Shrinking Music Industry

A drop-off in business these days seems to produce one inevitable consequence: a cutback in jobs.

On Wednesday, October 15, Universal Music Group (UMG) officially joined the downsizing trend with an announcement that it had cut 550 employees from its ranks this year, 200 of them in the US. Approximately 800 more will receive pink slips within the first quarter of 2004, according to reports in The Financial Times, The Wall Street Journal, and elsewhere.

The news is especially sobering. UMG is the world's largest music label and the only company among the music industry's "Big Five" to post profitable results in the past two years. Operating income in 2001 was reported at $841 million on revenue of $7.7 billion; in 2002, operating income was reported at $650 million on revenue of $7.4 billion. For the first half of 2003, however, UMG's business slid to an operating loss of $49 million.

The music giant aims to reduce its global workforce by approximately 11% by next spring, with a projected total of about 10,850 remaining on the payroll. UMG is repeating a pattern set by Sony Music Entertainment, which in March 2003 cut 1000 workers. EMI has done likewise, but more slowly, removing 1900 workers over the past three years, a reduction of about 19%. A few weeks prior to publicizing its workforce reduction, UMG announced significant price reductions for many titles and genres, a move that some analysts predicted might temporarily improve the corporate bottom line at retailers' expense.

Approximately 8000 music industry jobs have been eliminated since 2001 in response to shrinking sales, which have declined by approximately one-third since 1999. Rising prices have offset dropping unit sales, but not sufficiently to sustain revenue, which has dropped 14% for the industry overall.

The "Big Five" are scrambling to license their catalogs to a slew of online music subscription services in the wake of the success of Apple Computer's iTunes Music Store. They are also exploring merger and buyout possibilities that would consolidate many operations and probably eliminate hundreds more jobs. While UMG was announcing job cuts, Time Warner was courting potential buyers of its Warner Music Group unit, among them the EMI Group PLC and former Seagram Company Ltd. chief Edgar Bronfman, Jr. WMG is valued at approximately $2 billion. UMG is also on the auction block by parent company Universal Vivendi, which has agreed to sell its Universal Pictures unit to NBC, keeping UMG as a separate entity.

Business may be spiraling downward for the music industry, but it's surging for Apple. On October 15, the Cupertino, CA–based computer pioneer reported a fourth quarter net income of $44 million, a huge improvement over the $45 million loss posted for the same period in 2002. Revenue for the period was $1.7 billion, a 19% increase over last year's $1.4 billion. Apple sold 336,000 iPod music players in the fourth quarter, a 140% improvement over the same period last year, and 176,000 PowerBook laptop computers, a 203% increase. Sales of PowerMac computers grew 26%, hitting 221,000 units. Apple also sold 787,000 Mac computers in the quarter ended September 27, a 7% rise compared to the same period a year earlier. The company projects gross sales of $1.9 billion for its first fiscal quarter, which includes the winter holiday shopping season.

And the big news for PC owners on October 16 was the release of Apple's iTunes software for Windows XP and 2000. iPod owners with PCs can stop holding their breath.