Universal Music Group

Introduction

Universal Music Group is the world’s leading music company with fully owned record operations or licensees in 77 countries. Its businesses also include Universal Music Publishing Group, the industry’s leading global music publishing operation. Universal Music Group’s record labels include Arista, Nashville, Bluebird, Jazz BNA Records, and Burgundy Records. They also own Columbia Records, Columbia Nashville, Epic Records, J Records, Jive Records, La Face Records, Legacy Recordings, Master works, Provident Label Group. UMG has a multitude of record labels owned or distributed by its record company subsidiaries around the world The Universal Music Group owns the most extensive catalog of music in the industry, which includes the last 100 years of the world’s most popular artists and their recordings. UMG’s catalog has two distinct divisions, Universal Music Enterprises (in the U.S.) and Universal Strategic Marketing (outside the U.S.), which are responsible for distribution. Universal Music Group also includes e Labs, its new media and technologies division; Bravado, its merchandising company; Twenty-First Artists, its full service management division; and Helter Skelter, its live music agency.

The Island Def Jam Music Group is home to a multi-cultural and diverse family of artists and has fast become one of the most successful labels in the industry. It is comprised of Island Records and Def Jam Recordings, and is in partnerships with Disturbing Tha Peace and Slip N Slide. The roster boasts an array of talented artists including Mariah Carey, Kanye West, Fall Out Boy, The Killers, The-Dream, Fabolous, Melissa Etheridge, LL Cool J, NAS, Chrisette Michele, Bon Jovi, Ludacris, Lionel Richie, Rihanna, Hoobastank, Jeremih, Sum 41, Rick Ross, Young Jeezy and Ne-Yo.

Industry Overview the US music production and distribution industry includes about 2,600 companies with combined annual revenue of about $15 billion. Major companies include Universal Music Group, Sony Music Entertainment, EMI, and Warner Music Group. The industry is highly concentrated: the top eight companies account for 80 percent of industry revenue.

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Consumer spending drives competitive Landscape Demand in the music industry. The profitability of individual companies depends on discovering and promoting new musical talent and generating revenue from the company’s asset base of recordings and publications. Large companies have advantages in marketing and distribution. Smaller companies, referred to as Indies, compete by focusing on artists within local markets or music genres. The industry is capital-intensive: average annual revenue per employee is about $475,000.

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Products, Operations & Technology

The major products of the industry are musical recordings (70 percent of revenue) and the publication of lyrics and musical scores (20 percent). Other products and services include the production of master recordings, the manufacture and packaging of physical CDs, and the production of databases to distribute downloads of recordings. Major studios have musical artists’ singers, rappers, and musicians – under contract to produce recordings that are either marketed as stand-alones or combined with other recordings as albums. The studios then promote the new recordings by sponsoring concert tours; providing music to radio stations to play on air; and advertising via radio, TV, print, and the Internet. Studios also promote the sale of music from their catalogs of recordings that are more than 18 months old. Small studios may only produce sound recordings or may also promote and distribute them. Small, integrated studios focus on finding new (undiscovered) talents and promoting them in selected markets. The studios may specialize in a particular music genre, such as hip-hop or jazz, and develop relationships with local entertainment businesses, such as nightclubs, casinos, and concert halls. Smaller studios also develop relationships with radio and TV stations that specialize in particular genres. The studios also acquire rights to the lyrics and scores produced by and for their musicians. Some musical groups, such as the Rolling Stones, are popular enough that all of their work is in demand. These groups usually retain rights to their own works, may have their own recording studios and labels, and contract with integrated studios to distribute their recordings. About 85 percent of music is distributed on CDs to retailers for sale to the public. Traditionally, stores specializing in music were the major venue for music sales, but the entry of discount retailers and Internet-based retailers with huge selections at discounted prices has driven many music specialty stores out of business. The process of creating music CDs can involve several different companies. A performance by an artist is recorded in a sound studio on multiple tracks (two to 24 tracks are common). Sound engineers can then enhance each track and optimize the mix to create a sound track on a premaster CD. The sound engineers in the mixing process can edit individual tracks, even correcting notes, and can add or delete tracks as desired. The premaster CD, along with packaging materials, is sent to a CD production plant (or CD replication plant) that creates a glass master for the production process. Once replicated, the product is then and shipped to distributors. The digital distribution of music through the Internet is growing and replacing physical distribution of CDs. After the premaster CD is created, it is forwarded to electronic distribution centers operated by content providers that maintain a library of recorded music for sale to consumers.

Sales & Marketing Consumers of recorded music span all age groups and are just about evenly divided between males and females. According to the Recording Industry Association of America (RIAA), about 20 percent of music purchases in 2008 were made by teenagers, 30 percent by people in their 20s, and nearly 35 percent by those 45 or older. The younger demographics drive purchases of particular music genres; the top selling genres are rock and rap/hip-hop, which represented 40 percent of purchases in 2008. Promotion typically involves print, TV, radio, and Internet advertising. Since specific age or ethnic groups often buy music genres, advertising is aimed at the target groups. In addition, new releases can be promoted through concert tours and broadcast of music videos on TV. While paying radio DJs and TV hosts to play specific music is illegal (known as “payola”), studios can promote their labels, releases, and tours through paid advertising and generally distribute courtesy copies of releases to broadcasters. Prior to 2000, new albums were typically $15 to $20. Major studios set a Minimum Advertised Price (MAP) for each new album and threatened to halt distribution to any retailer selling below that price. The government ordered the industry to cease the practice in 2000 as a restraint of trade. This order, combined with the growth of sales through discount retailers, has lowered the typical price of CDs to $9 to $15.

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Companies that own, operate, engage in, or sell media properties, services, and products, including film and video production, distribution, replication, and products; television production, broadcasting, distribution, programming, and products; music production, distribution, publishing, and products; radio broadcasting; newspaper, book, magazine, electronic, and specialty publishing; and Internet content and delivery services.

Their main competitors are

EM Group plc

The EMI Group (Electric & Musical Industries Ltd.) is a British music company. It is the fourth-largest business group and family of record labels in the recording industry, making it one of the Big 4 record companies and a member of the RIAA. EMI Group also has a major publishing arm – EMI Music Publishing – based in New York City. The company was once a constituent of the FTSE 100 Index, but is now wholly owned by Terra Firma Capital Partners.

EMI is the world’s leading independent music company. The company comprises two divisions? EMI Music, one of the top global recorded music companies, and EMI Music Publishing, one of the world’s leading music publishers.

Sony Music

Columbia Music Group

RCA Group, Provident Music Group, RED Distribution, Sony Masterworks,

Sony Music International Companies

Independent record labels

Sony renamed the record company Sony Music Entertainment (SME) on January 1, 1991, fulfilling the terms set under the 1988 buyout, which granted only a transitional license to the CBS trademark. The CBS Associated label was renamed Epic Associated. Also on January 1, 1991, to replace the CBS label, Sony reintroduced the Columbia label worldwide, which it previously held in the United States and Canada only, after it acquired the international rights to the trademark from EMI in 1990. Japan is the only country where Sony does not have rights to the Columbia name as Columbia Music Entertainment, an unrelated company, controls it. Thus, until this day, Sony Music Japan does not use the Columbia trademark for Columbia label recordings from outside Japan that are issued in Japan. The Columbia Records trademark was also controlled in Spain by another company, Bertelsmann Music Group (BMG), which Sony Music subsequently obtained through the 2004 merger, and later through the 2008 buyout, of BMG.

EMI Group Ltd. and Universal Music Group resumed licensing talks that may help EMI stave off default and give its rival rights to artists including the Beatles, according to a person with knowledge of the situation.

The negotiations resumed in the past 24 hours and may lead to Universal paying EMI as much as $300 million over five years, said the person, who declined to be identified because the talks are private. Vivendi SA’s Universal Music, the world’s largest record label, said last week that it walked away from the talks.

Universal would gain rights to distribute EMI’s catalog in North America, the person said, adding artists including Coldplay and Norah Jones. Terra Firma Capital Partners Ltd., a private equity firm led by Guy Hands, bought EMI for 4 billion pounds ($6 billion) in 2007 and faces a lender test tomorrow.

Warner Music

WMG is the third-largest business group and family of record labels in the recording industry, making it one of the big four record companies. The current incarnation of the company was formed in 2004 when it was spun off from Time Warner, and as a result, Time Warner no longer retains any ownership. Warner Music Group also has a music publishing arm called Warner/Chappell Music, which is currently one of the world’s largest music-publishing companies.

UNIVERSAL MUSIC GROUP

Universal Music Group Distribution consists of four major divisions: Universal Music Distribution (UMD); Fontana, a worldwide distributor of independent music labels; Vivendi Entertainment, the largest independent DVD distribution company in the US and also a theatrical distributor; and Universal Music Christian Group. It distributes the music from such companies as Universal Motown Republic Group, Island Def Jam Music Group, Interscope Geffen A&M Records, A&M/Octone Records, MCA Nashville, Lost Highway, Mercury Nashville, Verve Music Group, Decca Label Group, Universal Music Latino, Universal Music Enterprises, Hip-O, UTV, Sanctuary Records, Disa, Machete Music, ABKCO, Concord Music Group, Hollywood, Lyric Street, Fonovisa, Walt Disney, Big Machine, VI Music, Sybersound, Hidden Beach and Palm Pictures. The company also represents a world-famous roster of artists: U2, Mariah Carey, Kanye West, Elton John, Bon Jovi, Eminem, Sheryl Crow, 50 Cent, Sting, Jay-Z, Andrea Bocelli, Gwen Stefani, Shania Twain, Taylor Swift, Mary J. Blige, Sugarland, Maroon 5, Rihanna, The Black Eyed Peas, Akon, and Fall Out Boy, and many others.

UMG is the market leader in today’s highly competitive classical music market.

Vevo is a music video and entertainment website. It is owned by Sony Music Group, Universal Music Group and Abu Dhabi Media Company. The service was launched officially on 8 December 2009. You Tube, with Google and Vevo sharing the advertising revenue, provides the video hosting for Vevo. Vevo offers music videos from three of the four major record labels, Universal Music Group, Sony Music Entertainment and EMI.

Their major product/service lines

Recorded music

Present in 77 territories, UMG is the world leader in recorded music. UMG buys markets and distributes recorded music all over the world. It has particularly strong positions in the North American and European markets, which account for nearly three-quarters of global sales.

With the diversity of its labels, which include pop, classical and jazz, UMG has the resources to discover, develop, market and distribute some of the world’s most popular artists from a range of musical genres. Each year, catalog releases account for a significant and stable part of UMG’s recorded music revenues. UMG’s recorded music catalog, the largest in the world, features some of the most popular and influential artists of our time, including ABBA, Louis Armstrong, Alain Bashung, James Brown, Eric Clapton, Dire Straits, Serge Gainsbourg, Bob Marley, Nirvana, Luciano Pavarotti, Edith Piaf, Michel Sardou, The Police…

Artists include U2, Amy Winehouse, Rihanna, Lil Wayne, Jack Johnson, Eminem, Roberto Alagna, Pussycat Dolls and Dr Dre.

UMG continues to play a leading role in the expansion of the digital music market place and actively participates in the development of new business models. In 2008, digital sales grew strongly with significant increases in full track download both over the Internet and on mobile phones. Further growth came from new business lines such as ad-supported music and video streaming, including UMG’s industry leading video channel on You Tube, and the expansion of mobile applications such as ring-back tones. Several new business models were launched during the year including “MySpace Music”, a fully integrated global music solution from MySpace, one of the world’s biggest social networks, and “Comes With Music” (CWM), a service from Nokia that bundles a 12 month, unlimited music subscription into the price of certain phones.

Strong growth across the digital sector is projected for 2009. In addition to growth in the core digital market place, UMG expects to grow up in new revenues streams, sign new strategic partnerships and further capture digital growth by increasing direct to consumer business.

Music publishing

World’s No. 1 music publishing company

Through Universal Music Publishing Group (UMPG), UMG is the world leader in music publishing. UMPG owns and acquires rights to musical compositions (as opposed to recordings) in order to license them for use in recordings, films, videos, commercials and public performances.

UMPG’s catalog contains seminal recordings like “Copacabana,” “Strangers in the Night” and “R.E.S.P.E.C.T.” UMPG also represents the works of the most prominent artists, songwriters and performers of our time, including Justin Timberlake, U2, Elton John, Mariah Carey and The Beach Boys. In 2008, UMG acquired new publishing contracts, including with Adele, Salif Keita, Missy Elliott, Black Kids and Snow Patrol.

Artist services and merchandising

In2007 the Artist Services and Merchandising division was formed, providing the foundation for UMG’s participation in a broader range of music related revenue streams.

The Artist Services division was comprised of artist management and events management units. The artist management group contains renowned companies such as Twenty First Artists and Trinifold and represents artists including The Who, Elton John, Robert Plant, James Blunt, Mick Fleetwood, ZZ Top and David Bisbal. In 2008, UMG established Universal Classical Management and Productions leveraging UMG’s leading position in the classical music sector. Artists represented include Anna Netrebko and Rolando Villazon. UMG also has established artist management units in several major music markets outside of the US and UK focusing on local repertoire.

UMG’s new merchandising division, Bravado, is the only global, 360° full service merchandise company that develops and markets high-quality licensed merchandise to a worldwide audience. The company works closely with new & established clients, creating innovative products carefully tailored to each artist or brand. Products sold on live tours, via selected retail outlets and through web-based stores.

Bravado also licenses rights to an extensive network of third party licensees around the world. The company maintains offices in London, Los Angeles, New York, and sister companies in Berlin, Paris, Tokyo, and Sydney. Now under the Universal Music Group umbrella, Bravado is able to leverage a global sales and distribution network from the world’s largest record company, as well as the group’s significant marketing strength. Bravado artists include Kanye West, Nickelback, Beyonce, Elton John, Guns N’Roses, Metallica, Led Zeppelin, Pink, Iron Maiden, Alicia Keys, Nine Inch Nails and The Killers, among many others.

Vivendi will sell its 20% interest in NBC Universal to GE (subject to the closing of the GE/Comcast transaction) and will not be a shareholder in the new entity resulting from the joint venture between NBC Universal and Comcast. The 20% interest is valued at $5.8 billion.

Are there any significant current or past ethical issues as it relates to marketing?

Outside North America, the Universal Strategic Marketing division of Universal Music Group International works to maximize the profile and value of UMG’s catalogue in international markets. It acts as a service centre adding value through marketing initiatives and coordination of commercial issues through local and international markets.

UME is responsible for the marketing and sale of catalog releases from all UMG labels other than Classics and Jazz. UME is a division of Universal Music Group, the world’s leading music company with wholly owned record operations or licensees in 63 countries around the world. Its businesses also include Universal Music Publishing Group, one of the industry’s largest global music publishing operations. The Universal Music Group owns the most extensive catalog of music in the industry, which is marketed through two distinct divisions, Universal Music Enterprises (in the U.S.) and UM3 (outside the U.S.). Universal Music Group is a unit of Vivendi Universal, a global media and communications company.

Zune announced that they will pay UMG a per device royalty for every Zune player sold – a first in the industry. The distribution of digital music is not that old, and the current method is not really doing a lot to compensate artists fairly.Apple worked closely with Universal to create this revenue opportunity for artists, as the industry transitions to a time when it can fully take advantage of new opportunities that digital experiences offer, both for consumers and for artists and labels.

Yes, UMG will share a portion of the proceeds with their artists. No, neither MS nor UMG are disclosing the specifics. In addition, they are already talking to labels (yes, both indies and majors) and offering up the chance to participate in a similar way. This deal is notthe only thing we are doing to support artists. The Zune device has some cool independent artists like the Editors and Small Sins pre-loaded. We collaborated with CSS for their tour with Ladytron. You will see some other cool stuff come through in the next few weeks.

MS is probably paying UMG to gain market share from the iPod. I am only speculating but it might have something to do with the wireless song sharing between Zunes. You can beam a song to a friend who can then listen to it for three days .I have no idea, but I doubt MS would do the deal unless it is in their favor. If the wireless sharing, larger screen of the Zune and the UMG deal help them, gain market share from Apple then it makes sense. Once they have enough market share they can renegotiate. The deal seems a lot like a huge corporate affiliate program. MS gives UMG a cut for selling Zunes through their catalog and song sharing. I completely agree that if artists are not getting a cut, this overall is not good in my opinion.