Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, December 29, 1994 TAG: 9412290089
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
SOURCE: Knight-Ridder/Tribune
DATELINE: LENGTH: Long
Thumbing through the compact-disc racks at the local music store, one can find thousands of albums produced by what seems to be a huge variety of separate, independent record companies.
Look again.
The vast majority of those record labels are controlled by six major conglomerates.
Through their huge manufacturing and distribution networks these corporate giants influence the prices consumers pay for albums, collect most of the money for themselves and dictate, to a large extent, what music the public listens to.
But the advent of developing technologies may change all that.
The six recording superstructures - Time-Warner Inc., Sony Corp., Germany's Bertelsmann A.G., Philips NV of the Netherlands, Thorn EMI plc of Great Britain and Japan's Matsushita Electric Industrial Co. Ltd. - manufacture or distribute more than 80 percent of recorded music, said Ed Christman, retail editor of Billboard magazine.
``For the first nine months of this year, independent labels had a 15.5 percent market share of the industry,'' Christman said.
Paul Gluckman, senior editor of Audio Week newsletter, agrees that the six large corporations control the very structure of the music industry.
``Any band you've heard of that has a national reputation is signed with one of the six firms,'' he said.
``Typically they're under contract with one of the major labels or one of their subsidiaries.''
Some analysts claim the powerful control the big six exert over the supply of popular music to retailers and radio stations makes it nearly impossible for artists to reach more than a tiny fraction of the American public without joining their corporate ranks.
Others argue the sheer power of these giants allows them to influence retailers' pricing practices.
Large chains of record stores such as Tower Records and Spec's Music dominate much of the retail side of the recorded-music industry.
While most of these companies have no corporate connections to the six major music manufacturing and distribution giants, they purchase most of their merchandise from the six large distributors, which provide most of the popular music on the market.
Smaller retailers are finding it hard to compete with those large chains for the popular music carried by the major distributors, said Tony Rifugiato, owner of Daddy Kool Records & Tapes, an independent store in Sarasota, Fla.
These distributors don't provide special prices and other benefits to small record stores because they don't sell as many tapes and CDs as the major retail chains, Rifugiato said.
``They'll do business with you if you're a smaller company, as long as you can hit a certain limit [of unit sales] per annum.''
Independent record stores can purchase big-label albums - but they must do it through ``one-stops,'' companies that act as middlemen between the major music monoliths and the small record shops, Rifugiato said. In the end, the small shops pay about 15 percent more for new release CDs than the large retailers.
That's because the big six music companies control nearly 100 percent of the national music distribution, said Peter Alexander, an economics professor at Ohio Wesleyan University in Delaware, Ohio. Alexander studies the corporate structure of the music industry.
The desire for mass distribution often leads artists to use the recording and manufacturing companies affiliated with their distributor, he said.
``In order to get anything anywhere in the pipeline, you need to be distributed by a major firm,'' he said. ``Power in this industry is at the distribution level. If you can't get it in stores, you simply can't sell it. If you want to get it in stores, you have to go through a major distributor, and that means playing by their rules.''
Although artists need talent and creativity to succeed in the music world, without a large distribution network even the best bands and independent record companies can have trouble reaching their potential audiences, Gluckman said.
``It's more a distribution issue than a creative issue,'' he said. ``The distribution companies are the bread and butter of the operation.''
The predominance of the six major music conglomerates in the production and distribution of most recorded music also strongly influences radio stations, which in turn influence record sales and popular taste in general.
``Directly and indirectly, the major firms are able to influence the content of radio play,'' Alexander said. ``One can't live without the other. They need each other.''
|n n| The music industry was not always controlled by a half-dozen huge corporations. Throughout the '50s and the '60s a plethora of tiny independent recording companies brought us many of the most popular songs and artists of the era, Alexander said.
``Even as late as the '70s you still had these small upstart labels that could break a new album nationally. That no longer exists,'' Alexander said.
That network of independent music distribution companies that developed alongside the small labels is now nearly extinct - most independent distributors that were not purchased by the large corporations lost the volume of new popular recordings they needed to survive, Alexander said.
``The system has changed drastically. A major consolidation went on in the 1980s. What you hear is what they produce, and what you buy is essentially theirs.''
Now, each major label has its own affiliated distribution company, which also falls under the umbrella of the parent corporation, Gluckman said.
Although some small distributors still exist, he said they focus on local or regional areas. The six major music companies control nearly all of the music-distribution industry.
Their distribution subsidiaries are the only game in town when it comes to widespread national and international distribution. Even the smallest, most independent-minded labels sometimes rely on the big companies for distribution of their records, Alexander said.
``All the independents of any stature who can get something placed nationally are all bought up,'' he said. ``To start a new national distribution network, you're probably looking at an initial investment of at least $100 million, and there aren't that many small firms with access to that kind of cash.''
|n n| The domination of recorded music by giant corporations may be affecting the content of popular music, influencing which songs the public hears. According to a business report about the communications industry released last month by Veronis, Suhler & Associates, a company that analyzes the recorded-music industry, the industry has become ``more diverse.''
``There is no overriding genre or style that dominates the industry in the way that rock-'n'-roll did in the 1950s and 1960s,'' the report states.
But Alexander said the most popular music has become more homogeneous over the years as the huge entertainment conglomerates gained influence over the music industry. In his studies of the recordings that make the top-40 music lists, Alexander found the variety within these recordings is measurably decreasing.
``The songs that dominate the popular charts are all very similar in basic content, in style, in form and harmonic structure. The major firms have very little incentive to change what is for them a good thing. And independent firms, which innovate in this business, are no longer a dominant force.''
The final price consumers pay for albums is also affected by the six mega-conglomerates.
CDs commonly are sold in record stores for $13 to $16, and much of that goes into the pockets of the six big music companies.
The manufacturers' cost of pressing CDs is less than $1 per CD in most cases, once the master recording of an album has been made, Gluckman said. This cost varies - more popular albums are cheaper to press per CD because more of them are manufactured - but the majority of compact discs cost between 70 and 90 cents each to produce, he said.
The rest of the money a consumer pays for a CD goes to the retailer; the companies that handle distribution, promotion, manufacturing and promotion; and finally to the artists, their agents and other incidental recipients, Alexander said.
``The royalty rate will vary depending on how prominent the artist is,'' he said. ``You might have Michael Jackson getting as high as 20 percent, or a less-known artist receiving 5 percent or less.
``I would suspect that the markup is at least 100 percent. If you were to take all the costs associated with manufacturing and recording and the like, probably you could market the CD for $6 or $7, and that's probably a conservative estimate.''
by CNB