“as CASE STUDY 16.1 Sony Music Entertainment: new worldwide i organisational structure and the marketing, planning and budgeting of Pink's new album On a sunny June day in 2073 the Executive Vice President Marketing for Sony Music Entertainment (SME), David Scott, gets on a plane from New York bound for London There, among other things, he is going to meet megastar Pink about the marketing campaign for her new CD release in spring 2014. Pink is one of SMES best-selling artists, and David is looking forward to meeting the star personally New in his job as Executive Vice President, David uses the plane trip over the Atlantic to study the global music industry more thoroughly. In August 2008 the international media and entertain- ment companies Sony Corporation and Bertelsmann AG announced that Sony had agreed to acquire Bertelsmann’s 50 percent stake in Sony BMG. The new music company, to, be called Sony Music Entertainment Inc. (SME), became a wholly owned subsidiary of Sony Corporation of America SME’ HQ is in New York. Sony Music Entertainment operates music labels such as Arista Records, Upstate Records, Columbia Records Epic Records, J Records, Jive Records, RCA Records, LaFace Records and Zomba Records. After landing in London, David hurries to the meeting with Pink, but on the way he thinks about the new global organisational structure of Sony Music Entertainment. In spring 2009 SME introduced a new organisational strategy for its music labels and corporate staff that would allow the company to focus on creating global music superstars who reach across geographical boundaries, The streamlining of the organisation eliminated regional corpo- rate groups in Europe, Asia and Latin American regions, and created four new strategic groups within SME: Office of the Chairman, Label Group, Territory Management and Corpo- rate Center. All management from the groups report directly to the CEO, Dough Morris Sony Music Entertainment wants to strengthen relation- ships with its artists The top management of the company thinks this structure allows its creative executives to be closer to artists, while allowing managers to better support their creative executives. SME wants an organisation built on record labels with global reach, The labels and the crea- tive executives should be able to work more closely with le being able to rely on effective global marketing capabilities. Reporting to the Office of the Chairman, David Scott is the company’s highest-ranking marketing executive, overseeing global marketing campaigns for Sony Music Entertainment artists. Also reporting to the Office of the Chairman are Human Resources, Strategy and New Tech- nology and Corporate Communications. One of David’ first tasks in the summer of 2013 is to create the worldwide marketing plan for the UK-singer Pink and her new album released in spring 2014, Hence, at Davids meeting with Pink in London, they agree that the launch of Pinks new album in 2014 should start up in the UK in an effort to get to the top of the charts as quickly as possible, First some general information about the newest market data from the global music industry. The world music industry in 2012 A general trend in the world music industry is that, since 2000, sales of recorded music have dropped off substan- tially, while live music has increased in importance. ‘A small handful of music companies (operating through several hundred subsidiaries and over a thousand labels) account for most records sold in the advanced economies. Music publishing - production and licensing of intellectual property rights ~ is even more concentrated. The global recorded music industry has fallen from around US$30 billion in 2000 to around $20 billion in 2012. The approximate market shares on the world market are shown in Table 1. Development in 2011-12 The ‘Big 5' major record companies became the ‘Big 4’ in 2004 when Sony acquired BMG, and the ‘Big 3’ when EMI ‘was acquired by Universal Music Group in November 2011 (see also Figure 1), EMI is the world’ oldest music label and is home to legendary artists like the Beatles, David Bowie and Pink Floyd. In September 2012, the deal was finally approved in both the US and Europe, This is @ considerable shake-up in the music indestry as it will make Universal even more dominant among the top music companies,Table 1 The global recorded music industry Record company Market shares (%) on the world market for recorded music (2011) Universal Music Group 7 35 Sony Music Entertainment 4 26 EMI Group 10 - Warner Music 4 13 Independent labels 25 ry Total 100 100 ; Source: Based on wu picom, musicandcopyrght fies wordpress com, New Musi Fist, www cmncom and other pubic sources, Activities (Actors involved): Figure 1 The value chain of the music recording industry, A label (like RCA under SME) typically enters into an exclusive recording contract with an artist to market the artists recordings in return for royalties on the selling price of the recordings. Contracts may extend over short or long durations, and may or may not refer to specific recordings. Established, successful artists tend to be able to renegotiate their contracts to get terms more favour- able to them, Over the past 100 years we have seen the music industry evolve through three basic stages, characterised by different technologies and different publishing organi- sations. Prior to the gramophone, when sheet music was the primary vehicle for disseminating popular music, the industry was dominated by music publishing houses, With the rise of recording (and subsequently broad- ‘casting, which was driven by the availability of ‘canned Npereoraee Distribution | mes | [do] [Ev Pin \ Recording \ marketing \ Wholesaling Suds | andvetaling i allgeleoh Taentsectes | ng \ Image \ Ontnes a metal ) gh, | Py Songwriters, /Productionana / anise. / O@tsl mus Uyricwriters, [packaging | Planning, | Soumieadine ef Ree) / eceeone | ocion | (Sa Concert] | ownleading) [companies | see | | eve tens || andlive / eg spoy) | | 5 Socal media (concer) (Facebook, etc.) a (Google, etc.) content’), those publishers were displaced by the record ‘companies, Today, increasingly the industry has involved entertain- ment groups that bring together a broad range of content p distribution and repackaging activities ~ broadcast, film, video, booking and performance management agencies, ; records, music licensing and print publishing. i See also the value chain of the music recording industry in Figure 1. In the early days of the recording industry, record labels were absolutely necessary for the success of any artist. The first goal of any new artist or band was to get signed to a contract as soon as possible. Through the advances of the internet, the role of labels is diminishing, as artists are able to distribute their own material free through web radio, YouTube and other services, or no cost.10. PART ORGANISING, IMPLEMENTING AND CONTROLLING THE MARKETING EFFORT The business model of di The digital music sector is pushing the limits of consumer choice, extending its business models and reaching out to consumers across the world. In 2011, digital chan- nels accounted for an estimated 32 per cent of the record companies’ revenues globally, up from 29 per cent in 2010, Some markets now see more than half of the revenues derived from digital channels, including the US (52 per cent), South Korea (53 per cent) and China (73 per cent). ‘Around 36 billion downloads (combining singles and album downloads) were purchased globally in 2011, an increase of 17 percent from 2011 Ten years after the first online stores emerged in the Us and Europe, the music download sector continues to expand internationally and improve its offer to consumers, Download stores account for a large propor- tion of digital revenues and account for most of the 500 legitimate services worldwide, offering libraries of up to 20 million tracks. Digital music is now broadly divided into two main consumption models: ownership model (e.g. Apple iTunes) and streaming model (access to the music in the ‘cloud’ through internet). In general the growth per year of digital music has been 5-10% between 2007 and 2013, In future the ownership model is expected to lose ground whereas the streaming model is expected to increase its importance ‘Also driving growth is the global surge in consumer demand for smartphones and tablets, These, along with steadily growing broadband penetration, are a major factor in the increased uptake of both download and subscription services. ital music iTunes Jn 2003, Apple introduced a new business model in the form of iTunes. iTunes is based on the iTunes store concept and the single song purchase. The user acquires full rights to enjoy music by paying a fee for each song, In this model, the user becomes owner of the music. The acquired songs can be moved freely to an iPod or other mobile devices. The development of MTunes put pressure on the CD as a medium for music. In response, artists often produce only four or eight tracks instead of a complete album, The iTunes end user typically pay USS1 for a downloaded song. Of this amount, Apple takes 30 per cent, the artist gets around 10 per cent and the rest goes to the record company. spotify Spotify was founded as a subscription service in 2006 in ‘sweden. Spotify makes music available in a legal way by providing (partly free) access to songs and albums, The Spotify business model access to music through streaming) challenges that of iTunes (owning music). Spotify provides music to anyone with internet access, via PC or mobile device, for free. The Spotify model is based on: ‘music anytime, anyhow, anywhere: Users determine whether they take the free version (with advertising) or the premium version (without advertising) Spotify introduced the model of ‘providing access to music’ with or without advertising. ‘The user starts using Spotify in the free version, with adver tising. While getting to know the application, a complete new world opens up, You can play anything you like. And after a while, users who are bothered by the advertising shift towards the paid subscription model. This concept free drives paid' is fully recognised by Spotify and builtinto th business model. ‘The total number of Spotify users reached 20 milion in January 2013, five million of them paying monthly either Uss4.99 (ad-free, desktop version) or USS9.99 (adfree, available on all platforms: smartphone, offline, etc). AS of February 2013, the service is available in 25 countries, including the US, Australia and New Zealand. Spotify allows registered users to integrate their account with existing Facebook and Twitter accounts. Once users integrate their Spotify account with other social media profiles, they are able to access their friends’ favourite music and playlists. There has been some criticism of the business model, especialy from the artists’ side. Spotify has been accused of failing to compensate artists fairly. Spotify has responded to the criticism by stating that 70 per cent of Spottify$ revenue is paid out in royalties, and that the per-stream royalty rate has doubled since the service was launched. Spotify also, argues that the royalties are paid to the record labels, who then pass it on to their artists. The specific royalty that the artists receive depends on the contract that they have with their record company. Typically an artist will get USS1.50 every time a songis streamed 1,000 times on Spotify. ‘360 degree’ business partnerships The turmoil in the recérded music industry changed the twentieth-century balance between artists, record compa-_ nies, promoters, retail music stores and the consumer. ‘As of 2010, big retail chains such as Wal-Mart and Best Buy sell more records than music-only stores, which have ceased to function as a player in the industry. Recording artists now rely on live performance and merchandise f the majority of their income, which in turn has made the more dependent on music promoters such as Live Nation (which dominates tour promotion and owns a large num! cof music venues), In order to benefit from all of an artist’ income streams, record companies increasingly rely on '360 deal, a new business relationship pioneered by Robbie Williams and EMI in 2007, The terms of these '360 degree! deals commit record companies to. greater in across a range of artist’ activities in return for a prop of the revenue stream from all of that. This form of traditional licensing income is becoming an increasingimportant revenue channel for record companies. In the UK, income from non-traditional rights and licensing deals in 2012 reached 20 per cent of all the musicindustry income. Online piracy Widespread piracy is the biggest factor undermining the growth of the digital music business. It undermines the incentive to obtain music using legitimate paid models and depresses spending, even among those consumers willing to purchase music. The vast scale of the problem is widely recognised, as is the recent evolution of new forms and channels. Globally, itis estimated that 28 per cent of internet users access unauthorised services on ‘a monthly basis. For some countries, the piracy rate is extremely high. China is a market with huge potential for the music industry. However, in recent years it has suffered from an estimated 99 per cent digital piracy rate. China has nearly twice as many internet users as the US, but registered digital music revenues per user are currently only 1 per cent of that of the US. Pink - one of the best-selling pop-rock artists Pink (Alecia Beth Moore) was born on 8 September 1979 in Pennsylvania, To date she has sold over 3 albums worldwide. Her songs are characterised by their rebellious tone and a strict use of the first person. Her stage name, ‘Pink, is a nickname she has had since she was a child. She would get embarrassed easily and her face would turn pink Pinks career accomplishments include three Grammy ‘Awards, five MTV Video Music Awards and two Brit Awards On the 2 June 2011, Pink and her husband, Carey Hart (a professional US motocross racer), had their first child, Willow Sage Hart Pink returned to work four months after giving birth to her daughter Willow to begin filming the dramatic comedy Thanks for Sharing (released in 2012), starring alongside ‘Gwryneth Paltrow and Mark Ruffalo. million Pink’s musical career Pink released her first single, There You Go, and her first album, the R&B-oriented Can't Take Me Home, in 2000 via Laface Records, which garnered commercial success. Her more pop rock-oriented second studio album, Missundaz- tood, which began a marked shift in the sound of her music, was released in 2001, and was a worldwide success, The CD Can't Take Me Home was certified double platinum in the US, sold five million copies worldwide and produced more top 10 singles, On the second album, Pink took her sound in a new direction and sought more creative control during its recording. She recruited Linda Perry, former singer of 4 Non PARTY CASESTUDY 611 Blondes (one of Pinks favourites in her teenage years). The album, titled Missundaztood because of Pinks belief that people had got the wrong idea about her, was released in November 2001 The first single, Get the Party Started (written and produced by Perry), went into the top five in the US and. many other countries, and number one in Australia, Pink’s third and fourth studio albums went well but sales were not excellent. Funhouse, the fifth studio album by Pink, was released by LaFace Records worldwide in October 2008, Upon its release, the album reached number one in the charts in Australia, New Zealand and the UK, while debuting at number two in Germany, Ireland, France and the US, The album's main single, So What, was the biggest solo success of Pink’ career up to that point, topping the charts in 11 countries so far, including her native US, the UK, Germany and Australia, and reaching the top five in many others, By the end of 2009, Billboard magazine named Pink the ‘number one pop artist of the decade, as well as naming her the 13th overall music artist of the decade, 'n 2009 Pink went on a worldwide tour, and during 2009-10 she sold a total of 3,000,000 concert tickets,In the first week of October 2010, Pink released Raise Your Glass, the first single from her first compilation album, Greatest Hits...So Far!!! The song celebrates a decade since Pinks debut in 2000 and is dedicated to her fans who have supported her over the years. The song peaked at number one on the Billboard Hot 100, becoming Pinks 10th top ten hit, and her second solo number one on the chart, On 12 November 2010, Pink released the compilation album Greatest Hits . . . So Farl!l, and month a later she released hersecond single from the album, called Fuckin’ Perfect. The song reached number two on the Billboard Hot 100 and peaked at number one in Germany, Pinks sixth studio album (The Truth About Love) was released in autumn 2012, The single Blow Me (One Last Kiss) was released as the first single from that album. The song topped the German Airplay Chart, becoming Pink’s 10th consecutive single to do so and increasing her record for the greatest number of consecutive number one singles in Germany. The song also appeared on the South African Airplay Chart, reaching a peak position of number two. As of October 2072, Pink was placed third behind Rihanna and Beyoncé for greatest number of top 10 hits fora female artist since 2000. On 5 February 2013, Pinks’ music video for Just Give Me a Reson featuring Nate Reuss (from the group FUN.) was released on her official Vevo channel on YouTube Pinks second single from the album (The Truth About Love) was Try, which was a commercial sucess for Pink in Spring 2013, reaching number one in Spain and top ten in several other countries. The typical value chain for a CD The following shows how the ‘value added’ of a typical physical CD album is split among the various players in the value chain: £ Retail price to consumers (exclusive of VAT) | 11 Price to retail 8 | | (Prieto dstrbtr from recor company) | 5 Creation and development In the music industry, record labels wil actively seek to sign up bands and artists on long-term exclusive contract, A key to success in developments to spot talent and to sign it up early. Discovering, developing and promoting talent can be extremely expensive. In recent years, anew wave of realty TV ‘competitions has drawn huge audiences, Many talented stars hhave been found through such shows, from Kelly Clarkson in the US to Leona Lewis in the UK, but these are only one means of discovering talent and they complement, rather than substitute, the talent work done by the record labels. (612 PART ORGANISING, IMPLEMENTING AND CONTROLLING THE MARKETING EFFORT Production and packaging Production is relatively cheap in the music industry, and the cost of digital recording equipment and production of CDs is falling rapidly. Some consumers do not understand why the sale price of a CD is so much higher than the cost of producing the actual physical disc. However, as described below, there are many different activities and costs involved in creating songs and marketing the end result, the album. Distributors Major distributors have a global network of branch offices to handle the sales, marketing and distribution process. Sometimes the distributors outsource the physica distribu- tion process. Retail Retailers put in orders to the wholesalers as and when albums and singles are required. In the UK the retailing of CDsis dominated by the big department store chains, such as Marks & Spencer, and specialised music stores. However, because of the popularity ofthe online business model eg iTunes, Spotify), these ‘bricks-and-mortar’ retailers are now struggling financially The costs of a hit Singles are released with the purpose of getting to the top of the charts. The financial risks involved in mounting an attack on the UK charts have never been greater. Securing a top 10 hit in the UK in the current climate is likely to cost a ‘minimum of £150,000. Everincreasing amounts of financial resources are being thrown at marketing and promotion in the hope that a single will be picked up by television, radio and, perhaps most importantly, the major retailers, in order to secure the highest chart entry. Biggest cost categories Of course, the most important component of a CD is the artist's effort that goes into developing the music. Artists spend a large portion of their creative energy writing song lyrics and composing music or working with producers and creative executives to find great songs from great writers This task can take weeks, months or even years. The creative ability of these artists to produce the music, combined with the time and energy they spend throughout that process, is in itself priceless. But while the creative process is priceles, it must be compensated, Artists receive royalties on each recording, which vary according to their contract, and the songwriter gets royalties too, In addition, the label incurs the costs of finding and signing new artists. Once an artist or group has songs composed, they go into a studio and begin recording. The costs of recording, Including studio fees, musicians, sound engineers, resproducers and others, must all be recovered by the price of the CD, Professional studio recording costs vary widely, but for a pop or rock album, they commonly exceed £100,000, This investment includes the livelihoods of the community of professionals working on a recording, including studio producers, sound engineers and session musicians. Then come the marketingand promotion costs - perhaps the most expensive part of the music business today. increasingly they include expensive video clips, public rela- tions, tour support, marketing campaigns and promotion to get the songs played. Labels make investments in artists by paying for both the production and the promotion ofthe album. The internetoffers new ways for artis to reach ‘music fans, but it still requires that some entity, whether a traditional label or another kind of company, market and promote the artist so that fans are aware of new releases. | For every album released in a given year, a marketing strategyis developed to make that album stand out from the others hitting the market. Artwork must be designed for the CD box, and promotional materials (posters, store displays and music videos) have to be developed and produced, For many artists, a costly concert tour is essential to promote their recordings ‘nother factor commonly overlooked in assessing album prices isthe assumption that al albums are somehow prof- itable. In fact, the vast majority are never profitable. For | example, in the US, 27,000 nev releases hit the market every J) ves Most of these albums never sell enough to recover costs. In the end, fewer than 10 per cent are profitable and, Marketing and promotion costs The singles charts - compiled each week by different organ isations, radio- and TV stations - have always been the comerstone of the UK music industry. Singles are essentially 3-4 minute adverts for the albums. Singles'sales guarantee chart places and, in turn, radio play - and that is why music, label companies persist with them. They are a kind of loss- leader for albums, where the real money is made The biggest expense is normally the promotional videos, which for a mainstream artist starts at about £50,000 and ‘an cost anything up to £1 million (however, ths is excep tional), Videos are an essential tool for reaching music fans through services such as YouTube and social networking sites as well as specialist TV channels, e.g. MTV. A series of three professionally shot music videos to promote an album might cost around £150,000. The digital technology ‘and social media, such as FaceBook, can be used to develop relationships between artists and fans. Record companies show online what is happening in-studio or backstage. New artists in particular need to be heavily supported by record companies. The level of tour support required is highly dependent on the nature of the artist. Typically, rock fequire heavier support than pop acts, while artists who require a backing band or orchestra could rece to £200,000 in tour support. : insummary here are some ofthe basic costsfora'typical’ UK top 10 album: £ Recording, 100,000 Promotion videos 150,000 Remixes (of the 10,000 original single) Merchandising, 20,000 Posters 15,000 Stickers 10,000 PR (press) 10,000 Promotion copies to 10,000 radio stations, etc Website/social media (e.g. 30,000 Facebook, Twitter) Manufacturing costs (20p per CD) | 10,000 Optional: Press ads 15,000 Billboard campaign 50,000 TWiradio/internet advertising _| 300,000 | 200,000 Tour support These are often the biggest budget items for a record ‘company bringing the contents (the music) to the publi Marketing builds the brand identity from which artists can earn money from numerous sources, such as live touring to merchandise, Record companies often work with broad- casters, news media and specialist advertising and PR companies who also benefit from the investment. QUESTIONS 1. What do you think of the change in Sony Music Enter~ tainment’s organisational structure, from a geographical structure to an artist-driven organisation? 2. How would you produce a sales and marketing budget for Pinks forthcoming single and album? 3. How would you control your budgets? What key figures would you monitor? ‘4. What are the pros and cons for Sony Music Entertain= ‘ment and Pink making all Pinks music available on an online music service like Spotify? 5. What can Sony Music Entertainment do to reduce the. level of digital piracy of their music? ‘Sources: Based on International Federation of the Phonographic It dus (FP). wep yonwsonymusiccom, bly avaiable information onthe niet ;