of popular music available. This effort especially was prevalent during the 1980s, when many new music categories emerged. As the decade progressed, some of these categories splintered further; dance included rap and hip-hop, while rock included acid, punk, techno, and fusion, just to name a few.

The introduction of the compact disc (CD), with its greater durability and much higher fidelity, brought new profits to the industries. Sales jumped as consumers began to replace their vinyl collections with the better sounding product, and new markets for older records opened as companies began reissuing older albums in the new format. By the end of the 1980s, sales of vinyl records had almost completely died out, and most companies stopped producing the older format completely in the early 1990s.

The late 1980s and early 1990s saw the absorption of the biggest independent companies into huge conglomerates, as large electronics firms bought up record labels. Sony Corporation started the trend in 1987 when it bought CBS Records for $2.0 billion, an unheard of figure. Two years later, EMI, Philips, and Bertelsmann Music Group led bidding wars for the largest independent labels like A&M and Motown, which eventually went to Philips' PolyGram division. By 1996, six conglomerates controlled all the major labels—Time Warner Inc., Sony Corporation, Philips N.V., Thorn/EMI, Bertelsmann A.G., and Seagram (MCA).

After several years of sluggish sales due to economic recession, 1992 record-industry sales figures began to recover. While unit sales were down 7.5 percent in 1991, they bounced back up 6.7 percent in 1992, with total gross income up 11 percent—the strongest gain since 1987. Strong growth continued through 1993 and 1994, with sales in 1994 leaping by more than 17 percent over 1993 figures. Industry euphoria was short-lived, however. The U.S. music sales for 1995 totaled an estimated $11.0 billion, up slightly from 1994 sales. Time Warner's labels including Warner Brothers, Elektra, and Atlantic) grabbed the lion's share of the market, taking 21.6 percent, followed by Sony Music with 13.9 percent, and PolyGram with 13.5 percent. German-based Bertelsmann A.G.'s Columbia Records came fourth with 12.4 percent, followed by Thorn/EMI with 9.8 percent and MCA's UNI with 9.7 percent.

Overall, music sales growth was expected to slow between 1995 and 2000. The anticipated slowdown was predicated on two factors: over expansion of the retail sector and the maturing of the CD format. Much of the growth of the previous decade had come as the result of consumers replacing their libraries of vinyl and cassette albums with high-priced CD versions. Though CDs were the dominant recorded medium in 1995 and 1996, accounting for an estimated 70 percent of total industry revenues—the number of CDs sold in 1995 was up 11 percent over 1994, while the volume of prerecorded cassettes dropped by about 16 percent—some analysts feared the high retail cost of CDs was limiting sales to younger consumers. As the CD market became more dependent on sales of current releases in the latter part of the decade, this price factor was expected to start hurting the industry.

Another threat to new CD sales came from the fast-growing used CD market. Because of the CD's durability and high price tag in relation to previous records and cassettes, several of the largest music retail chains in the United States began selling used CDs. Previously, only small locally owned stores sold used products. Rather than lowering the prices on CDs, which retailers had been requesting for years, the industry leaders fought back by withholding cooperative advertising dollars. They thought this action would be effective because distributors and retailers share some publicity costs at the local level. Artists began to get involved in the fray. For example, country music superstar Garth Brooks declared that he would refuse to distribute his albums, the best selling country albums at the time, to any store selling used CDs. Such tactics had little effect. Independent record retailers responded by filing lawsuits against the four major distributors that instituted the punitive policies; these events occurred at roughly the same time the Federal Trade Commission announced it was launching an investigation into the policies. The distributors quickly retreated from their hard line stance, putting an end to the confrontation.

Growth in sales of CD singles were strong in the mid-1990s. The price of a CD single dropped to just over $5 in 1995, putting it well within the budget of the younger consumer; sales increased by more than 84 percent.

In 1999, the industry as a whole shipped $4.4 billion worth of goods. Total employment reached 27,053 people. The 20,424 production workers included in this number earned an average hourly wage of $13.10.

Current Conditions

The recording industry was suffering in the early 2000s. Unit shipments fell more than 10 percent in 2001, falling from 1.08 billion in 2000 to 968.58 million in 2001, according to the Recording Industry Association of America (RIAA). Conditions remained bleak in 2002. Billboard reported that total "album" sales fell 11 percent that year.

According to some industry observers, rising Internet connectivity and the pervasiveness of digital technology—namely writable CD drives and MP3 players—had much to do with the industry's troubles. In January of 2003, Internet Business News reported that the number of Web pages and peer-to-peer applications devoted to file-sharing had increased 300 percent from 2001 levels. Citing findings from Forrester Research, The Economist revealed that some 27 percent of Americans were engaged in downloading music by the early 2000s. Referring to May 2002 survey results from Peter D. Hart Research Associates, the RIAA indicated that "by a more than two-to-one margin, consumers who say they are downloading more also say they are purchasing less." While these findings seem to put considerable blame on file sharing, others argue that many consumers who download music also buy more and that other factors—including a weak economic climate and the popularity of DVDs and video games—have just as much to do with the industry's woes.

Regardless of the cause, by 2003 the major recording companies were all struggling to stay afloat amid bleak industry conditions. In its February 2003 issue, Wired published an article by Charles C. Mann entitled "The Year Music Dies," which discussed the possibility that the industry, as it existed, would collapse in less than five years.

The industry was taking a number of different measures to address piracy in the early 2000s. One tactic involved putting greater pressure on hardware manufacturers to implement anti-piracy technology. While this protection action was called for in proposed legislation like the Consumer Broadband and Digital Television Act, it led to wrangling between players in the electronics and recording industries. In addition, both domestic and international recording companies were calling for Internet Service Providers to take measures to stop music piracy by monitoring their networks. Other tactics included making CDs that were not playable—and thus not recordable—on personal computers, as well as other technology that simply prevented consumers from copying CDs.

The recording industry also was moving toward "legitimate" digital music subscription services, including MusicNet and Pressplay, which allowed consumers to download music for a fee. In a similar move, six of the leading U.S. music retailers established a service called Echo. However, such services usually limited downloaded music to one device or medium, which many music lovers found irritating. Although a shift to digitally distributed music would represent a dramatic change in the industry's business model, limitations like these were major roadblocks. As The Economist explained: "All parties agree that the way forward is a system that allows music to be downloaded, but in a way that balances the prevention of piracy with convenience for users. The question is where to strike the balance. One extreme would force consumers to rent, rather than buy, music; the other extreme is rampant piracy."

In the early 2000s, cassette tapes continued to lose market share to CDs. According to the RIAA, unit shipments of cassette tapes fell almost 42 percent from 2000 to 2001. At the same time, CDs continued to gain an even stronger market segment. As a percentage of the industry's total unit shipments, CDs increased from 87 percent in 2000 to 91 percent in 2001.

Industry Leaders

In the early 2000s the industry was dominated by five huge conglomerates called "the majors." Each owned many different record labels, and each produced hundreds of new potential "hit" records each month.

Technically, AOL Time Warner, which operates Warner Music Group, was the only American-owned conglomerate in the majors, though the purchase of MCA by Canada's Seagram Company put another major label in the hands of a North American company. The Warner brothers—Jack, Albert, Harry, and Sam—established a successful film production and distribution company in the 1910s. The company remained strong well into the 1950s, when television began to change consumer entertainment patterns and cut into the film market. In 1966, the last Warner brother sold the company to Seven Arts Productions, which was more interested in selling television rights to old movies than making new movies, and the company continued to decline.

Warner Brothers-Seven Arts first got into the record business in 1969, when it bought the large independent Atlantic Records. In 1971, after being purchased by Stephen Ross, the company was renamed Warner Communications. Under the new director, the company once again flourished; it began buying up smaller record labels and launching new ones. The company acquired contracts for many of the hottest musical acts in the business and became a prominent force in the industry.

In 1989, Warner was purchased by Time Inc. and became Time Warner Inc., one of the largest media conglomerates in the world. By 1992, when record sales for Time Warner reached the $3.0 billion mark, the company owned some of the most profitable labels, including Atlantic, Elektra, Warner Bros., and Giant/Reprise. In January 2000, Time Warner, Inc. and Internet giant America Online (AOL) shocked the communications world by announcing their merger. The merger bought Time Warner a huge audience on the World Wide Web, and AOL benefited from Time Warner's extensive news, movie, and audio resources. In recent years Warner Music has continued to grow by creating new labels for new markets, such as Warner Western. In 2001, the company had sales of $3.9 billion.

In the early 2000s, the largest domestic and international distributor of musical recordings was Universal Music Group (UMG), a subsidiary of Vivendi Universal. In 1998, when former Universal parent company Seagram acquired PolyGram and combined the two recording companies, the result was Universal Music Group. By the early 2000s, the company had established itself as a market leader in more than 70 percent of the markets in which it conducted business. The company's record labels include Decca, Deutsche Grammophon, Interscope Geffen A&M, Island Def Jam Music Group, MCA Records, MCA Nashville, Mercury Nashville, Polydor, Universal/Motown Records Group, and Verve Music Group. Artists affiliated with UMG included Bryan Adams, Beck, Sheryl Crow, Vince Gill, B.B. King, and Sting. In 2001, the company reported sales of $5.8 billion and employed 12,000 workers.

Sony Corp., one of the best known names in consumer electronics, was established shortly after World War II. Its early products, tape recorders and transistor radios, sold well. In the 1960s, the company led the international electronics industry with its miniaturized products based on the transistor. After faltering sales growth in the mid 1970s due to increasing competition, Sony once again came to dominate the market in 1978 with the introduction of the portable stereo system, the Walkman. Within another three years, the company broke new ground again when it developed and introduced the CD in conjunction with the Dutch electronics firm, Philips.

Sony established itself as the largest record producer when it formed its subsidiary, Sony Music Entertainment International, and bought CBS Records in 1987. Sony wanted to gain better control over the sales of new formats by producing both the hardware (equipment) and the software (recordings). The Columbia Broadcasting System, which had been formed in the late 1920s as a separate entity from Columbia Phonograph, entered the record business in 1938 when it purchased the American Record Corporation; its new record division then became Columbia Recording Corporation, or Columbia Records. The record group remained a profitable arm of CBS and a major presence in the industry for decades. In the 1980s, when CBS began faltering in the television ratings and losing revenues, the company sacrificed its record group to Sony Corporation, even though it was the best selling U.S. record company. By the early 2000s Sony Music Entertainment, Inc. was the second largest global music company, with 2002 sales of $4.8 billion.

America and the World

While American music enjoys widespread popularity even in non-English speaking countries, the United States no longer dominated the industry after the large electronic conglomerates bought out the major and independent labels. While most of the labels were still American, the biggest of the majors were European and Japanese. Sony, the firm that bought CBS records and as of 2003 owned more than 20 labels, was a Japanese electronics conglomerate. Vivendi Universal S.A., based in Paris, France, owned Universal Music Group. EMI Group plc of England owned Capitol, an American label. The German Bertelsmann Music Group bought RCA and Arista in 1986, and the Japanese company Matsushita bought MCA in 1991 then sold it a few years later to beverage giant Seagram. All companies, of course, had international distribution.

In 2001, the leading world markets accounted for a greater share (84 percent) of all music sales than in 1997 (79 percent), according to the International Federation of the Phonographic Industry (IFPI). That year, the United Kingdom (UK) led the global industry in per capita sales. Residents in the UK each bought an average of four recordings annually. The United States ranked second, followed by Australia, Germany, France, Japan, Canada, and Spain.

Research and Technology

Because the industry is highly reliant on electronics technology, research and technological development in the electronics industry has a large impact on the recording industry. The developments with the greatest impact have been newer electronic formats with greater sound fidelity.

In the early 1990s, two new formats were introduced, the mini disc and the digital compact cassette (DCC). Both of these formats brought CD quality fidelity to home recording. Industry analysts in 1992 claimed the new formats would benefit long-term growth prospects, encouraging customers once again to replace their older recordings in the new format. The new formats worried many in the industry, however, and artists and companies alike feared the loss of copyright revenues from home recordings; indeed, piracy has always been the major form of income loss. In 1992, however, the consumer electronics industry worked out compromise legislation with government and industry leaders that provided compensation for prospective copies done on the digital machines by imposing royalty fees on the equipment sales. By early 1993, both formats had been released. Due to high initial equipment costs, sales started slowly, but analysts agreed that, once prices came down, both formats would do well. While many agreed that one format would eventually dominate the other, none could predict which format would win.

As it turned out, such speculation turned out to be moot. Consumers once again confounded the experts by failing to show any interest in the new formats. As with the earlier digital audiotape format (DAT), sales languished and consumer enthusiasm was lukewarm at best. The failure of DCC in particular came as a surprise, because this format at least offered backward compatibility with conventional analog cassettes, allowing users to play their old tapes on their new digital decks. Nevertheless, consumers seemed far more interested in convenience and affordability than in improved quality, staying away from the new formats in droves. The failure of these formats was puzzling to many in the industry, given the success of CDs. The success of the CD, however, probably had as much to do with its convenient small size and durability as with its improved sound quality. In fact, many audiophiles still insisted that analog sound (as represented by vinyl records) was superior to digital sound.

In the early 2000s, the home computer operator could easily become his or her own independent label, thanks to recordable and erasable CDs. Recordable CDs (called CDRs) and recording units were first widely marketed in 1996, although the recorders took some experience to operate because they depended heavily on the type of source material. Assuming the source had digital optical output, it could be recorded as input and dubbed much like an audiotape. Erasable CDs first appeared on the market in 1997 but were initially too expensive for the average individual. Erasable or rewritable CDs (called CD-RWs) were useful for data storage because old data could be erased and overwritten; in music applications, similarly, yesterday's "hit parade" could be erased and replaced with today's hottest tunes.

Further Reading

Borland, John. "Antipiracy Bill Finally Sees Senate." CNET News.com, 21 March 2002. Available from http://www.news.com.com .

Christman, Ed. "Tower Records' Struggles Reflected Industry's Turmoil: Losses, Consolidations, Closings, and Restructurings Affected All Sectors of Sales, Distribution, and Retail." Billboard, 28 December 2002.

——. "U.S. Music Industry Marks Strong Rebound in Yr." Billboard, 16 January 1999.

The International Federation of the Phonographic Industry. "IFPI Launches Annual Recording Industry Yearbook," 17 October 2002. Available from http://www.ifpi.org .

Kleiman, Carol. "EMI, Universal Have New Piracy Prevention Tools." The America's Intelligence Wire, 21 January 2003.

Mann, Charles C. "The Year the Music Dies." Wired, February 2003.

McClure, Steve. "Foreign Music Hits a Record Low in Japan." Billboard, 16 January 1999.

"Music Industry Calls on ISPs to Fight Piracy." Internet Business News, 27 January 2003.

Recording Industry Association of America. "2000 Yearend Statistics," 17 February 2003. Available from http://www.riaa.com .

——. "Recording Industry Announces 2001 Year-End Shipments," 17 February 2003. Available from http://www.riaa.com .

——. "RIAA Releases Mid-Year Snapshot of Music Industry," 26 August 2002. Available from http://www.riaa.com .

Reuters Limited. "AOL/Time Warner Merger a Hit for Digital Music Distribution," 13 January 2000. Available from http://dailynews.yahoo.com .

——. "Bertelsmann, AOL plan to Float AOL Europe-Paper," 12 January 2000. Available from http://biz.yahoo.com .

Streisand, Betsy, and Dan Gilgoff. "Singing the Blues." U.S. News & World Report, 10 February 2003.

"Unexpected Harmony; Online Music." The Economist, 25 January 2003.

U.S. Census Bureau. Annual Survey of Manufactures. Washington, D.C.: U.S. Department of Commerce, Economics and Statistics Administration, U.S. Census Bureau, February 2002. Available from http://www.census.gov .



User Contributions:

Comment about this article, ask questions, or add new information about this topic:

CAPTCHA