12. Comparison of Budget vs Actual Sales for Top 20 Albums

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Budgets:

  1. Record companies establish budgets per Country to forecast sales volumes and prices, costs and profits. These budgets are necessary instruments to conduct business and prepare financial statements, in the music recording industry as in any other business. Budgets generally report total sales at gross price, discounts, costs and net contribution to profit. National budgets are made of the aggregation of album budgets and estimations for albums which do not have their own detailed budget.
  2. Record companies prepare budgets for some individual albums, which tends to be albums expected to reach high level of sales. These budgets are primarily focused on assessing sales volumes, reasonable levels for marketing expenditure, but are also important tools for price strategies. Such budgets detail the total number of expected sales, average PPDs and discounts, as well as associated costs per country.
  3. Apart from isolated cases, the Commission found that record companies do not prepare budgets per customers, or customer types.
  4. On a title by title basis, the differences between forecast and actual sales are huge. When averaging the top 20 sales in 2006, the difference range from [20-30]% for France and Spain to [60-70]% for the United Kingdom.
  5. It also appears that the average discount per retailer fluctuates by several points from year to year.
  6. Majors do not systematically adjust monthly targeted discounts in order to compensate for actual discounts deviation of former months. Majors are also not generally less willing to agree to discounts towards the end of the financial year, which could be expected if there was a strong emphasis of ensuring compliance with discount budgets.

This item is part of the series of posts based on the European Antitrust Agency 2007 Music Industry Analysis for the Sony BMG Case. It’s home page is here.

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