Music Industry in the City of Buenos Aires...des music industry from live concerts, music industry`s diffusion by radio, industry of score publication and finally the record label

Music Industry in the City of Buenos Aires Changes and perspectives in the sector during the digital era.

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Music Industry in the City of Buenos Aires Changes and perspectives in the sector during the digital era. March 2011

Section IMapping of the Music Industry in the City of Buenos Aires

Introduction This mapping of local industry agents was con-ducted by means of an update and extension of the sector´s directory of companies and was esta-blished during the primary stage of this research. Extension, besides update, since it was based on previous existing registers of the Directory of Economic Units of the local statistics agency –DGEyC1 – but also with a listing for alternative sources elaborated especially for this research.

The first essential determination was to establish which activities make up the sector. Fulfilling this was done from the premise assumed for the present research: The Music Industry. This new approach is consolidating in these type of stu-dies: allowing to widen the analysis and avoide being limited to the traditional record Industry. The frame of reference, in studies like these, poses that the music industry “is one that carries music from its first link of the production or crea-tion chain- the author-composer- to the final consumer”, and that such conception, “inclu-des music industry from live concerts, music industry`s diffusion by radio, industry of score publication and finally the record label industry, specifically the phonographic industry or music recordings in any of its available mediums, either hard copies or digital. The first two correspon-ding to the service sector while the third and fourth produce durable goods.”(KATZ, 2006).

Another paper describes the nodes of the “pro-duction chain of music`s economy” as an inter-connected web in which different chains and services are enhanced such as the phonogra-

1 General Authority for Statistics and Census (DGEyC).

phic industry, digital technology, royalties and copyrights, mass media diffusion, shows and live music, musical instruments industry, equip-ment industry, technical and business training, amongst others (PRESTES FILHO, 2005).2

This broad conceptual frame allows us to bear in mind the new realities of the sector and the diversification of new business models which revolve around musical content. In consequence, this survey means to account for all intervening actors participating in the music´s economy value chain for the City of Buenos Aires (CABA), inclu-ding auxiliary industries. These are all activities that, even not belonging to the solid core of the industry (as those linked to creation, publishing, production and diffusion of music in all of its for-mats) are directly related to it.

Some examples are the musical instruments industry, sound and recording equipment, as well as music playing equipment. According to the mentioned paper by Prestes Filho, the first ones could be included, within the music chain value, at pre-production and production stages; meanwhile the last, in the consumption stage. Beyond it’s position within the value chain, it is important to mention that the existence of these industries and activities would have no meaning without the creation and production of musical content. (GETINO, 2005).

The first step in determining the universe of com-panies to be surveyed was to conduct an

2 In his work “Cadeia produtiva da economia da musica” (portuguese for “Productive

chain in the music economy”, Prestes Filho expresses that this is “a complex hybrid,

constituted by the group of industrial activities and specialiced services which are

mingled together, complementing each other in an interrelated system in order to

obtain common goals in the artistic, economic and business world”. He organizes the

activities in five stages within the value chain: pre-production, production, promotion,

commercialization and consumption.

analysis of the nomenclature for economic acti-vities, organized by the Directory for Economic Units of DGEyC (General Authority for Statistics and Census) in order to select the activities that include, totally or partially, companies related to the sector. See table.

Recording Publications.

Recording Reproduction.

Retail Sales of Music Instruments.

Retail Sales of Sound Equipment, radio and TV.

Retail Sales of records, video and audio cassettes.

Production of musical and theatrical shows.

Composition and performance of theatrical, musical and artistic plays, except those performed by individuals.

Artistic activities, performed by individuals.

Code NAECBA Activity Description

Source: DGEyC (General Authority for Statistics and Census)

These pre existing directories in the DGEyC (General Authority for Statistics and Census) correspond to the 2004 economic census. An important difficulty arose, in some of these posi-tions, from the survey: the impossibility of clearly identifying the economic units corresponding to the activity being measured. For the most part, these cases included the position of directly related companies. Keeping in mind the referred delimitation, and ruling out some of the auxi-liary activities mentioned in the CABA sphere - for example the fabrication of audio equipment and music reproduction - because of the diffi-

culties involved in capturing their position in the nomenclature they form part of, also taking into consideration the scarce presence of this indus-try in such field, the following positions in the Nomenclature of Economic Activities of the City of Buenos Aires where analyzed: with the sec-

tor, defined within the scope of this study, with others that were not. For example, in the case of position 52356, it covers Sales of electronic home equipment, activity that exceeds the targe-ted survey. In some cases, the definition for the position of the nomenclature is sufficiently broad as to distinguish the related activity. As the case in positions 921421 and 921422 where the music authors and composers are implicit.

These situations demand the survey of a large number of companies, in order to distinguish one from the other; this entailed an increase in cost

and time, which led to rule out those directories from the survey.3

Another difficulty we had to face, was with those cases in which there wasn’t a position that could clearly identify the surveyed activity. This was the case with several of auxiliary activities (Recording and rehearsal studios) and others that form part of the central core of the current music indus-try: Stages for live shows or digital plataforms/portals. Being this the case with those registe-red mainly in one line of activity - such the case with Live music venues, usually registered in the line of Restaurants and Bars- as well as those registered in several different lines - Recording or Rehearsal Studios - it was practically impossible to identify the companies intended to survey.

For cases with the above mentioned problems, in which there was scarce or no previous regis-tration of the companies, lists were created as complement to the DGEyC (General Authority for Statistics and Census) directories, based on various alternative sources and the conduction of our own surveys that led to the creation of an ad hoc list performed especially for this study.

In some cases, other sources were used as well, for instance the recording and rehearsal studios taken from the “Musicosas” Guide. In the specific case of live music venues a list was established based on our own surveys; commencing with a survey of ongoing showcases in different media: newspapers; La Nación, Clarín (Suplement “Si”)

3 We proceeded to discard those cases where no alternative sources were available,

nor listings that permitted to survey them. This was the case with music equipment

sales, being this an auxiliary industry; although some research is starting to highlight

its importance in the face of recent changes and how the industry is reshaping itself

and describe it as an “induced” impact together with other activities as with Internet

service suppliers. See PROMUSICAE, 2005.

and Página/12 (Supplement “No”). This was later complemented with information received by the “Observatory of Cultural Industries” (OIC), from various online communication bulletins for music related showcases, during the semester prior to the survey.

Finally, for some other activities, the final direc-tories were put together by combining informa-tion from different sources. This was the case with Record Labels, carried out by cross-refe-rence between the directory of DGEyC (General Authority for Statistics and Census) with the listing from The Music Office of the General Direction of Creative Industries (DGIC) which was established by the close relationship of this programme with the sector, thus allowing the inclusion of a more informal segment.

This is also the case for Musical Show Production Companies, a result of cross reference bet-ween the listing of Production companies from the “Musicosas” Guide with possition 921410: Theater and Music Performances from the direc-tory of DGEyC.

This compilation work of sector related compa-nies, based on a heterogeneous arch of informa-tion sources for the initial listing, allowed us to produce the broadest survey up to date in the Music Industry for the City of Buenos Aires. By this, we do not purport to present the mentioned survey as including the totality of companies par-ticipating in the value chain of the local industry, but clearly represents an important approach to such complete universe.

Therefore, the present update was created by the cross reference of these various data bases. Furthermore, additional work was conduc-

ted between those already existing in DGEyC (General Authority for Statistics and Census), in DGINC (General Direction of Creative Industries) and those especially conducted for this research by the OIC (Observatory of Cultural Industries). Accordingly, after refining an initial list of around 1200 entries, we came up with a directory of 814 companies that cover 10 different types of activities.

The shape of the final listing, upon which the tele-phonic survey was conducted, was according to the type and quantities shown on Table 1.

In such a manner, we take care of a broad spec-trum of activities, which in good measure allows for the analysis of the various branches of the value chain for the music industry, including some auxiliary ones. We can therefore claim this to be a comprehensive survey of the traditional record industry and turns out to be, in a first approach, for the digital market segment and live music.

Source: OIC, based on telephonic survey conducted in DGEyC.

Table 1Type and quantities of surveyed companies

Publishing and Record LabelsRecord StoreDuplicatingWholesale DistributorsRecording studiosRehearsal StudiosLive Music VenuesProduction ServicesDigital PortalsMusical Instrument Sales

Survey MethodologyThe applied methodology consisted on a tele-phone survey directed exclusively to principals, holders and/or authorized staff of each firm.4 Designed by DGEyC (General Authority for Statistics and Census), corresponds to an upda-ting survey from the Directory of Economic Units based in the City of Buenos Aires carried out by this organization. Questions aim towards obtai-ning information of a public nature regarding the activity of the economic unit5 i.e: corporate name, CUIT (tax identification number), address, princi-pal and secondary economic activity, premises location and number of employees. Information on premises location and employees discrimina-ted those corresponding to the City of Buenos

4 The present text also uses the term “firm” in reference to a company.

5 Denomination used by the statistical organism responsible for these surveys, and

it`s meaning can be understood as an equivalent to company.

Aires (CABA), its surroundings (Gran Buenos Aires) and the rest of the country.

The survey was conducted between October 15th, 2009 and March 15th, 2010, performing addi-tional surveys (as requested by the Argentinian Chamber of Phonogram Producers, CAPIF or by OIC´s (Observatory of Cultural Industries) initia-tive between April and June of 2010.

Regarding the analysis of information obtained, it is pertinent to mention that the DGEyC (General Authority for Statistics and Census) uses the declared main activity as the economic activity of the unit, disregarding any secondary acti-vity, to avoid duplicating information in shaping the directory of Buenos Aires city companies. However, in accordance with this studies goals, a broader definition of the economic activity is considered, one including the declared princi-pal and secondary activities, looking for a better understanding of the Music Industry agents.

Main results Hereby we present the main results in respect to the economic units and business premi-ses, sector´s composition, activity level, and employment.

Economic Units and business premisesA total of 538 economic units were contacted, representing 66% of the total available registers to survey. In short, the initial listing ended up divi-ded in three, 34% of registered companies were

untraceable, 33% was located and correspond to the Music Industry and the remaining third were ruled out, corresponding to another sector or not formally enlisted.

Untraceable6 companies are those in which no contact was established. In doing so, all possibilities were exhausted, such as mailing address, telephone search, Yellow Pages and/or TeleXplorer. Not until this process was com-pleted that these cases were placed as “untra-ceable”. Even though 34% could be considered as too high, we must bear in mind that many of the activities in this group did not belong to any formal listing from any statistical agency, but from a preliminary listing prepared for this sur-vey (Recording and rehearsal studios, live music, production companies, etc.) Distribution in these cases varies according to specialization, being particularly significant these cases: Rehearsal Studios (69.50%), Recording Studios (48.60%), and Record Stores (40.80%). With the first two cases, the high level of “untraceables” is in direct relation to the source for those listings, which were put together specially for this occasion, with higher inaccuracy resulting in contact infor-mation. On the other hand, the case of Record Retail Stores is highly related with illegal music sales and changes in the sector´s behavioural practices and those of consumers, on which we shall elaborate, further on.

From the total of contacted companies, only a low percentile refused to answer: a total of 38, repre-senting 7% of the original 538, and therefore 500 was the number of surveyed companies.

6 The implemented steps where: telephone search, address and registered name.

Daily phone calls during a week, 10 days prior, including calls to those listed as

adjacent addresses. At the end of this process if no contact has been made, these

registers are marked untraceable.

Of those 500 surveyed companies, more than half (54.60%) belonged to activities related to the music industry in the city of Bs.As. Of these 273 companies, 26 are not active - they have not been deleted from AFIP (Internal Revenue and Tax Agency) records-, but at least temporarily have no activity.

For the rest, (227 economic units), almost 60% (129 units) are companies which neither first nor secondary activities, are sector related. The rest has no recorded activity in the city, they were either discarded or not recorded as such. See Table 2.

The main activities, both in number of companies as in employees, are: on one hand, two business specialities directly related to the traditional record industry: record labels (including editing)

Table 2Summary of surveyed companies


Area or specialityRecord labels & editing

Record sales

Production services

Live music spaces

Duplicators

Musical instruments sales

Recording studios

Wholesale Distribution

Rehearsal studiosDigital

Premises StaffActive

companies

and record stores; on the other hand we have two related to the live music industry: live music are-nas and production services. These companies also have an additional number of 45 premises and 630 employment positions in the rest of the country.

Layout based on sector and activity level If we divide the lot by activities, into three cate-gories: in first place, those closely related to the traditional record industry- where we place record labels and publishing, as well as distribu-tors and duplicators-; secondly, the live music industry -where we place live music arenas and producers-; and finally a third category for auxi-

liary industries - recording studios, rehearsal studios and, musical instruments sales- we can appreciate that the first category accounts for 51% in companies and number of employment positions, live music accounts for 35% of the companies and 40% of employment positions; finally, auxiliary industries account for 14% and 9% respectively. See Graphics 1 and 2

In regards to average activity levels, we can appreciate that 9 out of 10 surveyed companies, are presently in active business. The majority belongs to the retail record sales, to the point of concentrating 54% of active companies for the sector (26), followed by record labels, with 23%.

On the following Graphic 3, you can see the dis-tribution for the 273 companies, by sector and status (active or inactive).

Graphic 1 and Graphic 2Layout based on Sub-sector and employment

Source: Our own based on survey conducted in DGEyC.

EmploymentAccording to survey results, the Music Industry in the City of Buenos Aires gives employment to 2370 people, of which 2171 belong to compa-nies that have as principal activity those areas, that conform the sector; and 199 belong to those deClaríng it as a secondary activity. 7

Although it was previously stated that this survey does not include -for various reasons- the totality of the value chain of the industry, we must empha-size that up to the moment that this research was completed, it was only known employment figu-

7 As mentioned, employment entries for secondary activities were considered exclu-

sively for those cases in which the main activity didn´t correspond to a sector`s activity.

Besides this was done by an estimate on those attributable to a secondary activity,

trying to minimize, an eventual overestimation .

res in record labels-publishing and of duplicators which accounted for 346 employment positions in the city (OIC, 20098).

This number of almost 2400 people employed in the Music Industry in the City of Buenos Aires, has to be considered as an estimate for employ-

8 Based in data provided by the National Ministry of Labour.

ment in the sector, taking into account, on one hand what was already mentioned in the intro-duction, that not all the companies which con-form to the value chain in the industry were surveyed (underestimate effect), and also, some kind of overestimate effect that might exist in some of the surveyed activities. Nevertheless, it can be stated that this estimate reflects rea-lity, for the Music Industry as such, with a much

Active Inactive

RECORD LABELS

RECORD STO

RES

PRODUCTION

LIVE M

USIC

RECORDING S

TUDIO

S

MUSIC

AL IN

STRUM

ENT SALE

S

WHOLE

SALE D

ISTR

IBUTI

ON

DUPLICAT

ORS

REHEARSAL STU

DIOS

DIGITA

L

Graphic 3The Music Industry in the City of Buenos Aires.Active and inactive companies, by activity type.


higher accuracy than what was available up to now.9

Employment break-out, by activityWithin the Music Industry in the City of Buenos Aires the most important activities as far as job creation goes, are those related to Live Music and retail record sales.

Both of these, present their own specific difficul-ties when collecting employment data; specia-lly the live music environment. Being the case, in several cases, that those being interviewed declare as their principal activity those of soft drinks sales, restaurants or similar. A case by case check up was conducted, regardless of their declaration for principal activity, as to deter-mine which ones have a strong orientation to live music shows, or when they have frequent inter-ventions in that respect. This allowed us to iden-tify those cases where music related activity is simply occasional.

In several cases they self define as Dinner Shows. In this category we can find many of the premises that offer tango shows under the name of dinner-shows. In these cases, it can be assumed that food related activity would not take place without the tango show, and thus we can safely credit the use of these places to the Music Industry.

Nevertheless, several of the surveyed locations

9 The total number of the sectors employment in the City of Buenos Aires – with

the mentioned preventions to avoid overestimation’s- is probably larger than the one

depicted here. It mus be considered, for example that only one out of six companies

that offer digital store services was able to be surveyed or that composers and perfor-

mers where left out because of the explained difficulty’s.

belong to a, so called, grey area, where even if it is habitual the presentation of live music shows, the premises operate on a regular basis as res-taurant and/or bar, not only during musical shows presentations. In this cases, it is rather difficult to properly determine how many of the employ-ment positions should be allocated to live music activity, as an overestimation may occur. Anyhow and to this effect, we proceeded to rule out those cases in which the performing stage is strictly occasional, and therefore assuming as reasona-ble the results thus presented.

Bearing in mind these caveats, this segment gives employment to 715 persons. Both in magnitude and as a percentage within total employment for the sector (31%), makes us consider its potential to that respect.

The other activity with most impact on employ-ment, is retail music sales. Even if this is the second largest employer, it is strongly concen-trated in two of the sectors largest business franchises. Therefore, we could also have an overestimate effect in this case, due to the fact that that both of them are not exclusively dedica-ted to recorded music retail sales. Nevertheless, in one of the cases the company defines its prin-cipal activity as Retail Record Sales, for which in this case, and according to general practices adopted by the statistics agency of the City of Buenos Aires, employment positions are credi-ted to the sector.

In order to minimize the risk of overestimating in the case of the other company, which declares as its principal activity book retail sales, and only as secondary activity that of Retail Record Sales, we proceed to estimate the number of employ-ment positions that belong to music retail sales

in the Yenny-Ateneo franchise.10 The result of this estimate allows us to claim that both franchisees employ 459 persons out of the 637 of total emplo-yment for the sector (72%), which none the less positions itself as second in importance, employ-ment wise, behind live music. See Graphic 4

10 According to the criteria defined at the beginning, regarding the inclusion of

companies that declare as first or secondary activity, one of those from the sector.

We also define for these cases (where the main activity is another and unrelated to

the Music Industry sector) as a provisional general criteria to consider the total of the

premises and employment reported by the company. In the case of this franchise and

considering it`s weight (deClaríng book sales as main activity) the general criteria was

reviewed in terms of employment. (all the premises include sales in music). In this way

a 50% of the employment of this economic unit is considered in the estimate. This

determination is taken when a reasonable estimate is available regarding the number

of personnel exclusively dedicated to music sales within the company.

Graphic 4Music Industry in the City of Buenos Aires

Employment break out, by activity


RECORD LABELSAND EDITING

DIGITAL

PRODUCTION

MUSICAL INSTRUMENT SALES

RECORDING STUDIOS

LIVE MUSIC ARENAS

WHOLESALE DISTRIBUTION

REHEARSAL STUDIOS

RECORD STORES

DUPLICATORS

Analysis of the main segmentsWe present this analysis for the main segments: record labels, record stores, distribution compa-nies, live music arenas and venues, agencies and producers, recording studios, musical instrument sales and digital music streaming portals.

Record labelsWithin the sector in the city of Buenos Aires, we

find two types of record labels. The so-called majors, in cases such as Universal, Emi, Warner and Sony/BMG, belonging to large multinational conglomerates and, on the other hand, the so-called independents.

Regarding the independent labels, we need to highlight the fact that it is a very heterogeneous group, with important differences among them regarding size, organizational structure and for-mality standards, and is mainly composed by very small companies (up to five employees), a reduced group of small businesses (at the outer-most, ten of them), and one or two medium size companies that could be considered as the local majors.

Finally, we have an informal segment that has grown during the last ten years, as result of new technological possibilities in recording and edi-ting, with low investment levels. Several of these ventures are not even registered in AFIP (local tax authority) as formal business units- even when in practice they operate as such- reason why we classified them in an ad hoc category as handicraft labels. Generally they set up shop in response to someone’s need to edit their own recordings. They don’t formally enroll as a label, due to the fact that their main economic activity is a different one, nevertheless they promote themselves through a brand name or fantasy name. It is hard to establish the level of activity with these type of companies, as in many cases they were created in order to edit a single record, and even they don’t know whether they will ever edit another one in the future. By the same token, it is important to acknowledge this segment, as it could well be working as a breeding ground for the formal record sector. According to Palmeiro (2005) many of the executives within the formal

sector, gained access into the record business with the purpose of editing their own work and only later expanded the operation to launching material belonging to other groups or artists.

The survey results confirm the existence of a high degree of informality in the sector, which could explain the considerable amount of companies that were not located (25), as well as the 12 record labels, belonging to the handicraft labels type. Nevertheless, the 64 active labels and registered as such, reflect a growth in respect to the 55 for-mally registered in 2004.

The initial labels listing was created from infor-mation specially provided by the office of Musical Option Area from the DGIC (General Direction of Creative Industries) and its cross reference with the existent directory at the DGEyC (General Authority for Statistics and Census), so as to avoid double entries.11 The initial formal direc-tory (Economic Census for 2004) accounts for 55 record labels. This increases to 134 when we include the existing registries at DGIC, due to the bonds established by this governmental office with the sector. Therefore it includes seve-ral informal labels, or so called artisanal labels, which can also include ventures undertaken by musicians which at some point registered in order to obtain some collateral benefits. Given the fact that for DGEyC the economic activity is defined, among other things, by proper registration with AFIP, those located but unregistered artisanal labels, are only accounted in quantity of labels, but not in franchise numbers or employment po-

11 We thank this team and coordinator Andres May, for the provided information

and a series of contacts that were facilitated, very useful for the interview stage of

this report.

sitions, as for this segment the survey was not completed. 12

The register originally consisted of 134 units13 of which 82 labels were located: 64 of them in acti-vity and registered as such, 6 non active and 12 artisanal labels. The total number of employed persons in those active units which declares it as their main activity es 257. 14

12 Regarding the twelve artisanal labels conclusive affirmations cannot be made in

terms of their current sate of activity. However it can be estimated that at least half of

them are active.

13 From those 134 units: 82 are labels, 25 untraceable, 22 other related activity

firms and 5 rejected the survey.

14 Those deClaríng the sectors activity as secondary and the first activity unrelated

with the music industry are included, in order of avoiding double entry’s.

Graphic 5Map for the Record Labels sector

Starting Total

Located Not located

Surveyed Neglected

Belonging to the music industry

Furthermore, allegations that business is in general not as profitable as before, was stated by those being surveyed, and in consequence one third of these search for alternative means of economic support, exploring other related acti-vities without abandoning the label existence. In these cases, the record label remains “stand-by” until a good opportunity arises, but until then it is not necessarily the main economic activity.

It is well known that the majority have ventured into show production, and a few into wholesale record distribution and artistic agents. But even if these new ventures may be economically more relevant, faced with the question of which is their

main activity, those being interviewed respond record publishing, which sets their preference on how they wish to be recognized.

We traced six labels without current activity, and their principals declared to be very upset by this situation, into which they were forced due to low business returns: “I have no way to finance record publishing, how do I recuperate my inves-tment?” paraphrasing one of them. According to their comments, profits have almost vanished as result of low record demand lately.

Music Retail Sales (record stores)The retail commercial segment in the City of Buenos Aires exhibits a heterogeneous range of participants. On one side we have the major franchises such as Musimundo and Yenny-El Ateneo (which at the time of the survey belonged to the same investment group ILSHA); and on the other side we have small and medium size record stores, which do not belong to any large inves-tment group. Both chains represent one quarter of total premises of music stores in the city, and two thirds of employment positions. As informed by CAPIF in 2007, both chains concentrated 60% of market sales,15 and according to data from this survey, one third of total premises and almost three quarters of all employment, for the sector.

On the other hand, there is a niche, made up of of smaller size record stores, and oriented to spe-cific music genres.16 This is the case of Zival´s

15 See <www.capif.org.ar/Default.asp?CODOP=NEWS&CO=1&CODSubLink=93

4>.

16 See <www.rollingstone.com.ar/nota.asp?nota_id=1023808>.

(jazz, opera and classical music), Notorious (jazz), Rock & Freud (rock), and Oid Mortales!, among other ones.

Another existing concentration is geographical; approximately seven out of ten premises are located in the City and the commercial strips in Palermo and Belgrano, meaning that there are few record stores in peripheral neighborhoods (specially in the southern part of town) or even in other central zones of town such as Caballito.

The initial directory list of record stores was of 206 units, of wich 122 were traced, meaning that roughly 40% of these companies were untraceable.

Among those 122 located companies, we can perceive a strong trend towards close downs, more than one quarter of the total (26.30%) has abandoned the activity: 18 companies have done it in a definitive manner (revoking registration with AFIP) and 14 have temporarily suspended their activities; as well as an important number of companies (29) switched to a different type of activity. Accordingly, one half of traced com-panies either closed down, temporarily suspen-ded activities or switched to different ones. The remaining 8, even though located, refused to provide any information.

To summarize, all data points towards the direc-tion of strong instability in Music Retail Sales, to the point that only one quarter from the original directory listing remains in business. Although we cannot assert that the 84 untraced record stores have closed down, it is safe to construe from recollected results, that a considerable part of these have disappeared.

The perception by those involved with the sector is rather discouraging. They allege that records retail sales have been seriously affected by piracy, whether by illegal copies sale on the streets as by downloads in Internet. “What is killing us is that there are too many illegal copies on the street...”, “what is really affecting this business are chan-ges in social habits...”.

Among those located companies 48 (39.30%) were found to be still operational. Owners men-tioned that even though they are still in activity

Graphic 6Map for the Music Retail Sales sector


Starting Total

Located Not located

Surveyed Neglected

Belonging to the music industry

this has been reduced to a “minimum expres-sion”, and this by absorbing themselves all labor as the economic margin does not allow for hiring any staff, “business simply does not allow for any hiring...”, and considering unnecessary the pre-sence of additional help due to low demand: “I take care of business by myself, and is more than enough...”.

Nevertheless, and notwithstanding the above mentioned reality, among that group of active stores we can perceive a 12.30% increase of new

ones,17 the majority of them located in the City or the commercial strips in Palermo and Belgrano. One third of them initiated their activities in 2009 and the remaining two thirds did so in between 2004 and 2008. Up to a point, this information challenges the idea that this type of business is doomed to disappear in the near future. Anyhow, we need to ask ourselves which are the new directions that the business is taking, and what type of companies are adopting or adapting to them in order to stay in business.

Those 47 active companies hold together 80-81 operational premises in the city of Buenos Aires and give employment to 637 people.

Even though the percentage of units that swit-ched their activity orientation is not significant (1%), it is important to stress that in those cases in which record sales was maintained as their principal activity, the sales of additional products (such as used books, computer supplies and craftwork) were incorporated in order to increase sales volumes, but with little effect according to their statements.

In short, the majority of those being interviewed perceive to be living through a difficult moment in their business activity, on top of this they claim not to receive proper support from government. Among other things, they mentioned the need for a reduction in sales tax for record sales, such as the one that took place in book sales.

The survey confirms the difficult situation which the sector is facing, and like many companies have been forced to close down or at least to

17 The new firms correspond to recent registered names for pr existing companies

in this area or other music or recording industry area.

redefine those selling points for recorded music. In particular the smaller ones, but not only these, as demonstrated by the closure- a few years ago- of the Tower chain stores and that of Yazz and Dromo (belonging to ILHSA) which had to close down their five premises. In this last case, the owners decided to reassign CD sales to their other chain Yenny-El Ateneo, which is basically a books retail chain.

Far from being a local tendency, you can see the process replicated all over the world. For exam-ple, in the United Kingdom the number of record stores has been systematically shrinking from 734 stores in 2005 to 305 in 2008.18 In the USA19, this trend becomes evident by the recent closure of the emblematic Virgin Megastore, in Union Square, in New York’s downtown; event which seems to confirm the final success of digital for-mats in that country.

This worldwide tendency towards extinction of retail record stores is the result of the cons-tant decline, at least during the past ten years, of recorded music sales in physical storage for-mat.20 At the national level, the same situation has been specially reflected during the past two years (2008 and 2009), with an accumulated drop of 25% in terms of physical units being sold, and almost a 40% for the past 10 years. It can even be said that the closing down process in music stores is previous to this, it started with the gra-dual concentration of independent stores into the hands of the mentioned major chains, as it gene-rally happened at the beginning of the 80´s, with merchandising of other cultural products, such

18 See <http://news.bbc.co.uk/1/hi/business/8005429.stm>.

19 See <www.rollingstone.com/news/story/15137581/

the_record_industrys_decline/2>.

20 See data in Section II of this report.

as bookstores and video clubs. Even though no authoritative data is available, according to mass media information less than 800 record stores still subsist in the country, against over 3000 esti-mated for 20 years back.21

Facing up to the situation, the major chains stra-tegy is to focus business on the sale of alterna-tive supports, with product diversification and specially orienting towards audio equipment, computers and related articles such as books. In short and within their business plan, sales of alternative support items is percieved more as a general public generator than income.22 As the contents of this research was being developed - February 2011- news were known about the sale of the Musimundo chain to the Megatone group, which dedicates to electronics and home appliances retail sales, which might indicate that we are not only facing a diversification in pro-ducts among music stores, but a clear subor-dination -or growing marginalization- of music retail sales to the sales of electronics and home appliances.

On the other hand it was also mentioned the existence of specific record stores, oriented to support sales, some specializing in certain music genres and/or market niches. Outside this two type of companies, which by reorientation to mar-ket niches or product diversification have been able to stay in business notwithstanding conti-nuous market changes, many music retail stores have closed down. Even if the high percentage of untraceable companies does not allow for cate-gorical statements, the fact that less than half of the traced record stores are still in business, is

21 See the La Nación newspaper, 22 June 2009.

22 See <www.Clarín.com/diario/2007/01/21/elpais/p-01710.htm>.

convincing enough to conclude that this is a seriously endangered sector. Furthermore this has taken place during a period (2003-2009) of generally strong economic growth –except for last year–, which further reasserts the need for new strategies and to rethink which are the public policies that might help support the music stores network in the city.

Wholesale distributors The initial directory listing for wholesale distribu-tors had 13 units, of which 11 of them were tra-ced. Among these there are 8 active ones: 6 are dedicated to record distribution as their principal activity, and 2 as a secondary activity. Several of these distributors are simultaneously impor-tant record labels, and this is how they defined themselves during the interview (DBN Belgrano, GLD distribution and Leader Music. So that, even the most relevant economic activity for this com-panies is record distribution, they rather prefer to continue being recognized as record labels.

Live Music Venues, auditoriums and arenasLive Music is one of the areas or segments for which there was no previous information in rela-tion to the universe of auditoriums and arenas in existence to that respect. Facing the impossibi-lity to recollect such information from updated DGEyC´s directories, the listed was put together in an ad hoc approach. Among them, these acti-vities are generally placed as position 552112, which corresponds to Services of Food and

Drink Sales in bars, coffee shops and pizza par-lours. This was an impediment for distinguishing among this group, those which belong to such spaces defined or recognized as pub theatres, bars with live music, or dinner theatres, among others.

The initial survey listing was therefore elaborated with information and data from the Musicosas Guide and an in house data gathering from news-paper supplements such as Si from Clarín, and No from Página/12, as well as live music bulle-tins received by OIC during the months previous to the field survey. The directory collected from these sources consisted initially of 82 units, of which it was possible to trace 61, that is three of every four. To this respect we need to consider information collected with this survey as a first exploratory approach in this business bracket.

From the total of traced units, 32 are presently operating as spaces where live music is presen-ted, among them 26 claim ( or it can so be inferred from their answers during the interview) as their principal activity that of live music shows, and 6 as a secondary activity. On the other hand, 22 of the companies declare that no live music shows are offered in their premises, but that they could be categorized such as “dancing halls”, “cultural centres”, or “night bars”.

We could perceive among those interviewed for this segment -beyond the three cases that refu-sed to be interviewed-, a certain reluctance in providing information on their activities, avoiding any precision when defining their principal acti-vity and being suspicious about deClaríng live music shows as an activity. This mistrust might be related with certain informality taking place in this sector, and linked to possessing pro-

per municipal authorizations and/or licenses23. Several of those interviewed declared that since the “Cromagnon” incident, prerequisites deman-ded prior to proper authorization have become very difficult to comply with: so much for requi-rement standards as for delays in paperwork approvals. These requirements for higher stan-dards and increased municipal control might have influenced the decision of some companies to abandon the activity, as well as their reluctance to declare in a conclusive manner their principal line of business.

It is important to highlight that this activity would be employing around 715 people. The already mentioned difficulties, whether as not disposing of a consolidated formal directory at the moment of initiating the survey, or the difficulty to establish accurately the number of employment strictly related to live music, demands some additional research in order to evaluate more precisely the magnitude of employment for the segment.24

Agents and Production companiesWe also had to face a lack of reliable information from participants in this area, prior to the survey, so that a special directory had also to be pre-pared. Mainly, information was cross referenced between the Musicosas Guide with the DGEyG registry corresponding to the position Produc-

23 Some of the interviewed subjects, when faced with the question if live music was

their primary activity, responded; “...if I don´t have the authorization, how could it be

the main activity...”.

24 Given these establishments in many cases open exclusively at night, an additio-

nal survey was necessary in the DGEyC. headquarters. Conducted for a group of 10

companies known to be active and non responsive during the day.

tion of theatrical and musical shows.

Moreover, the initial registry for Agents and Production companies consisted of 191 record entries, of which 135 were traced and 12 refu-sed the interview. From the total of interviewed units, 94 are presently in activity, but only slightly more than half of them (49) are music production related. There were 4 inactive units and 7 were dissolved. 25

In the case of those agencies dedicated to the production of musical shows, we need to men-tion the fact that the majority of them provide auxiliary services in staging concerts, recitals or live shows, and not so much to proper pro-duction or artistic work. This enables to convin-cingly connect this segment with the so called live music26 industry. On the other hand, some of the agencies only handle artistic performances27 in an occasional manner and not as a principal activity. In view that no previous information was available for this area, the data gathered for this survey should be considered as a first approach. Total employment for the activity adds up to 238 people.

Recording studiosThe registry for this activity was also assembled based on the Musicosas Guide, as no existing formal directory was available. e initially started with 74 units to investigate upon, of which

25 Those dissolved refer to economic units that ceased their commercial activity,

with an inactive Tax identification number (CUIT).

26 Services related to the logistics of the event.

27 According to Palmeiro (2005) the producer, also known as artistic producer, is

who directs the technical and artistic aspects of the recordings and other products

like live shows.

slightly more than half were traced: 38 units.

From the total of located recording studios, 1 refused to provide information and 17 are pre-sently in activity, of these, 12 declared it as their principal activity and 5 as a secondary one, and from these 3 are record labels, 1 is a comprehen-sive production company an 1 is an educational institute. To round up, the segment accounts for 41 employed people.

Rehearsal studiosThe same as with the previous cases, no conso-lidated formal information was readily available in this category. The initial listing for rehearsal studios had 59 record entries, and 18 were loca-ted -roughly one third. From the total of located studios, only 5 are presently active as rehearsal studios, 1 is idle, 8 changed activities and there are approximately 16 persons employed among the active units.

As far as non traced rehearsal studios (69.50%), and according to information provided by pre-sent day dwellers in those listed addresses and/or telephones, the rehearsal studios operated there in between 8 and 10 years ago, but no information was provided on the whereabouts of this companies nowadays. It is likely that the high percentage of non traced units is related to certain informality that exist in this business, as many of these studios were homemade studios. Rehearsal studios in musician´s private homes, mounted to rehearse with their own music bands and that in some cases thrived as rental studios, on an hourly basis. The limits between home-made studios and commercially oriented ones is

not clear. Quite frequently in these cases, when the technician or musician responsible for the studio moves to a new location, the rehearsal studio moves to that new location as well.

Musical instruments retail storesIn this case also, we had an ad hoc approach in putting together a directory. The initial list had 37 entries, of which we were able to place 29 of them (78%). Of those located companies, 17 (52%) are presently active and 1 is a new player.

Those 17 active companies own a total of 26 retail stores, accounting for approximately 149 employed people. Nine of the companies refused to provide information about their activity.

Digital music streaming portalsEven if it was possible to identify 6 “digital music retailers”, or for more precision “legal digital music streaming portals”: Bajamúsica, Cyloop, Faro Latino, Personal Musica, Sonora y Ubby música; maybe because of the inherent features of these services, which are fundamentally pro-vided through the web, we had a very low res-ponse level, just one of them answered us, Foro Latino.

Section IIThe sector´s dimension in Buenos Aires and Argentina

Introduction28

Given the reconfiguration carried out by the industry since the traditional business model crises, and in order to achieve some degree of certitude regarding the music industry, we must consider at least three principal segments: phy-sical, digital and live music. Facing important drops in sales, the record industry has turned to an integral management approach in the music business, and these two segments: digital music sales and live music are the mostly tried so far; although in Argentina the digital music route has not been developed up to its full potential.

Considering this reassessment from the sec-tor towards an integral managerial approach of musical content, it is also being included when measuring the Music Industry market, income generated by radio and television musical broad-casting; likewise with those generated by what we will call synchronization rights: music included in movies and videos or its´ identity use in radio and television (theme songs used as leitmotiv), reaso-ning out that they allow for proper measurement of the principal sources of additional income - to those already mentioned 3 segments- originated by music, at least up to where we stand now. 29

Opposed to other music market studies, we do

28 Supporting data for this Chapter can be found in Addendum 1.

29 Not every possibility is being explored, on how music can be delivered to con-

sumers. For instance, within indirect income generated by copy rights, fees for bac-

kground music used generally in commerce, is not included. In concept and beyond

their economic weight, these are considered as marginal, as they do not adjust to

new strategies being adopted by the music industry in its new and integral business

approach, at least not in the way that synchronization rights might be. In other cases

as income generated by video games and multimedia, even if they should be closely

followed as representatives of new merging models appearing in creative or con-

tent industries, they have shown small significance in SADAIC´s National Collection

Office.

not include sales of music appliances or repro-duction equipment, including MP3 and similar. The general use of these, is clearly associated to music and it`s consumption, however the analysis has been centralized in the direct income related to the industry of music content. 30

About the methodology used in measuring the Music IndustryAt this stage of the investigation, we look to account for total income generated by the music industry. This must not be taken in a literal sense, as strictly speaking we are only measuring the most significant channels. Nevertheless, this is the most significant market measurement for the music market executed up to now in our country, and is being perceived as a substantial contribu-tion to understand the present day situation of the local Music Industry. When we face pondering total income in the music industry, based on information provi-ded by SADAIC (Argentine Society of Authors and Composers), CAPIF (Argentine Chamber for Phonogram and Videogram Production) and AADI-CAPIF (Civil Collection Agency), we organi-zed information into two categories: - direct income: those generated by recorded music sales -both in its physical and digital for-mats- and admission tickets for live concerts; all cases involving the payment for a service or goods by consumers; 30 For a closer look on links between the music industry and that of music listening

devices, please see the Cultural consumption section in this publication.

- indirect income: those generated by copy rights, coming from radio and television musical broadcasting, as well as commercialization of synchronization rights in publicity, movies, radio and television.

The Music Industry market in the City of Buenos Aires and Argentina

Total income for 2009 in Argentina for the Music Industry were over 1,200 million pesos (around 327,000,000 US dollars) growing 86% for the period starting in 2005. During the same time period, the sector´s income for the City of Buenos Aires increased almost 100%.31 At the end of the above mentioned period, income for the Music Industry in the City of Buenos Aires concentrates practically one half of the addi-tionals (hay error en el original): 48% in 2009, a growth in share since 2005 which was 45%. Even if both categories -direct and indirect income- had positive behaviors during all this period, their growth rates were not homoge-neous, both from an income point of view as for geographic distribution. While direct income grew 88% in the City of Buenos Aires and 82% on a national level, the indirect income grew 146% and 122% respectively. Hence the increa-sed participation of indirect income in the total income, four percentile points in these five years. See Graphic N° 7.

31 In 2005, 655.8 million pesos represented 224 million US dollars. For conversion

purposes the average exchange rate between 2005 and 2009 provided by BCRA

(Argentina´s Central Bank), was taken.

Evolution for both types of income has a higher growth rate in the City of Buenos Aires than the national average, which accounts for the city´s participation growth in the market, from the initial to the final point in the series. This is especially noticeable with indirect income, where a signifi-cant gap can be observed between both rates (24 percentile points) making that eight out of ten pesos ($) coming from indirect income materiali-zes in CABA (City of Buenos Aires) According to estimates, indirect income for 2009 amount to $1,051 million on a national level and $444.7 million in the City of Buenos Aires. This means that they account for 80% of total music related income in the City of Buenos Aires and 88% on the national level. Nevertheless, this high participation was reduced by 4 percentile points for the City of Buenos Aires and 2 percentile points for the nation´s total, during the last five years. The most meaningful sector up to 2009, in terms of generated income, and simultaneously the one with larger growth rate is that of live music. In the City of Buenos Aires it invoiced $272.6 million, which represents 46.9% of total sector related invoices, for this geographic location, growing almost four-fold (295%) between 2005 and 2009. See Graphic N° 8.

Another segment showing outstanding progress was income generated by radio and television broadcasting of musical work, with growth almost three-fold (172%) for the entire period, and a total income share in the City of Buenos Aires of 17%, in 2009.

Graphic N° 7Total Income evolution.

City of Buenos Aires and Argentina 2005-2009

Source: Estimate by OIC, based on data provided by CAPIF, SADAIC and AADI-CAPIF.

Country

City

Direct income in the Music IndustryWe can recall that this income corresponds to the market composed by recorded music sales, both in its physical and digital formats, and admission tickets for live concerts; for all cases, the dimen-sion of these are considering the full price paid by consumers.

For the period 2005-2009 they had a significant increase, but lower to that of total income ave-rage: 88% in Buenos Aires and 82% for the com-plete country. The highest share for this increase corresponds to the 2005-2006 period, where direct income grew 46% locally (City of Buenos Aires), and from there onwards with a diminishing growth rate up to the 2008-2009 period where we find the lowest yearly growth: only 2.2% (and 5% for the entire country), See Graphic N°9.

Graphic N° 8Income evolution and market share for direct and indirect income.


Source: Elaborated by OIC, based on data provided by CAPIF, SADAIC and AADI-CAPIF.Note: All monetary values are in Argentinean pesos.

Indirect income

Direct income

City Country City Country City Country City Country City Country

Even with an important global increase between 2005-2009, evolution was not homogeneous among those sectors conforming the total income growth. The first noticeable thing is different behaviors between “hard-copy” record sales and that of live music. The first one, in direct relation to the traditional record industry progress, shows a stalemate for the entire period, meanwhile, live

music income during the same period grows almost four-fold within the City and slightly over three-fold (210%) for the entire country.

This data strongly shows that local Music Industry is not living through a crisis, but that in any case the record industry is. See Graphic N°10.

Graphic N° 9Income evolution. Direct income


Source: In house estimate, based on data provided by CAPIF and SADAIC.

Country

City

Anyways, we should be cautious with direct income figures (82%) as if we apply mone-tary deflation results would show a less signifi-cant real growth (according to INDEC (National Statistics Agency), IPC (consumer price index) increased by 22%). On the other hand, when we display this in American dollars, the music mar-ket in Argentina grew by 46% during the entire period, and this could be attributed more to local currency appreciation against the American dollar during theseyears, than to effective market growth. 32

32 An annual average based on BCRA´s information on US dollar evolution, is

used.

Another information which may trigger alarm lights is that global growth rates have been strongly decelerating, trend which accentuates in 2009, although we should bear in mind that during that year the Argentine general economy had minimum growth for which we should pay close attention to what occurred during 2010, year in which general economic behavior retur-ned to important growth rates.

In that respect, the perception gathered up among the sector´s players during our in depth

Graphic N° 10Music Market Evolution

Income for live music and “hard-copy” formatsArgentina, 2005-2009

Source: Elaborated by OIC, based on data provided by CAPIF and SADAIC.Note: All monetary values are in Argentinean pesos.

Live music

Hard-copy formats

interviews corresponding to the third stage of this research, indicates that during 2010 the Music Industry would obtain very positive results. Regarding the digital market, some particular information obtained during the interviews indi-cate that during 2010 a positive tendency shift may have occurred, as result of the streaming format appearance, fueled by one of the leading telephonic companies last year.33 So much that

33 In reference to Sonora company.

in respect to live music, several of those inter-viewed shared the opinion that 2010 was on its way to becoming a record year for live concerts.

Direct income configuration and evolution

Watching closely the differentiated behavior with each of the segments constituting indirect

income, will confirm that any crisis is concen-trated within the recording market, as previously mentioned.

As a consequence of such different behavior among each of those markets -strong decrease in musical CD sales, a neutral behavior with the

digital segment, and a strong upwards trend with live music- in just a few years income configura-tion changed drastically. In 2005, income for CD sales and other “hard-copy” formats accounted for more than half of direct income, and in 2009 they had fallen down to 32%. So much that live shows and the concerts market, which at the

Graphic N° 11Direct income configuration by segments

City of Buenos Aires and Argentina, 2005-2009

Source: In house research, based on data provided by CAPIF and SADAIC.

Records

Digital

Live music

City Country City Country

beginning of the series represented 39% of the total, by the end of the studied period already represented two thirds of total at a national level and slightly less in CABA (City of Buenos Aires).This shift in income configuration results from different evolution patterns within each market. Income figures originated by phonogram sales in its “hard-copy” or physical format grew only by 6% during the entire period, with a sharp drop during the last two years (when they fall by 11%), much accentuated regression when we center our attention on numbers of sold units, which suffer a drop of 25.10%. See Graphic N° 11.

Meanwhile, the digital market does not reaffirm itself in Argentina, to the point that for the entire analyzed period (2005-2009) falls down by 44% after strong growth shown for the 2005-2006 period, when that market was just awakening; but as of the following year it undergoes a signi-ficant plunge. Ultimately, a sustained and important increase of live music shows is generated -which supports the sector´s global growth-. This product rises threefold its income volume since the beginning of the analyzed period. This translates into the ascending importance which it has in the total volume for the local musical industry, both in the City of Buenos Aires as country wide. In both cases such participation at least duplicates its volume (in CABA it even grows slightly more than double). The other way round, the segment of physical or hard-copy record sales falls not less than 29 percentile points in the City of Buenos Aires and by 23 p.p. country wide. Meanwhile participation for the digital segment is relatively stable, with a downtrend for both districts.

Physical format (hard-copy) commercializationPhonographic products distinguish themselves for having high price/income elasticity, being the case with many creative industries products and services. Thus when changes take place in either the product price or the consumer´s income, demand reacts in a relative stronger manner than other economic products or services.34 This accounts for sharp falls during economic cri-sis or recession, as people are prone to reduce consuming habits, in first place by lowering expenditures in this kind of products. This can be appreciated with the very strong decrease of sold units and money values between 1999 and 2002, even sharper than the decrease in purcha-sing power. The recovery of sold units after the 2001-2002 crisis, and up to at least 2007, followed the also ascending behavior of wages, but without ever reaching the levels attained at the end of the dollar-peso convertibility period. See Graphic N° 12

During 2009, the negative trend initiated in 2008 worsens, reporting invoices for $333,4 millions corresponding to 13,5 million units sold, which represents a strong fall of 8.6% and 15% for each case in relation to 2008. The difference between both descents lays on the average price increase for CDs (22.5%), the best seller format (accoun-ting for 89% of market share among “hard-copy” or physical format in 2009), inside the economic inflationary scenario experimented in those later

34 It remains to be seen if this is similarly reflected with internet consuming

behavior.

years. As a matter of fact, between 2002 and 2007, the sales total amount has grown by 361.7%, while total sales in units grew by 212,2%, mainly because of average price increases for CDs (56%). The backwards movement taking place loca-lly should be put into context within the global record market developments, in forthright des-cent for several reasons, among which illegal CD sales should be included, and the trend towards digitalizing of contents, which has not been

Graphic N° 12Music in “hard-copy” or physical format. Sold units.

Argentina, 1995-2009

Source: Elaborated by OIC, based on data provided by SADAIC.Note: All monetary values are in Argentinean pesos.

totally secured by record companies due to the extended practice of free music downloading via Internet, among other factors. According to IFPI´s reports, which in contrast to this research does not include income origi-nated by live music presentations-, this market face volume reductions for the past several years and not only for 2009: a contraction of 8% takes place in 2008, as well as in 2007; a 5% for 2006 and 3% in 2005, trend which can even be traced further back in time.

The global record market shrunk by 15% in 2009, in terms of sold physical units, loss which was partially compensated by the increase of digi-tal sales -in the range of 12% for that year-. Nevertheless and in contrast to what happens in other markets, in Argentina the digital segment participates in a rather insignificant way, as we shall see later.

Digital commercializationOn a global level the music business seems to be leading all Creative Industries in their way to digital revolution, to the point that some authors have identified the process in this industry as a lab for present and future changes in the entire contents industry.35 In 2009 and for the first time in history, more than a quarter part of all global income for the recorded music industry (27%) originated from the digital channels -a market for which total worth is estimated at US$ 4200 millions- with growth rates bordering 12% in rela-tion to 2008, more than ten times the value for the digital market in 2004 (IFPI). The new dyna-mics shown by this commercialization approach (in particular when compared to those declining methods) calls for growing attention as new busi-ness role models.

Record companies are looking to offer music in so many different ways as possible, from “a la carte” downloading web sites, such as iTunes or AmazonMP3, to subscription services, films and games licenses, merchandising, brand associa-tion, public use and broadcasting permits (IFPI,

35 Herschmann, Micael, “A indústia da música como laboratorio” in Observatorio

Magazine ITAU Cultural9, January-April, 2010.

2009), among others; and is among this rapid proliferation of new music channels, that digital music takes a leading role. The model of “a la carte” downloads, pioneered by iTunes, conti-nues to be the most important worldwide income source for the sector in Internet, and holds more than one hundred million accounts in twenty three countries. (IFPI 2010). On the local level, the digital market is basica-lly composed by types of channels: Internet and mobile devices; which sometimes involves direct involvement in the music sector by telephonic and technological companies (music portals exclusively for clients, pre-loading agreements offered with mobile device sales, among others).

On its beginnings the mobile sector showed an upward tendency due, on one side, by the explosive growth in cellular phones penetration among the general public (in CABA this penetra-tion, which was of 50 cellular devices for every 100 inhabitants in 2004, climbs to 89 devices for every 100, in 2006)36 and on the other side, by the habit of using ringtones for incoming calls. As time went by, a reduction in the “novelty” effect and proliferation of 3G technology with cellular phones -which allows swapping musical archi-ves between cellular devices and PCs-, among other reasons influenced in the segment´s slow down. As CAPIF mentions in its report “The Argentine music market, 2009”, the digital segment had a 7% local music market share (from the total which in this case includes digital and physical

36 Source: OIC. Link: <oic.mdebuenosaires.gob.ar/system/objetos.

php?id_prod=210&id_cat=1>

formats). During the past years, both IFPI and the local record business chamber of commerce have been informing about the evolution on both segments, partially accounting for the paradigm change in the music business. As was initially pointed out, this report evaluates the music market in a broader way. By including the live music segment when evaluating direct income, participation corresponding to the digi-tal market in direct income would be considered in 2%. As well, within the digital market for the

national´s total in 2009, calculations show 87% for the mobile sector, while the Internet reached only 13%.

Live musicThe live music market is totally reconstructed from the figures recollected by SADAIC37, into three areas that embrace the different ways in 37 The total amount was obtained from what was collected by SADAIC for the men-

tioned categories and the conversion rates applied by the entity in each case.

Graphic N° 13Live music income



City

Country

which live music concerts, shows or presen-tations are conducted. Three categories were considered from SADAIC´s National Box Office Proceeds: recitals, festivals and bands. The first two refer to live music events, from small to large and in any type of venue, with no dancing. The difference between them being that in recitals only one group or principal artist is presented (eventually it might include a support group), and in festivals more than one are presented. On the other hand, by bands we refer to live performan-ces in arenas that include dancing. 38

38 Information provided by Mr. Eduardo Falcone, head of the National Collection

Area of SADAIC.

Graphic N° 14Live music income

City of Buenos Aires 2005-2009


RecitalsFestivalsBands

The sector had an outstanding behavior when compared to the other activities that conform direct income: between 2005 and 2009 it grew almost four times (295%) in the City of Buenos Aires and more than three times (210%) in Argentina, which meant to go from a 29% to a 61% participation, for the industry´s direct income in the City of Buenos Aires.

The recitals category is the one that contributes the most, income wise, to the live music seg-ment., with an exponential growth rate in CABA between 2005-2009, to the point that they had a five-fold increase, accomplishing an 84% par-ticipation within the sector for the last year of

the mentioned period (in 2005 that same parti-cipation reached only 67%). The other two cate-gories: bands and festivals have a 15% and 1% income participation, respectively. It is important to point out that approximately 8 of every 10 pesos generated in the recitals cate-gory, correspond to those taking place in sta-diums39, in the understanding that we are talking about well known groups with a quality to sum-mon massive audiences.

Although this evolution shows a very positive trend for the entire group, the strong concen-tration attributed to large arenas and stadiums reflects, in contrast, a different scenario for small and medium size venues, with the consequent impoverishment of alternative and local perfor-mers. If we consider that within the stadium cate-gory theatres are not included -whether they are medium or large size-, real participation of sma-ller arenas and venues is reduced to a minimum.

Music industry’s indirect incomeThe indirect incomes being analyzed are, on one side those obtained by music broadcasting in radio and television, and on the other side those obtained by special permits granted for the use of musical themes in publicity, movies and videos, or for “identification” purposes in theme songs

39 The stadiums category includes those football stadiums where concerts are

usually conducted, such as River Plate, Velez Sarfield or Boca Juniors in the City

of Buenos Aires, and the Chateau Carreras in Cordoba City; as well as others (not

football fields) such as the Luna Park or the Obras Stadium. Nevertheless, large thea-

tres such as the Grand Rex or the Opera, are not included. Information provided by

Mr. Eduardo Falcone, head of the National Collection Area of SADAIC.

or as “leitmotiv” usage in television and radio programs (which we shall generically refer as, synchronization rights).

Radio and television musical broadcasting collects income with payments made by broad-casting institutions to the appropriate collec-ting agencies: SADAIC, in the case of royalties corresponding to musical authors or composers, and AADI-CAPIF, in the case corresponding to performers and record producers. A synchronization right generates income with payments made by advertising agencies and audio-visual producers, among others. Meanwhile those generated by radio and televi-sion public broadcasting, income is reported in full (being possible thanks to a collective mana-gerial procedure, both in the case of musical authors or composers as with performers and record producers. As far as synchronization rights, only partial information is available, that which concerns author rights and provided by SADAIC. In Argentina, indirect income during 2009 repre-sented 14% of total income in the music industry, participation which grew by 2 percentile points during the five last years. For the City of Buenos Aires, growth reached 23.5%, which means a 4.5 percentile growth for participation during the past five years.

Graphic N°15 shows that indirect income grew by 146% in the City of Buenos Aires and by 122% on the national level, mainly pushed by those gene-rated by Radio and TV (+172.5%). On the other hand, these are strongly concentra-

Graphic N° 15Indirect income evolution for the Music IndustryCity of Buenos Aires and Argentina, 2005-2009

Source: Elaborated by OIC, based on data provided by CAPIF, SADAIC and AADI-CAPIF.

City

Country

ted in the City of Buenos Aires, as they represent 80% of the national total for 2009. This concen-tration went up by 8 percentile points during the five past years. In some measure this can be explained by the growing income being genera-ted by TV broadcasting, and the high concentra-tion of such in the City of Buenos Aires.

Evolution by segmentsIncome generated by music broadcasting on television carries most of the weight within indi-rect income; both on the national totals as for

the City of Buenos Aires, where it represented 63% of indirect income for 2005, and 70% during 2009. In importance, it was followed by music synchronization in publicity and by music broad-casting on radio, with 22% and 8% respectively for 2009.

On the other side, income generated by television broadcasting grew the most during this period, 140% on the national level and almost three-fold in Buenos Aires. In the meantime, music syn-chronization rights in publicity doubled, and in radio broadcasting they grew by 72% in the city and 48% nationwide.

Graphic N° 16Composition of: Indirect income by segments for the Music Industry


Source: In house research, based on data provided by CAPIF, SADAIC and AADI-CAPIF.

Evolution by segmentsIncome generated by music broadcasting on television during 2009 reached $120 millions on the national level; representing almost 10% of total income and placed in third place in income among the better positioned segments we have analyzed (being the first two Live Music and Records). Of these, 76% are concentrated in the

City of Buenos Aires, participation that increased these five years, by 11 percentile points. Meanwhile income for music in radio broadcas-ting collected $14 millions on the national level during 2009, with a positive growth rate during those five years of 48%. In the City of Buenos Aires this segment had an even better perfor-mance as it grew by 72%.

Graphic N° 17Evolution of: Indirect income by segments for the Music Industry



Music broadcasting on television and radioIncome generated by music broadcasting on television during 2009 reached $120 millions on the national level; representing almost 10% of total income and placed in third place in income among the better positioned segments we have analyzed (being the first two Live Music and Records). Of these, 76% are concentrated in the City of Buenos Aires, participation that increased these five years, by 11 percentile points. Meanwhile income for music in radio broadcas-

ting collected $14 millions on the national level during 2009, with a positive growth rate during those five years of 48%. In the City of Buenos Aires this segment had an even better perfor-mance as it grew by 72%.

Music synchronizationAs already mentioned, this income corresponds to music inclusion in publicity, movies, videos and theme songs used in radio, television and other similar uses. Total income for music syn-chronization during 2009 reached $37 million

nationwide and accounted for 3% of total income. This income is highly concentrated in the City of Buenos Aires, which during the five last years accounted for 95% of the total national level; one of the main reasons for this being that adverti-sing agencies are located in this city. As far as musical composition, its use in publicity jingles represents 90% of the group´s total.

Partial findings

Distinctive behavior among all the different seg-

Graphic N° 18Composition by segments in the Music Market

City of Buenos Aires, 2005-2009


Synchronization

Radio & TV

Digital

Live music

Records

ments that constitute the Music Industry have radically transformed the shape of the market in just few years. See Graphic N°18

Most noticeable of all is the reversal, as far as income importance, between “hard-copy” record sales and that of live music. The former accoun-ted for more than half in 2005; while four years later is just over one quarter of the total. In oppo-sition to this, income generated by stage music duplicates its participation, jumping from 24% to almost one half of the total. Another growing par-

ticipating income is that of Radio and Television Music Broadcasting rights. Those corresponding to synchronization remain stable and the digital market income is falling.

This information permits us to conclude that:• The records segment seems to maintain asustained declining phase.• The digital segment in our country has notbeen able to reaffirm itself.• The livemusicsegmentmaintainsapositivebehavior overall. Without prejudice for the above, we need to men-tion three other aspects which bring some addi-tional insight:• Weneedtokeepacloselooktodevelopmentsduring 2010 in the digital market, as it seems to be the year for streaming take off in our country.• Livemusicboomingisuneven;itgrowsstron-ger with larger events and stages, both with local and foreign established artists, which mobilize large audiences and summon mass media cove-rage. On the other hand there are difficulties for non-established local groups and musicians, as well as with small or medium size venues stru-ggling to find their audiences and an appropriate legal frame.• Improved income for intellectual property rights management, originated not so much by diversity in synchronization; movies, videos, publicity, radio or television, but in public broad-casting /difusion(specially in television)

All this empiric evidence deserves a more close analysis on its causes and the behavior of both the industry´s players as that of consumers, sear-ching to better understand these dynamic pro-cesses and their probable future behaviour.

Conclusions

Current situationAs a summary of the different stages analyzed in the present study, we can affirm that The Buenos Aires Music Industry is not going through a crises, in any case the recording industry field would seem to. It has been proven by the market study as a total, that income is duplicated during five years (2005-2009) in the city (a little less on a national level).

Music has become omnipresent in daily social life, according to the agents of the recording field40; music quite probably has never been listened as much as today, thanks to the constant multipli-cation of opportunities and more access to these possibility`s enabled by technology. A Brazilian study reports; “ today, thanks to technology...we can be sure that the potential to create, listen and enjoy music has never been as large” (PRESTES FILHO, 2005).

This is confirmed by numerous cultural con-sumption surveys, depicting music as one of the most extended social activities.41 At the same time music generates social and generational identification.

The Colombian expert, German Rey, in his analy-sis of Latin America`s cultural consumption ten-dencies, amongst his main conclusions points out the leading role of music for different coun-tries and society’s, to the extent of being a key role for the identification process of populations.

40 See analysis of the perception regarding these changes in Section III of this

investigation.

41 The cultural consumption surveys of the last fifteen years proves it: listinig to

music is amoungst the tree first cultural consumption habbits (alog with watching TV

and listenign to radio). In Argentina, according to the Nations Cultural Consumption

System (SNCC) carried in 2004, the 94% of Argentinians listen to music.

In Colombia, for instance, when asked in a natio-nal cultural consumption survey, what identifies them most as a Colombian, we find two musi-cal genres amongst the three first answers and the “vallenato” in first place. Regarding identi-fication on a generational level, George Yúdice highlights that “(...) music is precisely one of the most important identity elements that young people post on their MySpace and Fecebook...” (YÚDICE, 2010).

On a local market demographic, a drop can be found in the physical format sales which, howe-ver is congruent with international tendencies. This has a different influence on the phonogram production companies and music retail outlets, which doesn´t mean that physical format has ceased in being an important market in terms of economic volume. Meanwhile, digital sales are not taking off, furthermore, the commercializa-tion of digital music has decreased during 2009, in relation to 2008. On the other hand, live music related activities are in notorious growth, placing this sector as the most dynamic market in the local music industry.

Although sales of physical format recordings continue to plunge, CD´s remain as a marketing and production tool since musicians and sin-gers continue depositing their creative activity in the physical support, even if this phonogram is later circulating in a digital format. On the other hand, new available formats for CD sales: Limited editions, DVD addition, ingenious art work are aiming to slow down the drop in sales as well as consolidating a specialized public who values differential products. Before the digital impact, touring and concerts where meant to promote record realises, today

the tendency is to consider the CD as a promo-tion device, it`s publishing as an activity with no sale revenue on it`s own, but though the concerts programmed for that new realise.

We also must consider that, the public chooses to by, listen or download one or two tracks from the record in the digital channel, shifting the con-sumption criteria towards the singles market. In this way, there is more interaction between the public at the moment of downloading tracks through the digital channel. This brakes the cross-subsidies format in the traditional record industry. Since the public actively chooses -spe-cially young audience - the tracks of their prefe-rence, reevaluating the single market.

The key question for the industry`s economic agents is how to adapt their business strate-gies, to translate this ever growing music pre-sence and consumption habits into income for the sector. Considering the possibility’s offered by the Internet in exchanging these products free of charge, this grater presence is translated to drops in sales of recorded music. According to the economist Palmeiro, this can be explained because the Internet and programmes that allow P2P exchanges, produce two negative effects on label sales: one is a direct effect; less demand for prerecorded music, and another is indirect; less flexibility of the price in CD demand. (PALMEIRO, 2005). This objective reality is taken into account by some industry agents, specially those “diversy-fied” ones42 and understand that this new ease of access has provoked a devaluation in terms of music becoming ubiquitous. 42 By “diversyfied” we refer to those agents that don´t limit their music related busi-

ness to one activity. See the analysis in Section III.

Current situationFor the Record label sector the crisis forces to reevaluate preexisting business strategies, that the traditional industry format would not priori-tize, since the traditional model would centra-lise activity in the sales of music in a physical format. The analysis of local market numbers in Section II “ Sector`s dimension in the City of Buenos Aires and Argentina “ depicts a significant number of changes, that translate to less importance given to the physical record sales, which have no longer a crucial income for the sector. And have been redirecting this main investment in a few years time to live music. The growth in significance of concerts is linked to global tendencies that some authors explain by the loss of subjective value of the music support ; this way music would loose one of it`s main characteristics: to be linked to the experience of who we are (FOUCE RODRIGUEZ, 2009). 43

This might be one of the explanations for the industry’s reorganization: if there is emotional value loss and thus; monetary vale, the com-mercial exploitation of music is directed towards elements that escape digitization and the possi-bility of being copied. As the economist César Palmeiro notes; the live music experience is where that subjective value is not lost ; “... as a place to jump, to be stumbled over, something completely different from the digital world”44

43 In his paper “Practicas emergentes y nuevas tecnologías: el caso de la música

digital en España,” (Spanish for: Emergent enterprises and new technologies: the case

of digital music in Spain) states that consumers no longer establish empathic or affec-

tive bonds with music. A vinyl could have – following W.Benjamin- an aura, a unique

expression of “here and now”, traces and signs of it`s use, remembering the moment

of it`s purchase or who gave it as a gift, quite contrary he questions : How many digital

music users are capable of remembering the day they downloaded this or that song?

44 Interview conducted during this investigation.

This experience is not only attributable to the music industry. Similar ideas have been appro-ached by the economists Pine & Gilmore under the concept of “experience economics”. A new step into the value creation as the services indus-try did before. So, as commodities are consu-med, as objects are tangible goods, as services are intangibles goods, experiences are some-thing memorable.

Live musicThe reconfiguration of the Music Industry is confirmed on a local level, the data evaluated in Section II of this investigation is convincing. The agents realize that Buenos Aires – consi-dering cultural habits and theater tradition and music spaces – is strong as a basis and holds the possibility of projecting in the international scene. However, this favorable situation has no homogeneous impact on the total. Objective data shows a strong concentration of this mar-ket in the grand arenas (stadiums) and establis-hed figures, depicting an unfavorably bias scene for many local industry professionals – specially small and medium sized producers- in the sense of important limitations for their activities deplo-yment; a lack of more reduced venues (up to 300 people of capacity).

With no doubt, an important factor to take into consideration for the development of live music, is the shortage of venues in the City of Buenos Aires. There is a strong demand from producers for small and medium spaces45, there is also a demand from other members of this value chain

45 See chapter “The perception of changes” in section III of the Spanish version of

this report.

-recital production companies- to create more large scale venues as well ( between 3000 and 15000 people).

The general agreement is that there is sufficient land ground to incorporate lots more spaces and agents. As well as a general consent in fin-ding inconceivable that these new spaces could translate to loss. This is agreeable even for those responsible for small venues. 46

There are diverse strategies amongst the record label agents, regarding their participation in the live music market, with notorious differences according to company size, their location in the industry`s value chain and the degree of diversifi-cation they achieved . The agents that find most difficulties entering in this business are the small record labels specia-lized in a specific genre. The main reasons are two: the first has to do with their understanding of live shows, as an unknown business for them (also something that larger companies are faced with when defining live music strategies) and the-refore; a risky business. The other has to do with mandatory investment, which is rarely affordable for these smaller company’s. However some do participate, even within the group of small and specialized record companies. This meaning they define their main activity as phonogram pro-duction47 but diversify the business towards retail activities and/or live music spaces and show pro-duction. These diversified companies find a po-

46 As exposed during the round table “Live music venues: management in new

business models”, conducted on the 22 of February, 2011 in the Metropolitan Design

center during the second Ibero-American musical reunion (EIGM) by Sempre Allegro.

Representatives from Café Vinilo, Niceto Club and Microestadio Malvinas Argentinas.

47 It`s to be noted they maintain this definition for their activity, even when the

income generated by other activities equals or surpasses the record sales revenue.

sitive synergy regarding the new possibilities offered by technology such as the Internet, for the diffusion of international artists in their cata-logues, when presenting at the local scene, with no need for prior publishing of their work.

Large local record companies take part in the live music business in the measure they can afford getting involved, although they do follow different modalities. For instance, entailing a production company. This is the case for one of the inter-viewed majors, that preferred not to be directly involved in the show production.

Digital musicOne of this report’s objectives is to analyze the Local Music Industry transformation in the digital era, a key aspect was to observe what happened particularly in the digital distribution channel- the analysis covers a 5 year evolution- contempla-ting how the sector conceives the potentialities and limitations from their own experience in the terrain and which tendencies can be visualized for the future. Taking into account what happens on a regional and global scale. In general terms, new technologies in information have facilitated the music production allowing a reduction in master production. Now a days rea-lising a record is relatively accessible for anyone who wishes to dedicate him/herself to creation and, allows the incorporation of other agents such as phonogram producers, verifiable fact in Section I of this report, with the category deno-minated as artisanal labels. It’s important to highlight, as result of the first

section in the conducted survey, (during 2009) that within the formal segment of this activity a similar number of companies established as such is maintained during 2004 in the City of Buenos Aires, slightly more inclusive. We could also observe as a counterpart, a high degree of instability, specially in the informal segment, rela-ted to the difficulties in obtaining economic sus-tainability and consolidate as active and formal agents. The problem remains in the realization of this production within the market. The Internet provi-des a significantly more economic alternative for diffusion than traditional channels, reducing entry costs, however the present issue is to manage being visualized and distinguished amongst so much production going on.

Strictly in regards to the commercialization of digital music, the central issue to evaluate, with it`s nuances, are the reasons for which the new business models oriented to the digital chan-nel anr´t consolidated yet in our country. Prof is found in numbers as well as the negative expe-riences portrayed by the interviewed agents that ventured in the development of digital stores.48 The commercialization of digital channels in our country do not achieve the degree of involvement as in other countries on a global and regional level. According to the International Federation of Phonogram Industry (IFPI) digital music repre-sented a 27% of the income world wide during 2010, while in 2008 it represented a 21% and a 15% for 2007, depicting a sustained growth year by year. Even when considering this measure (as CAPIF and IFPI do) include income generated in

48 See section III, “The perception of changes” in section III of the Spanish version

of this report.

the digital and physical markets, leaving live music revenue out. The digital participation in our country – roughly of a 7%- is notoriously lower than the average 15% of the Ibero-American digi-tal involvement.

The first distribution model developed for the digital music was Napster in the United States of North America. When closed under pressure from the majors, the first commercial projects arose and in this way digital music portals a la cart were created. In the city of Buenos Aires recording or technology companies created the first portals with diverse catalogues, as of 2006-2007; in general without achieving a sustained growth and some of them closed. CAPIF49 reports that in our country there are (during 2010) six digital portals; Bajámúsica, Cyloop, Faro Latino, Personal Música, Sonora and Ubby Música. The argued reasons by the record label agents – and other related professionals- go from; the distrust of the Argentine public in using credit cards in the Internet from fear of fraud, to; how easy it was to download tracks free of charge, not having iTu-nes available in the country. In the global market, this Apple store, along with Amazon concentrate most of these and hold an 85% of the USA digi-tal music sales. The recent launching of an iTu-nes branch in Mexico enabled that local market, which was depressed, to rise. The issue of track prices was in debate, part of the record label sector acknowledges that the referential prices should be lowered, like a subway ticket: others argue that after the experience of lowering track prices, this didn´t work out.

An important issue to notice, when conducting

49 Music Industry Report, 2010. CAPIF (Argentinian Chamber of Phonogram

Producers)

this survey to the different agents of the sector, was considering the local industry predisposition to adapt to the new technology phenomenons. Different postures were found; from those less receptive to the new reality, those who accept it and visualize this as an opportunity, to those who are incorporated to the sector from new business models oriented specifically to this channel. Within the record label sector, even with those most “integrated” in the digital world, a cer-tain degree of ambivalence was found, in great measure as a result of giving the experience a try. The record label segment in general was willing to incorporate their catalogues to global digital stores, even to the development of local ones. In the first of these experiences, different results have been found, with a good outcome in the European and USA markets. In the local digital store development most results have been disappointing.

Beyond these experiences, and in addition to the debate; two aspects should be mentioned, understood they influence the decision-making and overall aftermath: the size of the record com-pany and the native or digital immigrant status of the company’s management, at the moment of different digital strategies developed. We refer to the development of differential products for this channel or diffusion strategies specially desig-ned for it.

The native or digital immigrant attribute condi-tions the response of people to technological changes. A recent study from Spain is taken as reference, in which the question if : “conflicts amongst the Music Industry and users could have it’s origin in the different cultural preceden-ces of both parties(…) digital immigrants have

little appreciation for the costumes and skills of the native digital’s, without viewing those as new possibilities but as detours from the correct way” (FOUCE RODRIGUEZ, 2009).

The conducted survey has allowed us to verify different approaches from the Industry agents to the technological change, digital music and the Internet, that may be influenced by the condition of digital immigrant generally related to an age factor.50

The condition of digital immigrant seems to gene-rate more apprehension or distrust towards the digital phenomenon, whilst digital natives, those born or developed in this change-period, have an easier perception of generating profitable activi-ties with new business models for music content. In this sense, the distance between many of the interviewed subjects with the digital world is noto-rious.51 Their empathy with the analogical era and it`s consumption habits is recognisable, since it was a part of their own vital experience (this group is conformed by people over 40 years old as digital immigrants) many of which recognize the effort they make to understand new genera-tions through observation of their own kin.

The cases in which we found a deeper and bet-

50 “Digital culture opens a significant generational breach. Mark Prensky (2001)

established the difference between digital natives and digital immigrants to unders-

tand the different ways of relating with the knowledge involving those born into

video game culture, computers and Internet and those approaching these cultural

environments with interest but maintaining other cultural logic’s. In Prenski terms, the

digital immigrants keep their accent, meaning; ways of thought, work and organize

information belonging to the analogical culture. “ in the paper “Practicas emergentes

y nuevas tecnologías: el caso de la música digital en España,” (Spanish for: Emergent

enterprises and new technologies: the case of digital music in Spain)

51 This is reflected in some of the conducted interviews : “Internet is the most indi-

rect existent media. The most passive, It`s like throwing a bottle to the ocean” “you

leave it there and lose control (…) before there was a more intense kind of listening …

before we had nothing and now we can follow some one even to the bathroon….it`s

too much information “ as The Police would say.

ter understanding of the new tools, were people under 30-35 years old, which seems to depict the generational cut. In any case, we must take into consideration a certain degree of frustration that emerges from their experience when satisfactory results are not achieved in this channel, even when an effort has been made. The equation could be considered completed when analyzing if differential strate-gies in the digital channel were effected, which are quite liable in having specialized areas and personnel. In relation to this point, we observe that the smaller the company was, the lesser opportunities of developing specific areas for the digital.

Within minimum sized corporate structures, where the main holder gathers most responsibility’s and decisions, and these are oriented by an intui-tive management, the existence of a business scheme that contemplates the specifications of the new model is unlikely.

The combination of main holders whose condi-tion is of digital immigrant, with those companies with a low financial expectation in developing digital business areas and hiring digital native staff, is an obstacle in obtaining new distribution and diffusion schemes for music content.

Also to be considered, there are agents from the sector who show optimism towards the change and seek better results by incorporating younger professionals for a more efficient management of the digital area of their company. Finding diffe-rent business models in the digital music and developing specific areas to strengthen these. This can be found even in some cases in which the head of the company is a digital immigrant,

however- from the surveyed exponents- this is the case for large local companies and majors. In an opposite sense, reviewing the subject’s adap-tation to the changes, a positive consideration can be made in the sense of the independence of local labels from international structures, which enables more flexibility regarding actions related to the social and economic reality.

At least until now, these business models have been oriented fundamentally towards the mobile area, capturing a high percentage of the national digital market. The premise of a mobile oriented digital business model is based in a young public, that loves music and wants it now. This forthwith attitude conducts the consumer to need the music immediately in his/her device. The down-loading of digital music in mobile phones has in it`s sale reference, the reproduction of hits and TOP 10 from the physical market, and it`s consu-mers conform a young demographic. This reality complicates the task of finding appro-priate strategies for those companies with cata-logues that don´t aim to that demographic or lack the tracks that might make the top ten. However, this doesn´t necessarily mean they have no opportunities of generating income in the digital channel. In fact some of the record labels genre related, obtained a good outcome in foreign markets through agreements made with global content producers. Its likely that one of the main reasons for Argentina’s digital market to concen-trate exclusively in the adolescent or very young public is because the successful global digital stores haven’t arrived to our country, different from what`s happening with other markets. In this way, not including a broad audience demogra-phic, possibilities are restricted in responding

to the characteristics of a long tail economy.52

Another aspect to be considered is the appea-rance of new agents, product of complemen-tary activities for the digital market: companies generically denominated as networking and con-tent management; for instance the companies that include applications that tracks exchanged through P2P programmes don`t have, in order of achieving a feasible digital music business.

Music for video games is another variant in the crossing of the music industry with other creative or technological industries, since the increase of this activity`s economic development in recent last years. (Which has an interesting progress in the City of Buenos Aires). 53

Digital Rights ManagementThe physical format sales crisis and the difficulty in obtaining revenue from digital copies calls for a review of the digital rights management. A tes-tament to this is the recent opening within many local labels of publishing dedicated business units, this being; to the control of the income generated by composers and authors, and the search for new ways of exploiting the repertoire: that their songs be played in concerts and reci-tals, used in publicity, included in film sound tracks/scores or television, even to be recorded

52 In reference to a term popularized by Chris Andreson in his piece: the long tail

economy, in which the author describes economic models such as amazon or iTunes,

in which lo cost of storage and distribution allowed by the Internet favour the extension

and diversification of the supply making the appearance of niche markets possible ,

which rivals with the market of successful products.

53 Study center for the Metropolitan Development, (CEDEM) “The video game

industry in Argentina” August, 2010 Report.

by other labels.

From the conducted survey it is deduced that the real value of musical publishing for record labels goes beyond a promotion to impulse record sales. This activity seems to be unharmed in regards to the drop in sales of CD copies, capturing income in other ways.

Beyond music publishing being a good way out for the reconfiguration of recording companies, and that the rates charged for synchronization are good, it`s important to mention that – as stated in Section II “The Sectors dimension in the city of Buenos Aires” the income segment constituted by synchronization- which was measured exclu-sively in regards to copyright revenue- maintains itself relatively stable, a small decrees is found in regards to its participation of the total, given that, even in absolute values it shows a signifi-cant positive variation between 2005 and 2009, it proves below the general average. On the other hand it`s of notice that the income generated by radio and TV musical diffusion, reaches a 17,40% of the total music industry revenue, which pus-hes the participation of copyright management into the total income of the industry from a 19% to a 23% during those years.

TendenciesEverything indicates that the business model based in the physical format phonogram as a main activity will not come back. However, we should keep in mind that “ ...the sound recording industry activities as a whole constitute the dor-sal spine from which the activities developed in the area of the other segments of the production

chain in the music economy emerge, gravitate or converge.” (PRESTES FILHO, 2005). Technology related possibility’s and the con-sumption habit changes analyzed in the chapter “Consumers response” of the present investiga-tion, indicate that the recording industry follows the central tendency of spreading through the digital channel. The amount of homes with broad-band connectivity in the City of Buenos Aires is 895001 up until January of 2010 and represents a 66,5% of the city`s homes. This fact allows to dimension the potential of the music content digital consumption, but proper strategies of commercialization must be established to make the most of this market.

The recording segment seems to have the challenge of diversifying it`s business models. However, if the different activities that compose this industry are observed (fundamentally pro-duction, distribution, and phonogram commer-cialization) it`s confirmed that it`s passing a period of constant changes, with different possibility’s and results. Although recording companies can find various diversification techniques, for physi-cal format retail companies this option is narrow and therefor goes through difficult times. Such is the case for important brands like Musimundo, that despite it`s sales diversification techniques to other areas, was unable to recover sales and recently sold it`s assets to an electric household appliances company that bought the chain of businesses.54

Other smaller size record companies try to spe-

54 This happens while the current report finalizes (February 2011). Before, during the

last 10 years, the chain had embarked a road of diversification of the premises supply.

With the dropped in record sales Musimundo incorporated books, video games, and

electronic devises for the home to maintain cost –efectivness in business.

cialize in genres or alternative music oriented towards specific consumption niches, in lots of cases with favourable results. Another favoura-ble outcome worth mentioning comes from the alliance between retailers recognized as alter-native or specialized with a record labels from the same orientation. However, retail sale points prove to be the most affected activity in the indus-try, the numbers of business closures depicted in this study are eloquent. Their sustainability has implications beyond the music industry taking into account the meaning these spaces have for the City of Buenos Aires- along with books-tores, cinemas, theatres, etc.- as a part of the cultural framework which constitutes the city as a productive and creative pole. In this regard the “Record Store Night” during the past two years is oriented to add value to this activity and constitutes a good example on how public office and the private sector can complement efforts, since the initiative was generated by CAPIF – the Argentinian record label representatives cham-ber- and the Ministry of Culture and Economic Development of the City. 55

The phonogram producers have other options, like their participation in the live music segment, revaluation of copyright management, the digital sales channel, the opening of retail sale points, amongst others.

The first option might be suitable particularly for the genre oriented record labels. In spite of the considered precautions regarding ignorance and the risk factor implicated in this business, we find experiences that prove excellent possibility’s in bringing artists from their catalogues to the local scene, because of the positive synergy and 55 For more information see <www.buenosaires.gov.ar/areas/cultura/al_dia/

disquerias_10_10.php?menu_id=20277>

diffusion from the Internet, generating a local audience even with no need for prior publishing.

An other aspect to consider is that all indicates there is plenty of land to be recovered for live music spaces in the City of Buenos Aires, since many of these kind of venues suffered the post Cromagnon effect, with closers and shutdowns. In this regard, the recent regulation of the law in support of small live music venue spaces56 allows opportunities for these kind of establishments, even for the genre oriented labels, enabling more options for the artists in their catalogues. This could generate favourable circumstances to diversify through different branches and produce shows, venturing as many have in the opening of their own spaces. The agents with activities in this area understand there is plenty of more space for these kind of venues in the city.

Regarding the elevated costs of live production, manifested as an impediment for smaller and medium sized companies who wish to enter this business, an associativity system can be thought of as a solution. In a recent trip to Brazil, during the “South Music Fair”57 a member of the OIC could confirm that, facing this issue, small and medium sized recording and production com-panies have developed a cooperative system allowing to decrease those costs.

When it comes to digital business models the first thing to point out is that the model of “a la cart” tendency is definitly loosing importance. The new paradigm for digital business models would be, in Palmerios words; “give a lot for little” as the cable television example58. This is known

56 See the Chapter “The sector’s Demands” in the present report.

57 Porto Alegre, November 2010.

58 Interview conducted during 2010 during this report.

as a flat fee subscription model.

One of the strongest tendencies in format terms is given by the potential in the streaming model. This consists in listening to music with no need to download it to the computer or electronic device like a mobile phone, tablet or e-readers. The international consultancy office Digital Music News informed, during the first fortnight of January in MIDEM 2011, the amount of users for each format. Spotify, that has three category’s: free of charge, financed by publicity, an afforda-ble rate and and expensive unlimited one, with 750.000 users in all the world and most of these pay for the most expensive of these.

The company pays 43 million euros in royalties for copyright. Rhapsody has 750.000 users that pay in Europe and 1.500.000 in the United States. Meanwhile, the Pandora radio, has 65 million registered users on a global level and is financed by publicity.

In our region, within the streaming modality, we find the Sonora portal with presence in Brazil, Argentina and Colombia (as of 2010). In Argentina the numbers are low, however we must take into consideration that the commercialization was developed during 2010. After various attempts with this type of modality in the country59 during 2010 the Sonora portal (of “Telefónica”- a mobile company) started functioning through the Speedy users offering the service in two versions: free of charge, allowing to listen up to 10 hours per month60 and the paid modality which, for 5u$s monthly, allows unlimited time and ten legal

59 TuBlip was one of this models precursors in Argentina.

60 Prices and conditions where provided during the interview conducted in the

Sonora, headquarters in Buenos Aires.

downloads. Offering the catalogues of the four majors and some national labels.

Mid year it had 300.000 users on the first category, free and 45.000 paying users; during October 2010 the payed modality had grown to 75.000 users.61 Closing this investigation iTunes enabe-led the portal for Argentinean users, combining different modalities to access the digital music. On the one hand, the streaming model, allowing to listen to a significant catalogue of the majors and some local labels; also through podcasts from artists or labels some tracks are allowed to be downloaded free of charge, within the law and with no loss of sound quality. Another alternative is to download tracks, prior credit card payment. Both systems available for home computers as well as mobile phones. In the iTunes portal, video related services are also available, TV program-mes and film as well as digital books.62

Also to be taken into consideration, the rota-ting music portals in circulation are expanding in importance, such as Youtube and similar. For instance, the Universal major has ownership of the VEVO web site, found in Youtube. VEVO is financed by publicity and the receipts are dis-tributed throughout record labels and copyright management societies. In this regard, during 2010, SADAIC signed an agreement with Google for the Youtube distribution of music which pro-bably will have a bearing on future rise in receipts, because of local originated music and digital videos circulating in Youtube.

61 Data collected during interviews conducted in technological companies. This

particular company (Sonora) reported that early 2011 they offered the mobile phone

service. This system is payed in a reliable manner with the IP connection.

62 This situation could change the Argentinean digital commerce evolution which is

why we should take notice of the corresponding data.

Another activity with favourable prospects is the content management for digital music. This means adding an extra value to tracks going into sale, for instance in mobile phones; offering applications that arn´t available in Mp3 exchan-geable files via P2P.63

We shouldn’t forget that these vertiginous chan-ges respond to an irreversible technological pro-cess and it`s correlation in the changes of cultural consumption habits, music included. This is why it`s essential that the industry agents take into consideration the new social behaviours, spe-cially in younger generations. This demographic appears in cultural consumption surveys as top consumers, not only of media and technology but also reading, music, dance, and Art exhibi-tion attendees. Born into a broader and more diverse communication ecosystem than older generations, as a study from Guillermo Sunkel for CEPAL depicts; there is a high dispersion in their consumption.64

A similar analysis can be found by the econo-mist Cesar Palmeiro when saying; that by a lar-ger supply of interaction media (social networks, email, mobile …) causes the time dedicated to music to compete differently than 10 or 15 years ago, when this was exclusive to TV and radio.

How the industry adapts to these changes and behaviours will surely define the new scenery of the activity; it seems that this is beginning to be visualized by the entertainment industry global

63 A local company interviewed during this survey reported they work for the 4

majors in the national and Latin American market, and that significant amounts of digi-

tal music was commercialized via mobile phones during 2010 and expected growth

during 2011.

64 German Rey conference on Cultural Consumption in the Spanish Cultural Center

in Buenos Aires. CCEBA, 2006.

agents, when undertaking agreements for audio-visual content circulation in social networks like Facebook. In the Music Industry in particular the Apple announcement of now a days regar-ding unlimited downloads in the iTunnes store, seems to also address a pondering on new social behaviour.65

Amongst this vertiginous reality – which is why no closed conclusions on the future can be sta-ted- the local industry agents seem to depend in a great measure, regarding the digital terrine, of the decisions made by global agents, remaining subordinate to find their way of incorporating to these defined processes. However, it`s neces-sary they consider the best way to manage these tools to their advantage.

There are territories with a broader margin of autonomy for local agents, such as the live music scene. There are real possibility’s to consolidate the peak of live music, in a way that a large amount of agents in the value chain can benefit. For this, global tendencies must be taken into considera-tion as well as the cultural habits of the Buenos Aires City inhabitants and visitors that precisely recognize this city for it`s cultural framework.

Meanwhile, in the non strictly musical field and related to the technological development of applications for music content in the City of Buenos Aires, the synergy can be exploited, from the crossing of creative industries with techno-logy, since both fields count with highly qualified human resources.

65 See <www.noticias2d.com/2011/03/06/apple-ofrecera-descargas-ilimitadas-

enla- tienda-itunes/>.

Final ConsiderationsWhen facing the recording sector crises, the company’s should keep in mind the necessity of diversifying their activities, allowing to cap-ture income from the different channels in which music circulates and is consumed. The opportunities offered by the digital channel demand a reevaluation of strategies taking into consideration the new consumption habits. Its essential to understand the new segmented con-sumption scenery of music, that translates to the growth of the single and the consumers choice in play lists. In this way an active music consumer is configured, assembling his/her music library, different from the traditional passive consumer. Facing the reality of the free music files exchan-ged amongst Internet users, the first step is to consider this public, mostly young people, as the recipients of their products. Seduction strategies must be reevaluated towards this audience, ins-tead of persecution strategies, as in some coun-tries- with no positive outcome. In this regard, those developments oriented towards adding value to the musical content through applica-tions, quality guarantees, distinguishing these products over those available for exchange in the P2P programmes, seem appropriate. A local market study of digital music consumers is enlightened on the subject: a 35% of the surve-yed subjects have no interest in in the packaging or picture, just the music. This means there is a 65% that might have interest in this added value of the digital music.

Besides, this terrain presents itself as favourable grounds to articulate along side other creative

industry agents specialized in designing soft-ware related to new technological equipments (as mobile). The City of Buenos Aires has the quality in professional resources to boost the Creative Industries as a whole.

With relation to an improvement in tool manage-ment, it seems pertinent to grant Internet as the main diffusion tool, for which the incorporation of specialized human resources is advisable. Amongst verifiable uses by some diversified agents, generating audience for live performan-ces and recitals with local and foreign artists from non main stream or massive genres is a highlight. This is directly related with the diver-sification possibility towards the live music busi-ness, which seems to prove as main axis with a positive dynamic for the sector within the City of Buenos Aires. The comparative advantages of the city`s population have been mentioned- population habits and internationally consolida-ted recognition – as well as pending problems such as the lack of diverse venues, specially smaller an medium ones.

It is understood that a strategy conducted towards this segment would generate a positive dynamic for many industry agents and not exclusively for the venues. For local record labels in general and those specialized as well; more available and diverse music spaces and venues, would most certainly be advantageous for them, because of the expanding options to present the artists from their label and specific spaces to accommodate the amount of expected public. Furthermore, they can benefit in a more direct manner in those cases of record labels that have venues or have partnership with these. This would also enable more possibility’s for professional development for production companies and new agents in the

making. This possibility requires a state policy oriented to encourage a diverse local scene and not exclusi-vely centered in the massive stages and establis-hed artists. While this last segment is important for revenue generation and city support in it`s international recognition, the extension of smaller stages would complement this – since it would not become competition and would consolidate a more solid circuit. It should be considered on one hand that the market of major internatio-nal stars is strongly dependant of a favourable exchange rate and this context could change. On the other hand, shows in large venues, like the River Plate stadium, have a double limitation: available concert dates and the neighborhood criticism aroused. In addition to this situation, the recent appearance of the “Estadio único “ in the City of La Plata as stage for large recital’s, will mean strong competition for the City of Buenos Aires66.

Another important dimension regarding the pro-liferation of venues and more possibilities for the expression of more genres and artists, stimula-tes the appearance of new talent to renovate the music scene. Therefore, even if indirectly, this translates to support for the creators and musi-cians, fomenting the cultural diversity of the city. The new role that music publishing adopts and the redefinition of artist contracts, make us con-sider, within the statal fomentation of the industry, actions oriented to support creators, composers and performers, in order for them to take advan-

66 For example, the visit of the Irish group U2 in Argentina, was presented in the La

Plata Stadium instead of one in Buenos Aires. (La Plata is about an hour`s distance

away).

tage, along with the companies that hire them, of a non abusive moderation, that functions as a motivation source of the local music scene.

The recent regulatory regime for the promotion of the City of Buenos Aires Music Activity67, seems to aim to this purpose and must be thought of as a first step directed towards the development of a privet-public strategy for the local Music Industry. In this point, the conformation of the Music Industry as a sector involving all the value chain agents could be a positive course accoun-ting for the new reality of the sector. In regard to it`s conformation as an Industry, it`s stressed to take into account the diversity of the music industry agents in order of having more politi-cal representation. It has been proven, in rela-tion to the redaction of the Law in Audiovisual Communication Services, that this was not the taken course. Even when some of the sections are oriented to the local industry, the opportu-nity of bearing in decisions related to local music dues and the kind of agents who benefit from it, was lost.

Within the specific recoding industry, many structural issues have become obstacles for that conformation. On one side, many of the sectors companies are micro enterprises, which entails in many cases that the owner or title holder is res-ponsible for the day to day running of the com-pany, with scarce possibilities of finding the time to define objectives, and elaborate strategies to achieve these, also unable to gather in sectoral boards. In relation to the size of the company’s structure, a certain degree of informality from the sector should be noted as an obstacle for a sec-

67 See Chapter “The Sectors Demands” in the Spanish version of this report.

torial articulation. The heterogeneous state of these kind of companies quite possibly carry some responsibility; this heterogeneous cha-racteristic is in expansion, along with the Music Industry concept that incorporates new agents and activities.

Finlay, an additional aspect remains, perhaps decisive and worth mentioning. Self-criticism if found from the industry agents on the subject, related to a constitutive weakness on behalf of the own sectors businessmen in not viewing themselves as cultural agents – differently from the book publishers- and therefore, neither as political agents. There is a challenge here for the sector, resulting with no doubt in a stronger pre-sence and influence in the political aspects and decisions, in the same way that this field should promote the constitution of discussion tables of dialogue with the sector, sufficiently represen-tative of the different segments of the activity in order to elaborate public-privet collaborative strategies to contribute in conforming a Music Industry in the broad sense of it`s conformation.

GOBIERNO DE LA CIUDAD DE BUENOS AIRES

Jefe de GobiernoIng. Mauricio Macri

Vicejefa de GobiernoLic. María Eugenia Vidal

Jefe de GabineteLic. Horacio Rodríguez Larreta

Ministro de Desarrollo EconómicoIng. Francisco Cabrera

Director de Industrias Creativas y Comercio ExteriorLic. Enrique Avogadro

Music Industry in the City of Buenos Aires...des music industry from live concerts, music industry`s diffusion by radio, industry of score publication and finally the record label

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