Micala Priola

1
Universal Music

• Micala Priola
• Steve Schlauch
• http//www.umusicpub.com/dsp_catalog_timeline.asp

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Table of Contents

• Micala Priola
• History of Cds and Universal Music
• Corporations
• Opportunity Cost
• Factors of Production
• Steve Schlauch
• Demand
• Preferences
• Market Signals
• Oligopoly

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History of the Compact Disc

• Compact discs were first introduced in the mid
  1980s. They quickly took over both the audio and
  computer market. Much of the compact discs
  popularity stems from the 5 patented Color
  Books that were designed by Sony and Phillips.
• http//micro.magnet.fsu.edu/electromag/computers/c
  ompactdiscs/cd.html

4
The 5 Books

• 1st Book- Compact Disc used in Stereos
• A.) What?
• B.) Written?
• C.) Read?
• 2nd Book- CD-Rom
• 3rd Book- CD-Interactive Technology
• 4th Book- Rewritable Compact Discs
• 5th Book- DVDs

5
What are Compact Discs?

• Compact Discs consist of a layer of polycarbonate
  plastic, covered in a color-dyed layer of
  aluminum, and are finished with a protective
  layer of lacquer.

6
How are Compact Discs Written?

• A compact disc has many tiny rivets called
  stripes or pits on the surface of the disc.
  Between these pits are, lands, making patterns
  which allow data to be written on the compact
  disc.

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How are Compact Discs Read?

• A cd-rom drive interprets those patterns by
  focusing a lazor beam on the surface of the disc
  while the compact disc is spinning, the lazor
  reflects the light off of the pits and triggers
  electric impulses from the lands.

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Universal Music History

• Company founded in 1920
• Owned by Vivendi
• Ranks 1st out of the 5 leading music firms
• Has 71 licenses around the world to manufacture
  and distribute recorded music
• Represents 98 of the global market
• Worlds leading music corporation
• http//.umusic.com

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Universal Music Corporation

• Corporations- are firms owned by those who buy
  shares of stock and whose liability is limited to
  the amount of their investment in the firm.

10
2002 Year-to-Date Record Corporation Market Share
Total Albums (in percentages)
www.antimusic.com
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Opportunity Cost

• The value of the next best alternative which must
  be given up in order to get something
• Opportunity Costs of Universal Music
• The opportunity cost of Universal Music is that
  consumers can purchase compact discs, artists can
  record for, or employees can work for Warner,
  BMG, Sony, EMI, and others.

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Opportunity Cost (Cont.)
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FACTORS OF PRODUCTION

• Universal Music has buildings that operate in
  countries outside of North America.

• gt12,000 employees worldwide
• Some famous artists include Sheryl Crow, Shania
  Twain, and Mariah Carey

LAND
LABOR
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FACTORS OF PRODUCTION (CONT.)

• Universal provides compact discs, record labels,
  a publishing group, and music clubs to consumers
  and employees.

• Human Capital- includes the skills possessed by
  the workers in development, manufacturing,sales,
  and distribution sectors, and the skills of music
  artists.
• Physical Capital- publishing holds 47 offices in
  41 countries.

CAPITAL
ENTREPRENURIAL ACTIVITY
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Definition of Demand

• A relationship showing the various amounts of an
  item which buyers are willing and able to
  purchase at various possible alternative prices,
  during a given period of time.
• The demand in cds produced by Universal Music has
  drastically decreased. The International Trade
  Group estimates that pirated music now costs the
  recording industry 4.6 billion annually. The
  main reason Universal Music feels the demand of
  cds has decreased is due to the high prices of
  cds.

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Definition of Change in Quantity Demanded

• A movement along a demand curve in response to a
  change in PRICE. The price of cds has gone down
  from 12.98 to 9.99 and although we do not known
  the exact quantity, we can predict that the
  demand will increase with a lower price.
• 
  A
• 12.98
  
• Price
• 
  
  
• 9.99
• 
  B
• 
  600
  800

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Definition of Change in Demand

• A SHIFT of a demand curve in response to some
  other variable other than price. In Universal
  Music the shift was caused by free downloading
  (substitute).
• Price
• 12.98
• 9.99
• 600 800
• Quantity

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Ceteris Paribus for Demand

• Input prices
• Number of Consumers
• Expectations of Consumers
• Price of Related Goods (SUBSTITUTES)
• Taste

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Definition of a SUBSTITUTE

• A good that can be used in place of some other
  good and that fulfills more or less the same
  purpose.
• Universal Music blames its sales slump of 31
  industry wide in the last 3 years largely on
  illegal music swapping over peer to peer networks
  and the proliferation of cd burning. These peer
  to peer networks are what we refer to as FREE
  DOWNLOADING.

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Reasons Consumers Prefer Free Downloading

• Economists must determine the preferences of its
  consumers.
• 1. Free
• ( 53 of adults said they stopped buying music
  because they said it was too expensive)
• 2. Easy Access
• (College students)
• 3. No Transportation
• 4. Creativity
• 5. Do not have to purchase a cd when you only
  like 1 or 2 songs on the cd

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Sources of Free Downloading

• KAZAA
• (60 million users)
• AIMSTER
• IMESH

• These sources of free-downloading have caused
  numerous effects on Universal Music.

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Effects on Universal Music

• Decrease in Demand of Cds
• (Universal reported that the demand of cds from
  2000-2002 has dropped by 140 million)
• Decrease in Price of Cds
• ( Universals price of cd once began around 18,
  then fell to 12.98, and now is 10 or less)
• 3. Decrease in New Artists
• 4. Increase in Unemployment
• (Vivendi is planning to eliminate up to 300
  artists and 500 staff positions. This is
  ultimately 11 of Universal Musics workforce.)
• Wallstreet Journal

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Benefits of a Cd

• Extra Features
• Do not have to make them
• No computer viruses
• No fines
• Less errors

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Market Signals

• These effects have led Universal Music
• Market Signals- Price changes that cause firms
  to more closely match consumer demand.
• In a market economy, price changes act as MARKET
  SIGNALS, ensuring that the pattern of production
  matches the pattern of consumer demands.

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Market Signals (Cont.)

• By using market signals Universal is attempting
  to revamp success, increase demand, and
  reinvigorate sales, Universal Music has recently
  slashed prices on compact discs as of September
  3, 2003.
• In order to slash prices, Universal Music must be
  a dominating Oligopoly.

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Oligopoly

• Oligopoly- a market sturucture in which a small
  number of firms are strategically interdependent.
  
• Universal Music dominates the market with 98
  share.

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Oligopoly (Cont.)

• In a bid to jump start sales and to respond to
  complaints that cds are too expensive, Universal
  Music cut cd prices from 12.98 to 9.99 or less.
  
• This is an attempt to increase the demand of cds
  once again. This price slashing will challenge
  other major labels to follow their lead.

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Oligopoly (Cont.)

• Price Leadership- one firm the price leader sets
  its price and other sellers copy that price. The
  leader must be the dominant firm in the industry.
• With price leadership, there is no formal
  agreement. The leader chooses to set the price,
  and the other firms follow because they realize
  that the system benefits them all.
• Today other music firms like Warner, BMG, Sony,
  and EMI are cutting prices of cds to closer match
  consumer demand.
• http//stacks.msnbc.com

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Conclusions

SURVEY

• How many CDS would you say you bought during
  2000-2002?
• gt 10
• 2-5
• 1 or lt
• Would you buy a CD if you liked only 1 or 2
  songs on the CD?
• A.) YES
• B.) NO
• 3. Have you ever downloaded music?
• YES
• NO
• 4. Do you prefer free downloading or purchasing
  a CD?
• Free downloading
• Purchasing a CD
• 5. Would you be more likely to purchase a CD if
  the price is lowered to 9.99?
• YES
• NO