III. DATA DESCRIBING THE RECORDING AND RADIO INDUSTRIES

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The following tables are intended to provide data which describe certain elements of the recording industry. Unfortunately, publicly available data are usually not disaggregated to the degree necessary to conclude a great deal about the trends and current status of the industry. In addition, the sources which would supply data for more recent years are not yet available (for example the 1977 Census of Manufacturers). However, the data available do suggest a number of interesting tendencies in the industry.

Table One describes the trends in and composition of the number of recordings manufactured in the United States since the post-depression years. From 1939 through the Middle fifties, the industry seemed to be in decline. Since that time, growth has been steady, the impetus coming from new technologies (the development of 45 and 33 RPM disks), the triumph of "rock-and-roll," and, most recently, "progressive rock." Between 1963 and 1973 the number of recordings manufactured nearly tripled. This trend has continued in recent years.

Table Two indicates the relative importance of retail sales and other distribution mechanisms for 1971 and 1976. Over the five year period, the relative importance of albums when compared with singles has risen. In addition, record club sales have suffered decreases in market shares. For example record clubs sold 12 million fewer records and tapes in 1976 than in 1971. The total share for record clubs has gone from twelve to nine percent. Sales via mail order outlets have remained relatively steady. Finally, the data illustrate the rising role

of tapes.

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The percentage shares of various categories of retail outlets are presented for the periods 1964 to 1976 in Table Three. Although the data are not as reliable for earlier years, they clearly suggest some rather persistent trends. Currently, large department or discount stores have a combined market share of about 72% of retail sales. At the same time, the role of ''mom and pop" variety and drugstores, and supermarkets has dramatically fallen. Also evident is the rising business of record stores which cater exclusively to albums, tapes and related products. The share of these outlets has risen from practically zero to about 16 percent.

The content distribution of recordings for 1975 is displayed in Table Four. Recordings classified as contemporary, that is popular, rock, and soul music, have sales totalling 61 percent of all retail business. Classical music has a mere five percent market share, while the percentages for "country and western" and "middle of the road music" are 12 and 11 percent respectively.

A financial profile indicating representative production costs and profit margins for a typical album are presented in Table Five. In 1975, the retail sale price was typically $6.98, although outlets often offered discounts. The wholesale price to the outlet was approximately $3.80,

one dollar of which represented profit. The average manufacturing cost per album was about $2.80, including artist royalties which averaged about a dollar. Recording expenses, publisher payments, manufacturing

costs, and promotion expenses comprise the bulk of the remaining

$1.80 as indicated.

Table Six outlines the growth in annual sales of the U.S. recording industry since 1950. In both nominal and real (1972 dollars) growth has been steady. The real rise from 1955 to 1960 was particularly impressive, amounting to nearly 100 percent. Since 1975, increases have continued, with retail sales easily exceeding three billion dollars.

A measure of concentration is presented in Table Seven. Census of Manufacturers data indicate that the percentage of sales controlled by the largest record manufacturers has been steadily decreasing. For example, the four largest manufacturers enjoyed market shares of nearly 80 percent in 1947. This combined share fell to 48 percent twentyfive years later. The trends are similar for the 8, 20 and 50 largest firms. In 1972, for example, a full 15 percent of sales were made by firms smaller than the largest fifty. This suggests that, at least from the manufacturing perspective, concentration is not an important issue. Of course, this ignores potential sources of concentration at different stages of the marketing chain, an aspect which we will return to later. In addition, recent evidence indicates that the trend away from concentration may actually be reversing.

Finally, the last three tables supply data related to the radio industry. Table Eight documents the growth in the number of AM and AM/FM radio stations submitting required data to the FCC. From 1946 through 1976, broadcasting revenues have risen steadily as has the number of stations. The vast increase in broadcast stations might well affect the intensity of promotional effort necessary to guarantee the success of a record. However, Table Nine suggests that much of the growth in the radio industry has resulted from the development

of FM radio. The looser formats of these stations are more conducive to the promotion of music and artists that are not mainstream or "top-40."

Table Nine also indicates some systematic difference between average independent FM stations and AM or AM/FM properties. From 1961 to 1976, total revenues deflated by the GNP price deflator have increased nearly 60 percent hand, real revenues have multiplied thirteen and a half times over the same period for FM stations.

for AM and AM/FM stations. On the other

On average, AM and AM/FM stations have earned positive returns. Income as a percentage of revenue ranged from 6 to 13 percent over the period with an average return of about 10 percent. Independent FM stations, in comparison, have suffered substantial losses. In recent years, however, FM stations have begun to earn profits on average. Table Ten illustrates the composition of revenue and expense

items for stations reporting to the Federal Communications Commission for 1975. The data indicate that 77 or 78 percent of total advertising revenues are derived via the sale of time to local customers. This fact documents the development of radio as a local, community oriented medium.

The distribution of expenses is similar for both categories of stations. For AM and AM/FM stations, nine percent of broadcast expenses were for technical cost categories, 30 percent for program costs, 20 percent for selling expenses, and over 40 percent for the "general and administrative" category. For FM stations, a higher percentage of expenses were allocated to the selling or promotion

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of advertising and a lower percentage to program costs. Unfortunately, the level of aggregation reported by the FCC did not permit definitive conclusions with respect to this difference. However, the total revenues are affected, in part, by the existence of a number of

powerful AM stations which find it profitable, by implicitly distributing program costs over wider audiences, to supply more expensive programming.