New Study Confirms: Internet Is Contributing To Massive Profit Levels At Legacy Entertainment Firms

from the sky-is-rising dept

Wed, Sep 17th 2014 12:20pm — Mike Masnick

Our own research has shown this over the past few years, but contrary to the doom-and-gloom stories from the big entertainment companies about how awful the internet has been for their business, the truth is that it's enabling tremendous growth and profits. A few months ago, a study of the major record labels showed that they remained tremendously profitable.

There's some up and down in there, but there's fairly consistent profitability, with pretty massive profitability from the two biggest ones, Universal Music and Sony. The report also notes a big increase in the profit margins that these companies are making, able to squeeze a lot more money out of existing resources.

A new, much larger, study from Ernst & Young shows that this is true across the media business these days -- and that a lot of the profitability is coming... from the internet. A quote from the report's lead author sums it up:

“We are seeing that digital is very much driving profits now, instead of disrupting it. Companies are figuring out how to monetize the migration of consumers to a variety of digital platforms, and this insatiable demand for content is fueling growth throughout the industry.”

Remember how the internet was supposedly killing music? Yeah, about that:

The music sector is driving record growth in profitability from the expansion of licensed digital subscription and streaming services, growth in music publishing and rising smartphone and tablet penetration in emerging markets.

Film?

Film and TV production companies are driving their profitability through increasing revenues from digital platforms and investments in franchise-based films and higher-margin television shows.

But, wait, just weeks ago, one of the copyright maximalist talking heads was telling us that franchise movies were being killed off due to piracy? Maybe not.

Either way, this goes back to the point that many of us made during the SOPA fight. Despite the desire of Hollywood and certain politicians to make this into a "fight" of Hollywood vs. Silicon Valley, it's a bizarre kind of "fight" when it's Silicon Valley providing all the "weapons" to Hollywood that's making them so profitable.

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

Filed Under: entertainment industry, hollywood, internet, music industry, profits, recording industry

45 Comments

If you liked this post, you may also be interested in...

Reader Comments

Subscribe: RSS

View by: Time | Thread

Anonymous Coward, 17 Sep 2014 @ 12:39pm

and in typical fashion, it still isn't enough for them and they want to control all the internet, thereby maximising their profits! why else do people think the industries have spent millions of dollars trying to get the laws in place that they want? why else do people think that the industries are doing all they can to get people kicked off the internet, get them massive fines, split up families, cause bankruptcy yo ordinary people who had very little to start with, want to get as many thrown into jail as possible? to scare the shit out of people so the industries can just slide in and take over the 'net, whilst giving governments information they want from the new laws allowing the industries to spy on and track who is on the 'net what sites they visit and what the do as far as downloading/uploading is concerned. it's all one massive conspiracy and governments are in cahoots with the entertainment industries! just think about what is going on, how long it has been going on and what the industries have actually gained so far! unless there were an underlying objective, an idiot wouldn't have done what these fuckers have. they would have packed up years ago! and all advice as to giving customers what they want has been thrown out every time! all the surveys, other than the ones the industries have paid for, have been thrown out as well. if an industry were truly desperate, was losing enormous amounts of money every year, wouldn't they do something that improved the situation? every sane industry would but these do nothing except keep complaining and politicians being more worried about their own bank balances improving and being as thick as hell do whatever Hollywood and the ilk says!! bloody disgraceful way for governments to behave when they know what should be done!!
[ link to this | view in chronology ]
- Anonymous Coward, 17 Sep 2014 @ 12:45pm
  
  Re:
  nahh it's the pirates that why they can't pay the artists. That why they can't promote new artists until they have proven they are worth stealing from... opps i mean profiting from.... err, promoting. besides they need all that extra money, they have lots of politicians to bribe, ... er lobby.
  [ link to this | view in chronology ]
Anonymous Coward, 17 Sep 2014 @ 12:42pm

If the industry is losing billions and jobs due to piracy that they so shout from the rooftops demanding action to be done against piracy then why hasn't the industry filed for bankruptcy by now. Piracy cannot be a problem that they make it out to be costing them billions.
[ link to this | view in chronology ]
- Anonymous Coward, 17 Sep 2014 @ 1:37pm
  
  Re:
  Sure it can; it costs them billions in imagined profits. I seem to recall someone crunching the numbers a few years back, projecting what would happen if the entertainment copyright lobby actually GOT the money they said was owed them -- basically, the US economy would collapse, then trade agreements would fail, and the entertainment industry would fold before the US economy recovered.
  
  That's what happens when you think people owe you 40% of the nation's GDP.
  [ link to this | view in chronology ]
  - Anonymous Coward, 18 Sep 2014 @ 5:46am
    
    Re: Re:
    It's like Dr. Evil's ransom demand in Austin Powers 2, except the folks being shook down aren't in a position to laugh down this ridiculous demand.
    [ link to this | view in chronology ]
Anonymous Coward, 17 Sep 2014 @ 12:49pm

What the hell happened to UMG in 2009?
[ link to this | view in chronology ]
- ChurchHatesTucker (profile), 17 Sep 2014 @ 12:51pm
  
  Re:
  Or Sony from '06 to '09
  [ link to this | view in chronology ]
  - murgatroyd (profile), 17 Sep 2014 @ 1:00pm
    
    Re: Re:
    2006 was just after the Sony/BMG rootkit debacle (discovered in late 2005). Lots of people announced that they were going to boycott Sony; maybe enough actually did that it affected Sony's profits?
    [ link to this | view in chronology ]
  - Anonymous Coward, 17 Sep 2014 @ 1:01pm
    
    Re: Re:
    That chart is probably about Sony music. That company was defunct in about that time span, where Sony music was fused with Bertelsmann Music Group to form Sony BMG. Late 2008 That became Sony Music again, when Sony officially acquired the joint venture Sony BMG.
    [ link to this | view in chronology ]
jupiterkansas (profile), 17 Sep 2014 @ 12:52pm

the only thing surprising here is that one of the studios actually lost money one of those years.
[ link to this | view in chronology ]
Anonymous Coward, 17 Sep 2014 @ 12:52pm

That's what happens when you take 70% of Spotify's reveue.
[ link to this | view in chronology ]
- Anonymous Coward, 17 Sep 2014 @ 2:04pm
  
  Re:
  Yup. This is also what happens when those 3 labels have gobbled up all the other major labels since the early 2000s.
  
  You know what they say about statistics...
  [ link to this | view in chronology ]
Anonymous Coward, 17 Sep 2014 @ 12:55pm

Cough

http://techcrunch.com/2014/09/17/how-the-internet-killed-profit/

"One of the most well-documented areas killed by the Internet has been music"

Cough

:-)
[ link to this | view in chronology ]
- Anonymous Coward, 17 Sep 2014 @ 1:37pm
  
  Re:
  Yeah... What the hell is that guy smoking?
  
  "...after reaching a peak in 2000, the music industry now earns half the money, having lost over $7 billion of revenue and more than half its value since the dawn of the Internet."
  No doubt.
  Also "...but it was the next move, from ownership to streaming, that really killed an industry". Yup. Makes total sense. Keeping with the times (dragged by the hair, kicking and screaming) killed music. Mystery solved!
  [ link to this | view in chronology ]
  - Anonymous Coward, 17 Sep 2014 @ 2:09pm
    
    Re: Re:
    Because it's true. That chart showing profits from those labels is because they're the only major labels left. All the others either went out of business or were absorbed by the Big 3.
    [ link to this | view in chronology ]
    - Anonymous Coward, 17 Sep 2014 @ 2:27pm
      
      Re: Re: Re:
      Profits that don't exist. WMG has been bleeding crazy amounts of money for years.
      [ link to this | view in chronology ]
      - Anonymous Coward, 17 Sep 2014 @ 2:35pm
        
        Re: Re: Re: Re:
        The chart is labelled operating profits, that is income minus costs of production, that is profit before other costs like interests on loans and fees to parent companies for services rendered, like Hollywood uses to make sure that films never make a profit.
        [ link to this | view in chronology ]
        
        Anonymous Coward, 17 Sep 2014 @ 2:41pm
        
        Re: Re: Re: Re: Re:
        So we are only including numbers that prove our point and leave out the rest. Sounds awful similar to the very industry we are criticizing.
        [ link to this | view in chronology ]
        
        Anonymous Coward, 17 Sep 2014 @ 2:58pm
        
        Re: Re: Re: Re: Re: Re:
        If a company is over leveraged, then that is its fault that it cannot make a profit. Sometimes head office charges are used to create a loss for tax purposes, or even propaganda purposes. Hint, a business is not kept going for long if it is actually making a loss.
        [ link to this | view in chronology ]
        
        Anonymous Coward, 17 Sep 2014 @ 3:29pm
        
        Re: Re: Re: Re: Re: Re: Re:
        With debt in the billions and continuous layoffs, it is pretty clear they are not intentionally trying to lose money. They have even cut contributions to the RIAA.
        [ link to this | view in chronology ]
        
        Anonymous Coward, 17 Sep 2014 @ 6:06pm
        
        Re: Re: Re: Re: Re: Re: Re: Re:
        I think it's funny how they spend all their time whining and screaming about how they're dying and yet manage to handsomely pay off their own gang of extortionists.
        
        For fuck's sake, Cary Sherman and Mitch Bainwol get ever-increasing bonuses, every year. Why? Who the hell pays someone for failing at their job?
        
        Cutting contributions to the RIAA isn't going to garner sympathy. It simply convinces others that labels need to skim the fat on a lot of useless expenses.
        [ link to this | view in chronology ]
        
        Josh in CharlotteNC (profile), 18 Sep 2014 @ 8:00am
        
        Re: Re: Re: Re: Re: Re: Re: Re:
        they are not intentionally trying to lose money.
        
        If you keep doing the same stupid thing over and over again, it looks intentional to sane and rational people.
        [ link to this | view in chronology ]
- Anonymous Coward, 17 Sep 2014 @ 1:43pm
  
  Re:
  I like that it opens with the following.
  
  "Editor’s note: Tom Goodwin is the founder of Tomorrow Group, a marketing and advertising consultancy for the post-digital age."
  
  Also, it's interesting that it notes a number of companies who are failing to make a profit off really successful offerings (like Netflix), but fails to note that despite their success (from a number of users standpoint) they are also being taken to the cleaners once proven successful (by the legacy industries).
  
  You gotta love how they do all this research into "the internet is killing everything" and yet they always miss that "the internet is saving everything, it's the invested interests and companies that are killing the new things".
  [ link to this | view in chronology ]
Anonymous Coward, 17 Sep 2014 @ 1:47pm

Info
Where did this info come from? WMG hasn't been profitable for most of the last decade.
[ link to this | view in chronology ]
- Ruben, 17 Sep 2014 @ 2:25pm
  
  Re: Info
  It's pretty clear where the info is coming from here.
  
  Where's your info coming from?
  [ link to this | view in chronology ]
  - Anonymous Coward, 17 Sep 2014 @ 2:37pm
    
    Re: Re: Info
    My source? Reality apparently.
    
    2013: http://www.wmg.com/newsdetails/id/8a0af81242e11c330142e3d6b4de0071
    2012: http://www.wmg.com/newsdetails/id/8a0af8123b8e9173013b90bc5714004d
    2011: http://www.wmg.com/newsdetails/id/8a0af8123417fa0101341a5f9ebf0052
    [ link to this | view in chronology ]
    - Mike Masnick (profile), 17 Sep 2014 @ 4:15pm
      
      Re: Re: Re: Info
      2013: http://www.wmg.com/newsdetails/id/8a0af81242e11c330142e3d6b4de0071
      2012: http://www.wmg.com/newsdetails/id/8a0af8123b8e9173013b90bc5714004d
      2011: http://www.wmg.com/newsdetails/id/8a0af8123417fa0101341a5f9ebf0052
      
      Those appear to confirm the numbers above, showing operating profits.
      [ link to this | view in chronology ]
      - Whatever (profile), 17 Sep 2014 @ 5:20pm
        
        Re: Re: Re: Re: Info
        They show profits in the individual units when you don't consider the costs of borrowed money, and other line items. When you read it all the way to the bottom, Warner in 2014 lost something like 127 million.
        
        Cherry picking (look, this area is profitable) and ignoring the whole business is classic making the numbers be what you want them to be, I guess.
        [ link to this | view in chronology ]
        
        Anonymous Coward, 18 Sep 2014 @ 3:36am
        
        Re: Re: Re: Re: Re: Info
        The content industry is addicted to the various means of turning a profit making company into a loss making company, so that it can lobby for more government money and laws to protect its business. Making a loss when a reasonable operating profit exists is due to bad management and/or creative accounting.
        [ link to this | view in chronology ]
        
        Anonymous Coward, 18 Sep 2014 @ 4:43am
        
        Re: Re: Re: Re: Re: Info
        Please see the definition of operating profit.
        [ link to this | view in chronology ]
        
        JP Jones (profile), 18 Sep 2014 @ 11:26am
        
        Re: Re: Re: Re: Re: Info
        To reiterate...please see the definition of operating profit. Once you do, note that legal and lobbying costs are not included, among other things.
        
        Who's fault is that?
        [ link to this | view in chronology ]
- Dan Sherman, 18 Sep 2014 @ 7:10am
  
  Re: Info
  I was wondering the same thing. I'd like TechDirt to explain to me where their recent 10K filing with the SEC shows profit and not loss: http://investors.wmg.com/phoenix.zhtml?c=182480&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6 YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTk3MzkyODImRFNFUT0wJlNFUT0wJlNRREVTQz1TRUNUSU9OX0VOVElSRSZzdWJzaWQ9 NTc%3d
  [ link to this | view in chronology ]
DannyB (profile), 17 Sep 2014 @ 2:04pm

The RIAA's and MPAA's response . . .
RIAA: Hear no evil. I can't hear what you are saying. My fingers are in my ears. And I'm tone deaf. Being tone deaf is a qualification for being an executive in a field having to do with sound.

MPAA: See no evil. I can't see your message. My hands are over my eyes. And I'm blind to things I don't want to see and have limited vision and foresight. Being blind is a qualification for being an executive in a field having to do with motion pictures.
[ link to this | view in chronology ]
Chancius, 17 Sep 2014 @ 2:13pm

Other Factors...
What this article doesn't take into consideration is a multiple of factors that has turned the music industry around. The full on monopoly the major labels have over commercial radio, the ownership of Spotify, and 360 deals have all contributed to their success. Of course, this has all been for the worse because there is far less diversity of genres being invested and marketed while the music we do mostly get is simple and dumbed down to appeal to a small demographic (Tweens).

www.facebook.com/chancius
[ link to this | view in chronology ]
- Anonymous Coward, 17 Sep 2014 @ 2:19pm
  
  Re: Other Factors...
  So ignore the big labels and their artists, there is plenty of music of all genres out there on the Internet.
  [ link to this | view in chronology ]
- Anonymous Coward, 17 Sep 2014 @ 2:53pm
  
  Re: Other Factors...
  There is more variety in music then ever. If you just listen to the music the big labels put then that may be true.
  [ link to this | view in chronology ]
Anonymous Coward, 17 Sep 2014 @ 2:17pm

The riaa ,music companys, etc attack all new technology ,
eg vcr,mp3 players,
digial downloading,
then wake up 1 day and realise they depend on new tech for
their profits.
Home video renting, buying videos ,did not exist before the vcr was invented .
All these new channels and netflix mean the film company,s
have new users to buy their films.
Valve don,t waste time complaining about piracy ,
they made a good platform that allows people to
buy games easily at a fair price .
[ link to this | view in chronology ]
- Jeremy2020 (profile), 17 Sep 2014 @ 2:55pm
  
  Re:
  Company after Company has found out through Steam how you can be profitable selling your game with deep discounts when it's on a good platform that people enjoy and doesn't get in the way much.
  [ link to this | view in chronology ]
Anonymous Coward, 17 Sep 2014 @ 4:24pm

It's never been about losing money to piracy , It's about them intentionally losing profits so they can get write offs ,they need to own the internet because way too many parties keep track of sales.
[ link to this | view in chronology ]
Anonymous Coward, 17 Sep 2014 @ 4:47pm

What about the popcorn farmers?
[ link to this | view in chronology ]
Whatever (profile), 17 Sep 2014 @ 5:16pm

Yes, the profits look pretty good. However, dig a little deeper, and then compare it to the rhetoric around here, and you will realize that the reality is that these companies are doomed.

The problem here is that much of the revenue is from non-retail uses, which are based on the rules of copyright. Licensing music (now more than a third of the industry income) would be very much more difficult to do if the rules of copyright are tossed out.

If you look at the Warner statements, it's clear that licensing / publishing represent a huge part of the business income. Toss that out or change those rules, and that income slides away.
[ link to this | view in chronology ]
- Anonymous Coward, 17 Sep 2014 @ 6:08pm
  
  Re:
  Doomed companies don't pay off the RIAA every year.
  [ link to this | view in chronology ]
- techflaws (profile), 17 Sep 2014 @ 10:07pm
  
  Re:
  Right, that's why after ~15 years of crying wolf those doomed companies are still making money.
  [ link to this | view in chronology ]
- Anonymous Coward, 18 Sep 2014 @ 3:39am
  
  Re:
  So, no company has the absolute right to remain in business without adapting when new technology comes along, or laws are changed to reflect the will of the people.
  [ link to this | view in chronology ]
- JP Jones (profile), 18 Sep 2014 @ 1:36pm
  
  Re:
  You're absolutely right, these companies are doomed...but not because of piracy or the internet (directly). They're doomed because they aren't bothering to compete and instead crying to legislators to makes laws banning competition. That may result in a short term gain (possibly, but not likely) but they're hemmoraging money on lawyers and lobbyists rather than spending that money to compete.
  
  They're making plenty of money...it's not our fault they're pissing it all away for no reason.
  [ link to this | view in chronology ]