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Economics of the Music Industry

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Taleen Darakjian

on 22 February 2014

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Transcript of Economics of the Music Industry

Economics of the Music Industry

Tangible and Intangible resources
Tangible Resources

Land
: recording studios and venues
Labor
: artists, song writers, and producers
Capitol
: instruments, recording booth, outboards
Supply and Demand
Music lovers are always looking for new music, and are willing to spend money on their favorite artists.
People who enjoy music are the ones who are demanding its production and the record labels and artists are the suppliers
Typically when there is a lot of demand for a product people will pay whatever the price is to get it
20 years ago everybody was purchasing CDs, because you could only purchase music in stores you were limited and depending on the type of music you were looking for the store may not have carried it therefore people were willing to pay more
Now the prices of albums have lowered due to the mp3 file and iTunes, obtaining music is now easier
People want to consume a lot of music therefore there is high demands
What is the Music Industry?
The music industry consists of the companies and individuals that make money by creating and selling music.
Music Law

The music law refers to the legal aspects of the music industry.
This includes the recording labels, music publishers, merchandise, the live events sector, and of course the artists
3 Economic Questions
What to produce?
Albums, singles, music videos
Microeconomics

The music industry is considered part of microeconomics. Consumers will purchase the albums they are interested in and attend concerts with their own incomes. The industry is also made up of firms (record labels). The government has little involvement in the industry other than copyright and music laws.
Music licensing
It is the licensed use of copyrighted music. Music licensing is intended to ensure that the owners of copyrights on musical works are compensated for certain uses of their work. A purchaser has limited rights to use and reproduce the recorded work without a separately arranged agreement.
Within the industry there are the musicians who compose and perform the music; the companies and professionals who create and sell recorded music; those that present live music performances; professionals who assist musicians with their music career; those who broadcast music; musical instrument manufacturers; and many others.
Copyright
Is a legal concept enacted by most governments that grants the creator of an original work exclusive rights to its use and distribution.
license:
The right, granted by the copyright holder, for a given person or entity to broadcast, recreate, or perform a recorded copy of a copyrighted work. (e.g radio stations, movies, plays, stores)
iTunes
iTunes is a media player and music library developed by Apple which is used to play, download, and organize digital audio
Through iTunes users can purchase and download music and video
How is iTunes allowed to sell music?
Apple has obtained permission from the copyright holder to sell those songs in the store. However, they have not purchased the songs copyright.
Illegal Downloads
Today there are many sites where you are able to illegally download music without paying a cent.
Although it is beneficial for consumers it does harm to the industry itself, like financial losses and layoffs
An example of these sites if Napster which is the first site where people were first able to download free music. With this new site people were not buying as much music, which eventually led to the lawsuit against Napster.
Intangible Resources
Knowledge
: editors, producers, musicians
Entrepreneurship
: management agencies, publicists
How to produce?
Put out new music as efficiently as possible
Looking at the interests of the consumers
With effort make sure the album is up to expectations
For whom to produce?
For people who enjoy music
Fans of the artist
Needs and Wants
Music is not a necessity that is needed in order to survive, a consumer doesn't need to go to a concert or purchase merchandise. Buying albums and attending concerts is more of a luxury therefore it is more of a want than a need
Decision Making Model~ Concert

Benefits
:
enjoyment, excitement
safe outing, out with friends
discover new music
Economic Costs
Monetary
Price of a ticket ($30-300)
Non- Monetary
Service charges
Parking fees
Food
Merchandise
Opportunity Cost
Not attending the concert and working instead
Due to advances in technology the number of suppliers has increased, more people have started creating and putting out music leading to not only more competition but a greater supply
Oligopoly
Within the music industry there are numerous top selling artists however there are 4 companies (record labels) that these artists are sponsored by.
These four record labels are Universal Music Group, Sony Music Entertainment, Warner Music Group, and EMI group, they control 80% of the market
These companies do partake in collusion to ensure that barriers to enter the industry remain high
Price Ceiling
Concert Pricing
Concert prices to see the Beatles in 1966 was roughly $5.75, today that would be about $40
Touring then was done to promote album sales, tickets were priced low to ensure that the venue was sold out, this produced an economic surplus
In the last decade the revenue for the industry declined
artists tour more and and ticket prices are increasing rapidly
In 2008 there was a 40% increase in the price of tickets, however the demand did not go down the revenue increased
Promoters keep increasing prices and people kept buying but the upward price trend cant continue
Once a certain price is hit the excess demand is soaked up
Elasticity
Number of uses
when you purchase an album the number of times you listen to it is unlimited therefore making the product elastic
Percentage of income spent
Although ticket prices of concerts are expensive people will still spent the money, tickets are always in demand. The increase in the price has no effect on the consumers budget therefore it is inelastic
The Nature of the product
Attending concerts and purchasing music is considered a luxury therefore it is elastic
Impact on Canadian Economy
"Government urged to invest in music industry to drive economic activity"
In an article published by the Toronto Star it states that Canada is neglecting the music industry’s potential to drive economic activity, create jobs and contribute more to the tax base.
Music Canada says that expanding the existing music-tax credit to include foreign-owned companies would generate $60 million dollars in economic activity and create 1,300 jobs in Ontario.
Music Canada’s five key directions for the Canadian music industry
:
Music Education
: Invest in music education given evidence that it prepares workers who are more creative, better problem-solvers, and possess soft skills that are critical in the digital economy.
Digital Innovation
: Find new ways to encourage consumers to pay willingly for music online.
Music Tourism
: Improve the market for live music as part of a comprehensive tourism strategy by engaging existing festivals, venues, music production facilities and talent.
Export Expansion
: Develop a national music export office to better assist music companies and performers.
Interconnected Tax Credits
: Modernize and expand tax credits for music companies that mirror the incentives for the film and TV industry, for both Canadian and foreign controlled companies.
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