The Music Recording and Delivery Business

Report Highlights

• The music business is one of the largest and most profound entertainment industries in the world. Topping revenue from commercial sports receipts, cinema box office sales, and interactive entertainment software purchases, recordings should draw in over $40 billion in 2000. Around 38% of this amount will be garnered just in the United States. By 2005, $24 billion in U.S. music recording sales will comprise nearly 40% of a booming world economy.
• Pay-per-play downloading will emerge as a popular sales model in late 2000/early 2001 after major recording labels feel comfortable with digital rights management technology. Downloads should see rapid growth from 2000 to 2003, filling a large void for fans who are already downloading pirated and free music. However, by 2005, Web-ordered merchandise will pull significantly away from the $900 million pay-per-play market segment.

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INTRODUCTION

STUDY GOALS AND OBJECTIVES

The recording industry dates as far back as the 1880s, just a couple years after Thomas Edison invented the phonograph in 1877. By the turn of the century, a formal battle began between Edison's phonograph and Alexander Graham Bell's and Charles Tainter's gramophone. Since then, numerous battles have been waged over recording formats: cylinder versus disk, vinyl versus eight-track tapes, audiocassette tapes versus compact discs, and so on. Today another recording format war is taking place, this time with electronic music delivery at the forefront of the battle lines -- namely, the digital revolution.

Audio compression codecs, digital rights management, e-commerce, and new media such as DVD-Audio and Super Audio Compact Discs are part of the sweeping changes in the music . To help recording industry professionals and associates understand the implications of this new technology, this BCC report analyzes the current state of the electronic music delivery industry and also provides projections for this growing market's future. This document also offers perspectives on piracy, rating systems, and trends in the both the domestic and international music scenes, as well as providing a brief look at audio book sales.

OBJECTIVES OF STUDY AND ITS CONTRIBUTION

Digital music technology is rapidly changing, its development providing numerous opportunities for the recording industry. For example, although Internet music retail revenue is expected to contribute around $350 million worldwide to the industry in 2000, this figure will likely grow by six times that amount in five years. Thus, online music commerce should generate over $2 billion by 2005. Secure Digital Music Initiative technology and watermarking systems will be fully in place by 2001, facilitating this growth to record expansion.

Of course, other factors will play a key role in the online digital delivery market. Accessibility and affordability are two crucial aspects necessary that must be fulfilled for attracting Internet consumers. Websites set up by major recording companies such as BMG, Sony, Universal, and Warner-EMI -- who control over 60% of the global music market -- will accomplish this online delivery effort once digital rights safeguards are in place. Disintermediation and more content selection will be provided by the emergence of their e-commerce sites, driving online prices down and making major artists more accessible.

Although a promising market, online retail commerce is not the only field of interest for recording industry professionals. DVD-Audio and Super Audio Compact Discs, especially the former, will have an impact upon the global music economy. Trends in music, such as growing Latino and techno-pop content, are also keys to the industry's expansion. This report is designed to assist recording industry professionals develop strategies for numerous facets of the music , from online retail models to shifts in music audience types.

THE AUDIENCE FOR THIS REPORT

The world of digital music is full of promise and change. The purpose of this BCC report is to relate industry data and forecasts in both an insightful yet easy-to-understand manner. First, although this report focuses a great deal on technology, it tries not to inundate the reader with a lot of audio engineering jargon. In some instances this is unavoidable; however, for the most part the book focuses primarily on the new technologies' applications. Secondly, material is organized in a manner that does not force a reading from cover to cover. Instead, readers can jump from section to section as needed. The format of this book is self-explanatory -- helping time-pressed individuals analyze digital music delivery in the most efficient manner possible.

Various professionals in the recording industry will find the information within useful for exploring the fresh opportunities afforded by the new digital technologies. Whether you're affiliated with recording labels, hi-tech software firms, digital rights management companies, or music retail outlets, this BCC report is designed to help leaders with ties to the music industry. The following is a list, though not all-inclusive, of those positions that will benefit most from this report:

• Entrepreneurs
• Corporate executive officers
• Production managers
• Recording engineers; and
• Merger, acquisition, and investment executives

SCOPE AND FORMAT

This report covers numerous aspects of digital music delivery, including a history of the recording industry, an analysis of music categories, and an in-depth look at electronic recording types and recording product applications. This report also includes market forecasts for both domestic and international sales, as well as annual data projections for different types of digital technology. Data, of course, is frequently presented in tables and graphs for the reader's convenience. Moreover, profiles for major recording and music distribution companies are given, along with contact information for over 250 companies affiliated with digital music delivery.

METHODOLOGY AND INFORMATION SOURCES

The information presented in this report comes from a wide range of sources. Personal contacts offered insights and perspectives on nearly all aspects of the industry. BCC also collected data from technical journals and organizations, in particular the Recording Industry Association of America. Additional information was gathered from company websites and literature, as well as from various periodicals. Some of the statistics in this document were also provided by sources other than the BCC. Market projections, however, were calculated from a number of sources; in these cases the BCC furnished what it considered a reasonable estimate based on a consensus of information.