Music Industry and Royalties Overview

The Music Industry and Royalties

• The music industry revolves around creating and using music.
• There is a complex system of payments called royalties.
• Royalties compensate those involved in the songwriting and recording process.

Synchronization Fees

• One-time payment for licensing a song for use in film, television, commercials, video games, etc.
• The fee is negotiated between the songwriter(s) and music publisher.

Copyright Fees

• One-time or ongoing fee for using specific protected elements of a copyrighted work (melody, lyrics, etc.).
• The specific fee structure depends on the usage and negotiation.
• Goes to the copyright holder(s), which could be the songwriter, publisher, or someone else.

Performance Rights Organizations

• These firms aim to protect songwriters, composers, and music publishers' musical copyrights.
• They monitor public performances of music (broadcast or live) and compensate the creators accordingly.
• Examples: ASCAP, BMI.
• They collect licensing fees from users of music created by members and distribute them back as royalties.

The Business Model: Performance

• Wide customer base: They appeal to a broad segment of the target audience, not just specific niches.
• Low price sensitivity: Customers are less likely to switch brands based solely on price, recognizing their value and familiarity.
• Stable profit margins: They offer consistent profitability due to reliable demand and potentially established pricing strategy.

The Business of Toys

• In 2023, US toy retail sales were estimated at $28 billion.
• Approximately 70% of toy manufacturing is concentrated in China and Hong Kong.
• It's a highly seasonal business, with 2/3s of sales happening in the last 12 weeks of the year.
• Collectability and a storyline create strong consumer demand.
• Evolving consumer preferences are impacting the industry.

The Toy Firms

• Manufacturers: Mattel, Bandai Namco, LEGO, Hasbro.
• Retailers: Walmart, Toys 'R' Us, Target, Amazon.com.

The History of Video Games (Continued)

• 2016: Augmented reality (AR) gaming comes onto the scene with software like Nintendo's Pokémon Go.
• 2020: Xbox Series X and Series S released by Microsoft. Playstation 5 released by Sony.
• 2022: Valve releases the Steam Deck, a handheld gaming PC running SteamOS 3.0.
• 2023: Playstation VR 2 and Meta Quest released. Apple announces entry into the market with the release of the Apple Vision Pro.

A Multi-product Industry

• Hardware (Platforms): PC, Personal Consoles, Handheld, Arcade.
• Software: Physical Media, Online Media.

Dominate Video Game Consoles

• Sony: Playstation.
• Microsoft: XBox.
• Nintendo: Switch.

Organizational Structure

• Developers: Create video games. They may specialize in a certain system or develop for multiple systems.
• Publishers: Responsible for manufacturing, marketing, and distribution of video games.
• Distributors: Large publishers distribute their games directly, while smaller publishers hire distribution companies.

Competitive Balance in Sports

• "Sports is the only business where the owners want regulation, and labor - the players - want the free market"
• The industry is set up to support and help the survival of the weakest teams.
• Examples: Player draft, Revenue-sharing rules.
• Rationale: Promote a competitive league-wide benefit.

Handicapping the Strongest

• Competitive balance is a key model in some sports leagues.
• Examples: Salary caps, Reverse order of finish draft.

Revenue Pools and Allocation Rules

• Administrative mechanisms aiming to achieve set objectives (e.g. competitive balance) or enable low-revenue clubs to meet minimum payrolls.
• The result of negotiations between league administration, clubs, and player associations.
• Examples: Salary caps, Television contract revenue sharing.

Clubs

• Sports teams are divided into the playing side and the business side.
• Club operations and organization include marketing, sponsorship, ticketing, stadium operations, accounting, finance, human resources, legal, media/PR.

Soaring Franchise Valuations

• Sports franchises are considered local monopolies.
• Television revenue drives value.
• Tax advantages and municipal subsidies contribute to value.
• Long-term appreciation is a key factor.

US Sports Industry Revenue (2017)

• Direct TV, Fox, and ESPN are the most pervasive providers of tier 1 professional sports.
• These numbers do not include NCAA and several other amateur sports, nor the international sports market.