Academic journal article MEIEA Journal

Historical Changes in the Music Industry Supply Chain: A Perception of the Positioning of the Artist Musician

Academic journal article MEIEA Journal

Historical Changes in the Music Industry Supply Chain: A Perception of the Positioning of the Artist Musician

Article excerpt

Editor's note: the charts in this article are high resolution images that may be rotated and enlarged for detailed viewing on screen or for printing. The print edition of the MEIEA Journal contains monochrome versions of these same images.

Introduction

This study's primary focus is an historical analysis of the international music industry supply chain. It wishes to understand old business mod- els to reflect upon new ones. The work presented builds upon the seminal work of Renard's (2010) doctoral dissertation entitled "Unbundling the Supply Chain for the International Music Industry."1

Let us consider that the physical distribution chain becomes less and less important. Also, as other players find it easier to enter the market, an inevitable shift in revenue streams forces the record labels into new directions and new strategic positioning. Finally, how does that affect the positioning of the social agent responsible for the value-added quality within the music supply chain: namely, the artist.

Hagel and Singer (1999) argue that when a vertically integrated industry goes through a major change such as the one experienced by the music industry with the digitization of music, it opens the door to the profitable creation of many new specialized companies. The more established generalist firms, the three "majors" (Sony Music Entertainment, Universal Music Group, and Warner Music Group) have advantages of size, reputation, and integration. Now, these advantages are beginning to wither. The new advantages-creativity, speed, flexibility-belong to the specialists (independent labels and the artist).2 They explain that interaction costs represent the money and time that are expanded whenever people and companies exchange goods, services, or ideas.3

Interaction costs have been popularly used in the development of a general network theory for social sciences. This approach has been used to illuminate the shaping of networks and the interactions within them. The same set of concepts can be applied to the world of outsourcing to illustrate the overheads associated with adding incremental supplier/vendor relationships to an existing set of dynamics for an organization.

Acemoglu, Aghion, Griffith, and Zilibotti (2004) affirm that many experts believe that recent technological developments and globalization are transforming the internal organization of the firm. They present two views which are of interest in the present study. First, they explain that new technologies, especially information technology, are creating a shift from the old integrated firms towards more delayered organizations and outsourcing. Second, they explain that, "it is often maintained that the greater competitive pressures by both globalization and advances in information technology favor smaller firms and more flexible organizations that are more conducive to innovation."4 However, the economics profession is still far from a consensus on the empirical determinants of vertical integration in general, and about the relationship between technological change and vertical integration in particular.

Why, then, would the majors also seek to horizontally integrate if they already own more than eighty percent of the industry? We have to consider that these large companies are also competing against each other. To do this, they must each find an unconquered niche within the music industry and try to secure it for themselves. They might do this by specializing in one genre of music such as country music or by conquering a new market in a new country.

Our social network analysis (SNA) confirms that by buying all the labels in a certain genre or by establishing another distribution channel in a rising market, these large companies can maintain a competitive advantage over their competitors. By owning more parts of the supply chain, they can make even more profits by narrowing the costs of production. SNA statistically analyzes social networks in a methodical way using graphical social network diagrams. …

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