Economics

The level of concentration in the global music recording industry increased since the late 1980s despite the development of new, low-cost recording, production and distribution technologies, because the Big Five of the music industry is strongly vertically integrated, which provides it economies of scale, and which gives them the economic power to also control marketing and promotions, as well as the management of recording artists and their creative ouput.

The Big Five of the global music recording industry consists of AOL Time Warner, Sony, Bertelsmann, EMI, and UniversalPolygram. It is evident from these names alone that there is an increasing concentration of the industry through mergers and acquisitions (MAs), because of the economies of scale that these MAs can offer. Through a concentration of power and property, these international media companies have created empires of sound (Millard, 174, cited in Bishop 2005, p.443), which controls over 75 of the worlds musical production and revenues (Bishop 2005, p.443).

The Big Five is robustly vertically integrated, because in many nations, it owns production and distribution process, or are partners with production and distribution companies. The Big Five also have the capital to spend on the first copy of the music, which is expensive because of the production costs involved, and consequently, they gain the rights for production and distribution. It does not matter then, if new, low-cost recording, production and distribution technologies have been developed, because the Big Five greatly controls actual music production and distribution through intellectual property rights (Laing 2008). For instance, even if there are many companies making CDs, they do not have the right to reproduce music labels, without the permission of the studio, which mostly comes from the Big Five. They have to pay for the license to multiply copies, which already increases the costs of production. In addition, they also have to follow the right distribution channels, which also suit the image of the recording companies.

The Big Five act as an oligopoly, wherein they control market prices, through the power they have in the vertical, and sometimes also the horizontal side, of the value chain system of the musical industry. The fact they also own the recording artists as the producers of their albums, demonstrate that they own the knowledge or information from these artists. The creativity of the music artists serve to protect the music recording industry from stagnation and the Big Fives control over this creativity indicates their ownership even for future music revenues. This ownership, nonetheless, includes responsibilities for marketing and promotion in retail channels, as well as TV and radio stations. Unlike independent musical recording companies, the Big Five can invest on promotions heavily, which can maximize the access to the target market and improve eventual sales. Sony is even horizontally integrated, because of the media channels it owns, which also increases the concentration of the global media industry, and not just the recording sector.

In addition, the Big Five serve their interests to co-evolve as an oligopoly, by developing standardized production and distribution processes (Huygens et al. 2001). An example is the process of converging creative music and commercial business (Huygens et al. 2001, 1006). Moreover, through highly standardized production and distribution processes, they can impose more intellectual property rights and increase the barriers to new players.

Finally, it is seen that the concentration of the global music recording industry will continue, because at present, they are already buying out many independent music recording companies. In addition, Sony and AOL Time Warner are already media giants, which are both horizontally and vertically integrated enough to continue pursuing worldwide concentration through MAs and other forms of partnerships.