The fundamental theme of the following text is power, more specifically, how this power has been decentralised as a result of the shifting landscape within the music industry. The transformation of the music industry has widely been reported, yet the long-term implications of the changing power structures within the recorded sector have previously received little attention, the text attempts to rectify this.
In regards to the methods that have been implemented to analyse this theme, literary and statistical analysis are key. The market share of the major recording companies has been reviewed, in addition to the share prices of each company, alongside analysis of the agreements formed throughout the last decade.
The main results of the research outline that while central power appears to have transferred, for the most part the recording sector of the music industry is an essential instrument for artists to generate popularity. While the decline of the recording companies continues in the same fashion as witnessed across the last decade, the publishing sector will acquire a central role within the wider music industry. As a result of this, the recording companies share prices will reduce, ultimately deeming them vulnerable to acquisition, potentially from the multinational technology corporations, as vertical expansion for these corporations can only be achieved through acquiring the production element of the supply chain.
Table of Contents
1 Recording companies
1.1 Supply chain
1.2 Bargaining power
1.3 Strategic typology
2.2 Technology corporations
3 Representative organisations
3.1 Political agenda
3.2 Collection societies
4 Governmental considerations
5 A comparative analysis of the wider music industries
5.1 Radio broadcasting
5.3 Live music sector
6 Ethical considerations
6.1 Public influence
The central theme of the following text is power, which can be defined as the ‘capacity or ability to direct or influence the behaviour of others or the course of events’ (Oxforddictionaries.com, 2014). Legally, the context in which power is referred to, is generally bargaining power, which effectively also alludes to the ability of parties within a scenario to exert influence over the proceedings of an agreement. Michael Foucault states –
‘Power is not just a negative, coercive or repressive thing that forces us to do things against our wishes, but can also be a necessary, productive and positive force in society’ (Foucault, 2003).
Although a more in depth understanding of power permits the comprehension that power has a ‘strictly relational character’ (Foucault, 1978). Resistance and power have an obligatory relationship, ‘this resistance is never in a position of exteriority in relation to power’ (Foucault, 1978). To assume that we are able to escape power is to misunderstand its fundamental basis; it is directly entwined within society. As Mark Kelly States, to abolish power –
‘would mean nothing less than the destruction of all actions upon actions. It cannot be done by appealing to a higher action upon actions that will keep power in check, since that would of course be power itself’ (Kelly, 2012).
The recorded music industry, as has been widely reported, has experienced a monumental decline in revenue as a result of technological advances, the context of the following text focuses solely on how the balance of power within this sector has been altered due to its transforming landscape. This theme is of particular importance for recording artists, recording companies and those that depend on the recording sector, in regards to predicting the future industry and the major contributors that will potentially uphold the most beneficial bargaining position.
The focus, in terms of the participants that have been analysed, pays particular attention to that of the recording companies, for the most part those that are considered the ‘major’ recording companies have been analysed, due to the fact that historically these companies have been central to the contemporary music industry, and exert the most power.
Power, as outlined above, is relational in character, as such it is to be analysed from a number of angles, across a number of relationships. The power within the music industry is variable, the music industry is vulnerable to a number of contributing factors, and thus this power is prone to frequent change as these factors unbalance the landscape.
This research has been carried out to contribute an additional perspective on the issues that the recorded music sector currently face. For the most part, analysis of this theme has been largely directed towards to economical decline; as such the following research reviews the scenario in terms of the relative power and how this shift in power may affect the future industry.
A literature review has been undertaken, analysing the current knowledge on the subject. The first chapter gives an analysis of the recording companies, focusing on the supply chain, bargaining power, strategic typology and synergistic integration. The research then concentrates on corporate implications in the second chapter, with reference to consolidation of the recorded music sector, the technology corporations’ influence over the industry and the demise in value of recorded music. Chapter three investigates the representative organisations and collection societies, in regards to their political agenda. Governmental considerations are outlined in chapter four. A comparative analysis of the wider music industry is discussed in chapter five, while chapter six takes in to account the ethical considerations within the focus of study. A conclusive statement closes the text.
The decentralisation of power within the music industry, as a topic, has sparsely been specifically discussed, academically, at length, more so in passing. Academics that have made reference to the theme rarely have a fully informed opinion, as without practical experience of the music industry it is particularly difficult to entirely comprehend its true intricacies and values. As the music industry is vulnerable to fast-paced change in its current form, obtaining valuable contemporary academic analysis is not achieved with ease. When concerning the power structure within the music industry, this is often susceptible to change on a case-by-case basis, therefore those analysing the theme often find their works outdated when published.
Predictions of the music industry from the recent past tend to be incorrect. Andreas Gebesmair and Alfred Smudits stated in 2002 that ‘phonogram companies will no longer be in a position to shape the demand for a product’ (Gebermair et al., 2002), in reference to the future music industry. While for the most part Gebesmair and Smudits are insightful, this claim is entirely incorrect. Recording companies have lost the manufacturing and distribution elements of the supply chain, and in that light can no longer manipulate scarcity, but demand for a product is achieved through effective marketing, which the major recording companies are consistently successful at achieving. Regardless of whether the supply chain has been transformed, marketing, if anything, has become more effective, and the major recording companies are able to shape the demand for a product more so than prior to the technological advance of the twenty-first century. Gebesmair and Smudits exemplify the key point that music academics rarely are able to comprehensively understand the wider music industry.
Andrew Leyshon, an Economic Geography Professor, comments in his 2001 journal that ‘the rise of software formats such as the MP3 will bring about the end of the music industry as it is currently formed’ (Leyshon, 2001), yet on the contrary, Jim Rogers outlines that ‘it would be wrong to assume that the popular music industry has undergone fundamental structural upheaval in the wake of digitization’ (Rogers, 2011). Therefore it appears that there are opposing views on this subject. Effectively, it entirely depends on how the analysis has been directed. On the surface the music industry appears to be an evolved marketplace, yet when analysing the fundamental structure, the recording companies are still exploiting the same products and generating revenue from sales of units. The platform that recording companies use to distribute their products has changed remarkably, but it is questionable as to whether the Economic Geography Professor has depth to his understanding of the industries intricacies. Although, Rogers too has inconsistencies within his work, Rogers states that ‘the broader music industries landscape paints a significantly healthier picture than the digitally induced Armageddon suggested by record sales data and popular media reports’ (Rogers, 2011). While this may be true in the respect of overall revenue, this does not mean that each sector of the music industry is not facing issues as a result of advancing technology. For the most part, the live music sector has seen an increase in the revenue that has been generated, which has stabilised the broader music industries, but as explained throughout this text, this growth has begun to stagnate and decline, which outlines that the broader music industries, below the surface, do not paint a significantly healthier picture than that Rogers defines.
It is apparent that Mihir Parikh is of the following inclination –
‘Artists will move closer to the center of the power structure. They will gain more control over marketing and distribution of their music. More and more artists will choose to remain independent (not affiliated with any labels). They will set up their own web sites to promote and distribute their music’ (Parikh, 1999).
Yet this is directly countered by the fact that Rogers believes –
‘The process of breaking an artist on a wider stage remains largely filtered through many of the same channels as in the pre-internet era. If an artist pursues international success in the music mainstream, she/he is still dependent on the networks of the music majors’ (Rogers, 2011).
Parikh does make an interesting point that has been discussed widely by the academic society, yet Rogers’ statement directly outlines that while artists have the availability to control their own marketing and distribution in the current climate, without the long-term experience and resources that the major recording companies exploit, it is in fact as difficult, if not more difficult to achieve critical success currently.
Furthermore, Parikh predicts, in regards to the major recording companies, that ‘any delay in changing their business models will lead to the rise and strengthening of competitive forces, which will dominate the industry by being there first as the new intermediaries’ (Parikh, 1999). This comment is not correct; firstly because Parikh does not offer substance to enforce his argument, but most importantly that while there are new intermediaries, in the form of distributors and retailers, these intermediaries are not a competitive force in relation to the major recording companies. The intermediaries and the recording companies are fundamentally different; their business models are not the same.
David Kusek and Gerd Leonhard, in their intuitive book, The Future of Music, make a bold statement that ‘Fans, Artists, and all kinds of music communities drive the business, rather than being driven by corporate powers’ (Kusek et al., 2005). Yet it only takes a brief analysis of the current marketplace, in the form of the music charts, to immediately perceive that the “corporate powers” dominate these charts. Additionally, the “corporate powers”, due to homogenisation at the base of the music industry, in fact control an overwhelming share of the music industry. While it is understandable to conclude that the consumer drives the music industry, this would be completely misleading to those who are not adept to the fundamental structure that currently inundates the industry.
To counter the opinion of Kusek and Leonhard, Roy Shuker firmly states the following.
‘The picture of a powerful corporate capitalist music industry stresses how the music business in now an integral part of a global network of leisure and entertainment corporations, typified by a quest for media synergy and profit maximisation’ (Shuker, 2008).
Mark Mulligan is of the opinion that ‘the balance of power has firmly shifted away from labels to the live value chain’ (Mulligan, 2014), and while this is currently true, it does not offer an insight to short-term future, let alone the long-term future marketplace. Mulligans theory lacks substance, as it does not offer an opinion of the transformation of power across a wider span of time or consider the fact that the live music sector is currently oversubscribed, and will inevitably experience a decline in the long-term.
The general academia surrounding this issue appears to be inconsistent.
1 Recording companies
The supply chain
The International Federation of Phonographic Industries (IFPI) ‘estimated that in 2012 the trade value of the global recorded music market stood at $16.5 billion, which should be compared to $28.6 billion in 1999 (Wikström, 2013).
The general consensus, in regards to the major recording companies loss of their distribution monopoly, is that while attempting to contend with piracy issues, the recording companies let the opportunity to control and exploit vast online distribution avenues pass beyond their reach. As their entire business model was at risk, it is understandable that the recorded music sector was defensive in its behaviour, although –
‘it is often maintained that the greater competitive pressures by both globalization and advances in information technology favour smaller firms and more flexible organizations that are more conducive to innovation’ (Acemoglu et al. 2004).
This gives air to repetition, whereby the major recording labels have previously, unanimously, reacted at an unhurried pace for all relevant technological innovations. These scenarios are ‘symbolic of the decentralized record industry’s inability to do anything quickly’ (Knopper, 2009). From a wider viewpoint, the music industries are consistently vulnerable to technological advances, therefore the longstanding companies are in fact at a disadvantage, yet knowledge of this disadvantage should cause the larger entities to alter their organisational structure in order to allow for evolution.
‘New entrants are in a more advantageous position than fully established companies, not only because of lower costs, but also because they may be better able to make quick changes in response to changes in consumer demand’ (Gebesmair, page 12).
Effectively, as a result of the widespread use of the Internet, the recorded music sector has experienced a business model shift; the supply chain has been altered. ‘The supply chain concept is experiencing a fundamental paradigm shift in respect to the music industry’ (Graham, 2004). This alteration has rendered two thirds of their business model irrelevant; both the manufacturing and distribution ventures can now be, for the most part, considered redundant.
Gary Graham makes an interesting comment on this subject –
‘The internet has clearly transformed all four critical music industry supply chain dimensions and the opportunity is there not only to cut down on operational costs, but to also to find innovative ways to perform activities as well as to generate higher revenues’ (Graham, 2004).
This statement has proven true, as recording companies are now able to deliver their content inexpensively, the marketing reach and effectiveness is far greater than previously and product consumption can be analysed in a depth that was inconceivable in the recent past. Although, due to the supply chain shift, the recording companies have had to alter their business model in order to focus on their core competencies, or what is perceived as what should be their core competencies, ‘and for the major record companies this lies with the production and the marketing, of their artists’ (Graham, 2004). Briefly centring attention on this ideology, other than acting as a loan shark through administering advances to their affiliated artist, on the surface, it appears that modern recording companies can now only be considered as marketers, as the production process is largely outsourced.
The consumer electronics company, Apple Incorporated, offered the first viable, or what was considered to be viable, online retailing platform for music, iTunes. As Sony Corporation had been at the forefront of music related technology since the transistor radio, their lack of attempt to compete with Apple Incorporated reflects directly on the foundation of their entire corporation. A corporation such as Sony, with vast vertical integration surrounding all aspects of the music industries, from a layman’s perspective, would appear to have been the most stable entity within the recorded music sector. This is contrary to the reality; Sony Corporation was simultaneously a member of the ‘Napster-supporting Consumer Electronics Association (and)… the RIAA (Recording Industry Association of America)’ (Knopper, 2009), whom had opposing views on the open source music files debate; Sony Electronics ethic was that digital music files should be open source, Sony Music believed the reverse. This incoherence represents a fragmented and decentralised organisational structure, leading one to infer that Sony Corporation in addition to the other major recording labels were too, unstable. Due to the civil unrest within Sony, ‘Apple took over the markets for both digital music players and online songs’ (Knopper, 2009). The resultant being that according to Apple Incorporated Chief Executive Officer, Tim Cook, the Apple iPod market share was at seventy-eight percent in 2011, with over three-hundred million units sold within a ten year time-frame. “To put that in context, it took Sony thirty years to sell two-hundred and thirty thousand Walkman cassette players” (Cook, 2011).
Prior to the agreement between Apple Incorporated and the major recording companies to supply the music that was to be retailed on the iTunes platform, the market growth, or lack thereof, of the global recorded music sector had been stifling, ‘World sales of recorded music for the year 2000 fell by 1.3%’ (IFPI.org, 2001), which when considering this in relation to previous forecasts is a ‘dramatic decrease from the 9.8 per cent [growth] in 1995 and 17.8 per cent in 1994; (Laing, 1998). This overwhelming turn of events ultimately positioned the major recording companies in an anxious stance to find viable revenue streams through online distribution, which gave rise to the issue of unequal bargaining power when forming agreements with Apple Incorporated. Roger Ames, the then chairman and chief executive officer of Warner Music, in a conversation with Doug Morris of Universal Music mentioned in relation to Steve Jobs proposal that “I don’t think we have much choice (…) We have to put a legal service in the market. None of us have come up with anything” (Knopper, 2009), to which Morris responded, “we have to rely on Steve Jobs to do this – we don’t have anyone”(Knopper, 2009). These comments outline the recorded music sectors reliance on the technology companies. Ultimately, the balance of power had shifted from the major recording companies to retailers, or more singularly, the retailer.
While it is not illegal to form an agreement while exerting unequal bargaining power, Lord Denning states –
‘When one is so strong in bargaining power and the other so weak – that as a matter of common fairness, it is not right that the strong should be allowed to push the weak to the wall’ (Lloyds Bank Ltd v Bundy, 1975).
This inequality of bargaining power is evident through the terms of the agreement, ‘Jobs insisted on 99 cents per song’ (Knopper, 2009) and of this Apple Inc. were to take a thirty percent share, which was opposed by those within the recording sector. Jim Caparro of Warner Music’s distribution company, Warner Elektra Atlantic, ‘objected to the pricing structure’ (Knopper, 2009). Furthermore, Jobs was rigid in relation to songs being sold individually, as opposed to in an album, thus it can be inferred that while the recording companies were unsatisfied with the terms, as the terms were agreed, the technology corporation had greater power in regards to the bargain.
Apple Incorporated acquired such a power in regards to the retail of digital music, due to the fact that they ‘controlled 70 percent of the digital music market’ (Knopper, 2009), that it can be assumed from the agreements formed between the major recording companies and Amazon to license music to be sold on the Amazon MP3 platform, that the ‘labels wanted competing stores, like Amazon, to take some of Jobs’ control away’ (Knopper, 2009). Moreover, as the recording companies did not want to originally approach Microsoft, as ‘executives feared the predatory giant would rope the major record companies into an unfavourable deal’ (Knopper, 2009), now that Apple Inc. had reached a similar status to Microsoft, it is apparent that the recorded sector were now entirely aware of Apple Incorporated’s power, and additionally aware of how to contain this power.
1.3 Strategic typology
Strategic typology, according to its devisors, Raymond Miles and Charles Snow, shows that ‘there are essentially three strategic types of organisations: Defenders, Analyzers and Prospectors’ (Miles et al. 1978), each with an individual market strategy. Both the Defender and the Prospector are inherently located at opposing sides of the continuum in regards to adjustment strategies, while the Analyser resides centrally.
Defenders strive to ‘seal off a portion of the total market in order to create a stable domain’ (Miles et al. 1978) through standard economic behaviours and actions, such as pricing competitively. Although, Defenders achieve a stable domain through market share growth and mechanistic organisational structures, as opposed to innovation as a central theme, thus are unable to effectively ‘respond to a major shift in its market environment’ (Miles et al. 1978). Recording companies appear to price competitively yet in an environment that is truly competitive, the prices in theory decline, yet Eli Noam believes that these companies price their products –
‘significantly above marginal costs. This could be sustained through oligopoly. But an oligopoly is unlikely to be able to control and contain the new electronic distribution options’ (Noam, 2009).
In the case of the recorded music sector, the electronic distribution options have not been controlled and contained, and while the recording companies appear to harness innovation through creativity, their inability to adapt to technological advances outlines that the creativity of their artists does not filter through to the mechanistic business model.
‘The Prospectors prime capability is that of finding and exploiting new product and market opportunities’ (Miles et al. 1978), while this may seem effective in the modern recorded music marketplace, it is uncommon for Prospectors to achieve similar profits to that of Defenders, which poses a frustrating paradox, when attempting to invest in innovation to maintain market status. Furthermore, Prospectors invest in scanning the environment for impending prospects. Within the production element of the supply chain, recording companies have historically portrayed traits of the Prospector, finding and exploiting new artists, regardless of cost. For example Tommy Mottola while heading Sony Music Entertainment ‘instructed people to open their wallets’ (Knopper, 2009) when seeking to widen their portfolio. This narrowly considered business plan effectively caused the recording companies to become complacent, insufficient financial control and lack of future considerations have ultimately caused the recording companies to now rely on sales of their back catalogue in order to generate profit. Additionally, while searching for new exploitation opportunities in the production element of the supply chain, the recording companies neglected the distribution element.
The final strategic type of organisation is the Analyser, whom combines traits of the previous organisations in a more balanced approach, minimizing risk while maximizing the potential to generate revenue. ‘This strategy is difficult to pursue, particularly in industries characterised by rapid market and technological change’ (Miles et al. 1978), thus while the major recording companies appear to act similar to an Analyser, as they ‘want talent to be delivered to them ready made and they’re not prepared to take a risk over a long period of time’ (Davey, 2014), this is an indication that rather than being Analysers, they are potentially just ‘under pressure’ (Davey, 2014).
Synergy is the fundamental result when two or more actors co-operate to achieve an equally positive gain. Due to the dynamic composition of the music industry, we must analyse the integration and synergy both vertically and horizontally.
Integration, in general, is primarily focused towards gaining profitability and a competitive edge, to vertically integrate is to expand a company across the supply chain. To horizontally integrate is to acquire or merge with competitors within the respective marketplace, ‘to achieve the competitive advantages that arise from a large size and scope of operations’ (Hill et al. 2013).
Horizontal integration was apparent throughout the recorded music sector when the major recording companies merged with or acquired their competitors in a consolidation process, that took the number of closely competing businesses from six to three, leaving Universal Music Group, Warner Music Group and Sony Music Entertainment.
‘For overstretched corporations with their own problems, such mergers/sales represented either a useful financial injection or a further distancing themselves from what was looking increasingly like a failing commercial activity’ (Hardy, 2012).
When referring to strategic typology, this horizontal integration portrays traits of Defender type organisations as opposed to Prospectors, attempting to gain market share and reducing the cost structure, rather than discovering innovative revenue streams. Alternatively, this can be considered a business decision ‘to obtain bargaining power’ (Hill et al. 2013), as without a wider portfolio, such as that of Universal Music Group, the online distribution companies cannot maintain their business model. Martin Mills, chairman of recording company Beggars Group, maintains the opinion that Universal Music Groups power in the marketplace “allows them to say to new services that they can live or die, because no new service can live without Universal (…) So they have to deal with them, and they have to accept their terms” (Rose, 2012), which generally entails large license fees. While this strategy may seem understandable from a business perspective, in reality, for the recording companies to maximise their bargaining power and potential profit, a larger number of outlets for the distribution of music must be available, so as to ensure that one company does not gain an obtrusive market share, resulting in the recording companies bargaining power being reduced. If the overpowering distribution company makes use of their bargaining power, the recording companies are at risk of reducing their long-term profitability. Maintaining this business strategy may increase exclusivity yet can be considered counterproductive when attempting to acquire a critical mass, which in regards to globalisation is the pinnacle of online distribution.
In 2003, the market division was largely favoured towards Universal Music Group (see appendix 4).
‘The steep fall in the perceived value of major record companies is seen in a comparison of the prices paid for PolyGram ($10bn) in 1998 and for Zomba in 2002 ($2.74bn) to that offered by EMI for 75% of WMG in 2003, $1.6bn in cash and shares’ (Hardy, 2012).
The portfolio of Zomba is under half the size of that held by Warner Music group. It was at this point that a number of recording companies were negotiating agreements with the intention of merging, it can be inferred by the potential 50:50 joint venture of Bertelsmann Music Group and Warner Music Group, with no additional cash payment, that this merger was one of ‘increased caution rather than confidence’ (Hardy, 2012). Philippe Hardy believes that ‘by entering into negotiations, Bertelsmann appeared to have conceded that it wouldn’t be able to build BMG into a large and profitable major and instead was concerned to protect its other business interests’ (Hardy, 2012). Alternatively, this can be inferred as an attempt to gain a larger market share, with fifty percent less risk to their overall empire. The merge between Bertelsmann Music Group and Warner Music Group was unsuccessful, which resulted in the same agreement being formed between Bertelsmann and Sony Music Group, although before long Sony Music Group bought Bertelsmann’s stake, taking full control. This indicates that Sony Music Group were in fact regaining the power that was comprehensively lost across a number of their sister companies within the Apple Incorporated debacle.
Universal Music Group consolidated their pole position with the acquisition of Electrical and Musical Industries, or more commonly known as EMI Music, although, Sony/ATV Music Publishing acquired the publishing arm prior to this. This consolidation handed Universal Music Group an overpowering market share, and with this, solidified their dominance as what is considered the most powerful recording company, due to their extensive catalogue.
The acquisition of EMI Music was not without opposition, the Independent Music Companies Association, otherwise known as IMPALA, stood strongly against ‘allowing the biggest music company in the world to become even more powerful’ (IMPALA, 2014) because ‘the independent record companies said they would oppose any merger’ (Hardy, 2012). The basis of their opposition, as explained by Helen Smith, Executive Chair of IMPALA, in reference to the European Commissions statement of objections, was as follows.
“Blocking Universal’s attempt to increase its market power by buying one of its most thriving competitors is the logical outcome. It is difficult to see how remedies could be compatible with the EC’s Statement of Objections, which predicted that the merger would cause foreclosure of competitor’s access to media, as well as price increases and other problems” (IMPALA, 2014).
Regardless of IMPALA’s resistance, as the acquisition proceeded, it can be inferred that in fact the representative organisation maintained very little power, in regards to the business transactions of the major recording companies.
It is apparent, that while not considered synergy, the arrival of “360° record deals” portrays the recording companies attempt to horizontally expand their revenue streams, through receiving a portion of ‘artist’s earnings from touring, songwriting, merchandising, fan clubs, sponsorship money, motion picture acting (…) and so forth’ (Passman, 2011). This evolved agreement indicates that the major recording companies were in fact almost desperate, as ‘the record industry was in such financial distress that the companies couldn’t survive on their record business alone’ (Passman, 2011). Furthermore, this evolution is an indicator of a radical change, rather than incremental, to the composition of the recorded music sector.
In terms of vertical integration, the major recording companies present the appearance of having been defeated with their prior online ventures. Other than the in-house online music retailing platforms that each recording company independently exploits, these companies are not attempting to vertically expand their operations to control the online supply chain. Although the recording companies do not currently control the supply chain, their purchase of shares in the online streaming service Spotify suggest that they are attempting to generate revenue in a circular fashion through these services, albeit at the expense of the artist. Additionally a number of major recording company executives have acquired positions within online music services, such as Warner Music’s executive vice president of digital strategy being ‘appointed SoundCloud’s new senior vice of business development and strategy’ (Williamson, 2014), which outlines that the major recording companies are infiltrating the supply chain in an indirect manner.
The cultural industries, including the music industry, have been largely acquired within a capitalistic consolidation process, throughout the evolution of globalisation in the 1980s. An unfolding battle emerged in a race for ‘global dominance of media markets’ (Gebesmair et al., 2002). This concentration of media ownership effectively means that a large proportion of the music industry is owned by ‘complex conglomerate groupings (tied into other entertainment, leisure, media and manufacturing interests)’ (Gebesmair et al., 2002). These groupings have interlocking business intentions, with a shared strategy in order to advance profitability and market share, there is a Japanese word that directly describes conglomerates such as these, keiretsu. Bob Merlis of Warner Music Group believes ‘that’s when the business changed from this home grown kind of thing to “we have to do better this next quarter from the last quarter or our parent companies will be upset”’ (Knopper, 2009).
The French multinational mass media corporation, Vivendi Corporate, owns Universal Music Group, Sony Music Entertainment is owned by its Japanese consumer electronics counterpart, Sony Corporation, and Warner music group is owned by Access Industries, an American conglomerate that focuses its business intentions on media and entertainment, real estate, and natural resource and chemicals. This wide-spanning range of services that the parent companies exploit, poses the question of whether the keiretsu corporations are even remotely aware of the creative process that is directly entwined within the music industry. It would appear that in their mission for mass media market domination, the record labels that these keiretsu reign over, are explicitly expected to adhere to the corporations “shared strategic vision” (Thompson, 2003).
Both Vivendi Corporate and Sony Corporation are public limited companies and as such have shareholders to whom dividends must be paid; ‘the profit available for dividends is divided equally among the number of shares issued to all ordinary shareholders’ (Hosein, 1988). This theory allows one to infer that in order to pay dividends, the company must earn a yearly profit, therefore, regardless of external hindrances, both Universal Music Group and Sony Music Entertainment must also earn profit, for their shareholders. Thus the primary concern of the executives of these recording companies, is not to achieve critical acclaim in regards to seeking revolutionary music, but to ensure that their tried and tested formulas for success continue to make the company profits. Are the major recording companies then aware of how to effectively market a specific product, to a specific audience, and as such do not diverge, therefore resisting innovation?
2.2 Technology corporations
It is worth noting that Google are now considered the largest mass media company, in the most part due to the simple fact that, according to comScore, the leading online analytics company, ‘Google Sites led the explicit core search market in November  with 66.7 percent of search queries conducted’ (comScore, 2014), which amounts to ‘12.1 billion’ (comScore, 2014) searches per month in the United States alone. Additionally, Apple Incorporated’s iTunes by 2008 had ‘become the number one music retailer in the world’ (Apple Inc., 2008), while Amazon.com Incorporated (see appendix 5), is now the largest entertainment retailer. While this may not seem relevant to the music industry, for the recorded music sector, the growth of these companies is gravely important.
Google have an overwhelming influence over the contours of the evolved music industry as they own the video-sharing website YouTube, and music streaming services Google Play and Songza. Furthermore, Google have Rdio and Deezer integrated with Google Chromecast, a number of the Google executives sit on the board of the streaming service Spotify, ‘Lyor Cohen, former Warner Music Group CEO, has secured Google as an investor for his new music company’ (Dawood, 2013). Finally, Google are currently testing ‘advertisements that give consumers the option to listen to tracks instantly via Spotify, Rhapsody, Google Play or Apple Beats Music’ (Stassen, 2014), whereby the music service companies pay Google for each usage of the Listen Now service. Needless to say, Google Incorporated have a growing interest in the music industry, as both a retailer and distributor. Referring to strategic typology, Google Incorporated behave similarly to that of a Prospector, not only seeking new market opportunities, but also acquiring and integrating these opportunities within their current product.
Apple Incorporated is in direct competition with Google Incorporate, with their retailing platform iTunes, streaming service Apple Beats Music and on-demand radio service Talk Radio and iTunes Radio. Additionally Apple Incorporated has the iTunes music festival, and has ‘Shazam integration’ (Pakinkis, 2014) on their iPhone mobile devices. Furthermore, Amazon.com Incorporate rivals both Apple Incorporated and Google Incorporate. Amazon have their retailing outlet, in addition to their streaming service Prime Music. Thus, as ‘iTunes and Amazon claimed nearly 60% of all recorded music sales by revenue in the UK’ (Ingham, 2013) in 2013, with the accumulating control of Google Incorporate within the music industry, it is conclusive that these technology corporations have a growing dominance over the supply chain of recorded music distribution. There appears to be an unfolding battle between these corporations to consume all successful online music distribution services, and as history informs, for example with the videotape format war between Betamax and the Video Home System, generally only one company shall succeed.
It can be inferred from this dominance that without the compliance of these technology companies it is increasingly difficult for recording companies to reach their audience.
As these technology giants, in regards to vertical synergy, now effectively control both the distribution and retailing elements of the supply chain, this results in the recording companies only controlling the production element. The recording companies also control the marketing, although it should be noted that a large proportion of marketing efforts are executed through the platforms provided by these technology corporations.
Currently, it appears that these technology corporations are setting the price of recorded music at a price that is economically unachievable for other distributors and retailers, for example the price of an entire album on the Google Play platform, at the time of writing, is £2.99. A yearly subscription to Amazon Prime is £79, against the cost of a Spotify subscription, which is £120 per year, evidently indicates an attempt to price Spotify out of the market, as it is apparent that Spotify would not survive on such a low subscription cost. This attempt by the technology corporations to price their competitors out of the market is remarkably similar to the same actions by the multinational supermarkets with compact disc sales; these retailers reduced the price of compact discs more aggressively than had previously been reported.
‘Before long, mass retailers like Best Buy and Wal-Mart would account for more than 65 percent of all the CDs sold in the United States. Tower [Tower Records] and Musicland would go bankrupt. If labels wanted to continue selling millions of CDs, they had to rely on Best Buy and Wal-Mart’ (Knopper, 2009).
Moreover, a transfer of power will be apparent, if the technology corporations gain enough of a market share, they will have the opportunity to follow in the supermarkets footsteps, with their newfound bargaining power, ‘these chains started dictating terms’ (Knopper, 2009), which will be the power that these technology corporations will gain as their bargaining power increases. In the instance that the major recording companies experience a reduction in share prices as a result of obtrusive pressure from the technology corporations, they are at risk of being released from their current parent companies, ‘like Time Warner, their depressed share prices made them vulnerable to acquisition by Internet companies with high valuations’ (Küng, 2008).
On the contrary, when analysing Record Store Day figures, ‘album sales were up 60% compared to last year, while single sales rose 20%’ (Pakinkis, 2013), which indicates that while it is doubtful that sales will return to the heights that were once achieved, mechanical sales are regaining momentum, which does not permit the high street retailers to dictate terms, but does faintly reduce the bargaining power of the technology corporations. To enforce the statement referring to an increase in sales for high street retailers of music, Jack Whites most recent solo album Lazaretto has ‘sold 60,000 copies on vinyl since its June 10 release to become the biggest-selling vinyl album in 20 years’ (Jones, 2014), from which we can understand that there is still a market for non-digital music, and as such surely restores a certain amount of the record companies faith that their analogue behaviour will actually in fact, survive in the digital age.
3 Representative organisations
3.1 Political agenda
Generally speaking, the consensus between current music industry academics is that ‘in today’s copyright culture, more than ever, legislators are no longer the primary arbiters of public policy. Instead, they are hostages of strong lobby groups whose interests usually prevail over those of the general public’ (Zemer, 2006). Or rather more correctly, the lobby groups have the major recording companies interests as a fundamental basis for lobbying, as the representative and umbrella organisations, which are the lobbying groups, are ‘dominated by the major record labels’ (Williamson, J et al. 2007). Yet the opposing opinion can be argued.
‘UK Music is disappointed that the Government has ignored important warnings from Parliament and industry about technical flaws in legislation to introduce a much-needed exception to copyright for private copying’ (UK Music, 2014).
It has been suggested by a number of music industry academics that the representative organisations ‘perpetuate a myth of a single music industry’ (Williamson, J et al. 2007) in order to influence piracy policy, evidently in favour of the major recording companies. For example, while there are an abundance of merchandise counterfeiters reducing the potential profit for an artist, there have been little, if any, lobbying attempts in order to curb this issue, whereas for these organisations, the piracy issue has been the foremost lobbying issue for the majority of two decades.
Furthermore, Jessica Reyman argues, successfully, that the rhetoric of the representative organisations within the piracy debate has –
‘been plagued by a series of polarised oppositions between villain pirates and victimised businesses, corporate greed and technological revolution, law and lawlessness, right and wrong’ (Reyman, 2012).
It is then questionable as to the true intentions of these representative organisations; it can be inferred from their lobbying attempts, the dominance that the major recording companies have over these organisations far outweighs the reverse.
Regardless of these organisations attempts to change legislation, they are unable to compete with the technology corporations in terms of budget, in relation to lobbying, as Google Incorporate alone spent $3,820,000 on lobbying efforts in the U.S. in the first quarter of 2014 (House of Representatives, 2014).
Surprisingly, or perhaps unsurprisingly, the International Federation of Phonographic Industries, commonly known as IFPI, was initially set up by major recording companies, headed by Brian Bramall, a lawyer for Gramophone Company, sister company to EMI Group Limited (IFPI, 2013). British Phonographic Industry, the representative organisation for the recorded music sector was ‘set up by record companies’ (BPI, 2014), moreover, EMI and Decca formed Phonographic Performance Ltd (PPL), the collection society, which enforces the ideology that the major recording companies hold the underlying power over these organisations. The simple fact that there is a need for an Association of Independent Music clearly defines that British Phonographic Industries does not support or represent the entire recorded music sector, as it states.
To reiterate this point, the current chairman of British Phonographic Industry is Tony Wadsworth, who was ‘Chairman and CEO of EMI Music UK & Ireland from 1998 to 2008’ (MusicTank, 2014) and the deputy chairman is Mike Batt, who founded and heads his own recording company, Dramatico. Thus the legitimacy of the intentions of their council must be queried, as is appears that the major recording companies have long-standing relationships with those heading the representative organization.
The primary concern to consider in regards to the representative organisations is that, as they receive membership revenue, they are fundamentally just businesses, and therefore have a product to market. Yet after analysing what each organisation describes as their key role within the industry, the descriptions seem almost fictitiously similar. It is not unnecessary to consider these umbrella organisations capitalistically exploiting the blurred lines between the individual sectors of the music industry, as it is apparent that they ‘portray themselves as representative of a greater section of the music industries… (as this) increases the number of potential members’ (Williamson, J et al. 2007).
3.2 Collection societies
When considering the collection societies, it is evident that these ‘collection societies are, by their nature, monopolies’ (Harrison, 2008). The Performing Rights Society Limited was reviewed in 1996, by the then named, Competition Commission, which now functions as a part of the Competitions and Markets Authority. The report undertaken ‘contained several criticisms of the Society’ (Harrison, 2008), which outlines that the power granted to the Performing Rights Society has previously been abused. Phonographic Performance Limited was also reviewed in 1988. While governmental supervision is compulsory, ultimately delegating power over the collection societies to the Competitions and Markets Authority, pan-European Union legislation, in theory, overrides national legislation where necessary.
The Performing Rights Society stockpile a number of organisations within their building on Berners Street in London. The Music Publishers Association, the British Association for Songwriters, Composers and Authors, UK for Music and the British Copyright Council are comparable to the Copyright Licensing Steering Group, in the sense that ‘CLSG’s office is hosted by PRS for Music’ (CLSG, 2014), much as the other organisations are. The intentions of the Performing Rights Society, which may be entirely legitimate, from an exterior perspective signify the Societies attempt to remain considered necessary in the digital era.
It appears that the collection societies, while essential to the recorded music sector, may too become inferior due to the advent of the Internet. A number of services allow songwriters to collect royalties directly from the licensee, as opposed to via their Society. It can be inferred that while these societies are monopolies in their current form, as direct access for songwriters and performers to their audience continues to evolve, there is the potential for the necessity of these collection societies to dwindle, and as such their power within the music industry will follow suit.
4 Governmental considerations
According to the UK Music figures that were released at the end of 2013, the music industry in the United Kingdom ‘was worth £3.5bn to the British economy in 2012’ (Ingham, 2013), which accounts for 0.23% of the United Kingdoms Gross Domestic Product (GDP), when cross referenced with the World Banks statistics (World Bank, 2014). Comparatively, it was reported that the Internet economy now ‘represents more than 8% of UK GDP’ (Klein, 2013), which totals over one hundred and twenty billion sterling. Therefore, the music industry generates only 2.92 percent of the income that the Internet economy generates. This information must be considered when analysing the government’s role within the music industry and the current issues at hand.
Is it apparent that the British Government is implementing initiatives ‘to back the UK technology sector’ (Cabinet Office, 2013), this will be achieved through ‘a £15.5 million funding package from the government’ (Cabinet Office, 2013) among various other avenues, in order to outline ‘that the UK is open for business and is backing our technology sector’ (Cabinet Office, 2013). Thus it is comprehendible that Tony Wadsworth of British Phonographic Industries is of the stance that ‘the British Government continues to neglect and stifle the music business in favour of “billionaire tech companies”’ (Smirke, 2012). Cynically, one must question the intentions of Wadsworth’s words; British Phonographic Industry prize themselves on their ability to ‘champion the interests of our membership’ (BPI, 2014). Although, when referencing each sectors economic contribution to the United Kingdom, combined with the simple fact that the country is in a period of regaining financial stability and strengthening their foothold as a power base within the globalised economy, it appears that favouritism has prevailed, to outline a “love affair with big technology and big telecoms… (Which is casting) a shadow over our home-grown creative success” (BPI, 2012).
This uncertainty of the British Government, in regards to their true values, can be indentified through their lack of valuable participation in relation to Intellectual Property issues. While it can be argued that the formation of the Intellectual Property Crime Unit is evidence of participation, a small amount of their efforts have been directed at tackling illegal pirating websites and more so directed towards counterfeit goods (PIPCU, 2014). The Intellectual Property Crime unit seem to be implementing a number a techniques in order to curb the use of illegal download websites, such as replacing advertising on such websites ‘with official police force banners’ (Jones, 2014) and ‘requesting the suspension of domains hosting infringing content’ (Stassen, 2014) through issuing letters to the infringing websites. Those that frequently download are not susceptible to these adverts, as the illegality in regards to the piracy issue is widely covered throughout the media, as such it is questionable as to whether the advertisements are nothing more than a public relations stunt.
Furthermore, the efficiency of their suspension requests is to be queried, thus far ‘five domain name suspension requests have been granted since PIPCU’s inception in 2013, with 70 others denied’ (Stassen, 2014). This indicates that the operation is currently a failure, therefore the police force do not have the means to effectively correct the piracy issues that are currently being faced. It can then be inferred that without legislation, the government and the police force, while maintaining power to bring infringers to justice, appear that they do not have the instruments to achieve this; thus their power is useless due to their inability to pass legislation with enough haste to be on par with the rate at which technology is advancing. Moreover ‘the courts can’t keep up with technology’ (Knopper, 2009), which outlines their inadequacy in the digital age. Although, when viewing the Governments stance from a wider viewpoint, ‘with the UK government sensitive to its fragile popularity ratings, passing non-consumer friendly forceful legislation probably isn’t at the top of the agenda’ (Mulligan, 2009).
5 A comparative analysis of the wider music industries
While it appears that the recorded music sector is losing its tactical power over the music industries, the other sectors within this industry appear to be experiencing varying transformations.
5.1 Radio broadcasting
It is apparent that the growth of the Internet has negatively affected radio broadcasting in regards to the listeners of younger age cohorts. The editor of BBC radio Newsbeat and 1Xtra news, Rodney McKenzie, has stated that ‘radio listening among youngest teenagers is declining’ (McKenzie, 2009), and the direct cause of this is due to the fact that ‘music fans are completely awash in music, and digital music has become the new radio for the Internet generation’ (Kusek et al., 2005).
Therefore, due to the fact that radio broadcasting is fundamentally a marketing service, as a marketing tool for the recorded music sector, directed at the younger age cohorts, it is increasingly losing its value. Executives at the national radio broadcasting companies are acutely aware of this demise, and as such have implemented a range of techniques to attempt to tackle this issue, such as broadcasting live footage of the radio show across the Internet, yet ‘generally 54.35% of young people do not visit the stations’ web pages’ (Gazi et al., 2011) in any context. The long-term future of radio depends directly on the Internet generation, as such there is the possibility of a future scenario whereby radio broadcasters do not adhere to the general radio play lists as so often heard broadcast across the radio waves, although this would result in the major recording companies losing their primary marketing tool, which would ultimately be beneficial for the on-demand streaming services. Hypothetically, as this transformation takes place, the radio broadcasters would lose their bargaining power in relation to the major recording companies. Furthermore, as it appears that radio broadcasting is surviving due to the older demographic of its audience, it is not entirely irrefutable to predict that it has a legitimate life expectancy, which will end as the Internet generation come of age. While Radio Joint Audience Research figures outline an increase in audience, if broadcasters cannot pinpoint innovative long-term developmental strategies, the younger age cohorts will migrate entirely to on-demand streaming services.
Radio broadcasters generate revenue through means of offering a platform for advertising. When analysing the stock price of Clear Channel Incorporation, an American broadcaster, it can be determined that the price of shares has transformed from a $15.06 high in 2011 to a price of $7.07 at the time of writing (NASDAQ, 2014). Thus it can be understood that companies are exploiting radio advertising less, as the global advertising market experienced ‘a 3.7 percent growth for the full year 2013’ (Nielsen, 2014). As this decline in the exploitation of radio as a means of advertising increases, the status of radio broadcasters in regards to their value as a marketing tool will reduce.
The publishing sector of the music industries has experienced an almost polar transformation to that of the recorded music sector. According to statistics from the Performing Rights Society, throughout 2013 royalties generated ‘£665.7m revenue for songwriter, composer and music publisher members, a 3.7% increase on 2012’ (PRS, 2014). While the recorded music sector has consistently declined economically, the music-publishing sector has evidently followed an opposing pattern, ‘with the decline in mechanical income, licensing songs for use in ads and films has become more important and many publishers are strengthening their synchonisation departments’ (Harrison, 2008), which outlines that the business model for publishers is adapting to the current climate. It is apparent that the Internet economy has increased the potential revenue streams in regards to music licensing, which has balanced the decline of revenue from music sales, as ‘market growth and a net increase in mandates from members meant online income reached £61.2m, up 18.3% on 2012’ (PRS, 2014). This is hardly unanticipated, considering that ‘UK digital ad spend (is) up 15% year-on-year to £6.3bn in 2013’ (IAB UK, 2014) and Internet video advertising ‘grew by 62% year-on-year to £324.9 million’ (IAB UK, 2014), which now accounts for eighteen percent of all mobile and online advertising. It is predicted that digital advertising for marketers will ‘account for three-quarters of their spending by 2019’ (IAB UK, 2014), therefore publishers will see an increase in revenue from these platforms, ultimately stating that the Internet economy benefits publishers. Although, currently television licensing revenue streams are ‘the largest single source of international income’ (PRS, 2014).
According to the Broadcasters Audience Research Board the television viewing average of those aged sixteen to twenty-four is decreasing year-on-year, this can be seen via the decline from 2.74 hours television viewing per day in 2003 to 2.47 in 2013, those that are twenty-five to thirty-four years of age have also viewed less; 3.51 hours average to 3.08, a similar trend has followed for those aged thirty-five to forty-four. Although, for those aged forty-four and above, the average viewing hours per day have risen, which is the reason for the overall average appearing to increase (BARB, 2014). While this decline is gradual, it is evidently constant, thus much like radio broadcasting, it is entirely plausible that television broadcasting has a life expectancy, ultimately transforming publishing revenue streams unreservedly from television licensing revenue to Internet based revenue.
Throughout 2013, those aged twelve to fifteen spent an equivalent, or more so, amount of time using the Internet as watching television broadcasts (OFCOM, 2013). If this trend persists, as television is the largest source of international income for publishers, marketers will spend a larger proportion of their budget on advertising through Internet sources and as such music will be licensed for use more this in this form, additionally marketers will be coerced into using current popular songs for their adverts in order to increase the success rate. Therefore it appears that publishers in general will experience a consistent growth rate, regardless of the platforms exploited.
As technology has advanced, contemporary music publishing business models have formed, such as those implemented by Kobalt Music group, whereby it operates ‘primarily as an administrative publishing company’ (Alberti, 2014) solely through online means, which increases the accuracy and efficiency of its royalty reporting and collection systems, as ‘clients can track the registration, licensing and digital usage processes in real-time via an online portal’ (Alberti, 2014).
The success of their updated business model is evident through their market share, in the fourth quarter of 2012 Kobalt Music Group held the third largest share above both Universal Music Publishing and Warner/Chappell Music, third to EMI Music Publishing and Sony/ATV Music Publishing, whom are now administrated under one umbrella (Christman, 2013). Kobalt Music Group, as of the first quarter in 2014 currently holds a 9.6% market share (Christman, 2014), which is an indication of their current rise within the publishing sector. It appears that Kobalts Music Groups administrative process is particularly appealing to songwriters and composers, as Kobalt attract more clients their portfolio will continue to expand, which in turn will potentially increase their market share, although it seems that Sony/ATV Music Publishing’s dominance over the music publishing sector is increasingly difficult to compete against, as they current maintain a 31.9% market share (Christman, 2014).
Conclusively, the fundamental reason that music publishers have encountered an opposing experience to that of recording companies is due to the fact that for publishers their main concern is usage, as opposed to units. The recording companies are still attempting to sell individual units, whereas the music publishers are in a separate paradigm to that of the other sectors of the music industries, making use of blanket licenses that have been in operation for a number of years. It is entirely possible, almost expected, that music publishers will become central to the music industry as opposed to the recording companies, which will grant the publishers far greater power within the immediate music industry. Although, it must be considered that due to the fact that there is a high level of homogenisation at the heart of the industry, regardless of this transformation, ultimately the parent corporations of the recording companies will continue to profit.
5.3 Live music sector
The live music sector of the music industry has a complex supply chain, involving a wide range of components, which have created their own specialist sectors of the industry, for example companies such as Ticketmaster, by definition are in the business of ‘ticketing’. There is insufficient data available to analyse the intricacies of the live music sector, as a vast amount of this data is protected by non-disclosure agreements, thus a wholesome approach has been undertaken in the following analysis.
While the media contest that the music industry has been preserved by the fact that live music revenues have balanced the music economy, this is not entirely correct, the Performing Rights Society reported that the live music economy within the United Kingdom has experienced a steady decline in revenue (see appendix 7). Contrasting this information, Billboard report that revenues ‘soared to a record level of $4.8 billion in gross ticket sales worldwide. That’s up nearly 30% from last year’ (Wadell, 2013). Yet what is disturbing is that, according to research by Liverpool University’s David Laing, in 2010 the total turnover of the global live music industry declined by a steep six percent, while re-sold event ticket retailers noticed a twenty percent increase (see appendix 8). This information undoubtedly indicates that while the global music industry’s revenue tends to appear stable, the revenue from live music is not in fact benefiting those within the live music industry, which outlines that economically this sector cannot be considered the long term saviour of the wider industry.
Artists are currently faced with a paradox in regards to live music. While recorded music is generating less revenue and a large proportion of income is generated through concerts, it is still necessary to first obtain a recording, in order to compel the audience to attend concerts and purchase merchandise. Audience music consumption time is for the most part spent not with the live product, but the recorded product, ‘in fact just 15% of people regularly go to gigs’ (Mulligan, 2014), and the consumption time far is outweighed by that of recorded music. For the audience, the recorded product upholds significantly higher importance, on the consumption rate basis, than that of the live product.
From an artists’ perspective, live music maintains higher importance economically, with the recorded article now effectively just being promotion, with the additional benefit of generating revenue, as the share of total revenues accounted for by recorded income has dropped from 60% in 2000 to just 36% in 2013 (Mulligan, 2014). Although, without the recorded product promoting ticket sales, the concerts would not, in the first instance, be achievable, thus the paradox continues.
In regards to the economics of the wider music industries, in a wholesome approach, ‘the balance of power has firmly shifted away from labels to the live value chain’ (Mulligan, 2014), yet ultimately, as the live value chain directly depends on the recorded sector to provide the means to attract a critical mass, the live music sector would be virtually non-existent in the digital age without its recorded music counterpart. Additionally, in the scenario that the live music sector experiences a continuous decline in revenue, as it is considered the sectors incline has ‘burst after a decade of growth’ (Wadell, 2013), then it is entirely possible that the value currently granted to the power of the live medium will diminish too.
6 Ethical considerations
6.1 Public influence
In the current world of consolidated mass media control, whereby profound public influence can be achieved with relative ease, Lee Wilkins believes that –
‘Our ability to export mass quantities of entertainment and the synergistic capabilities to circulate art in tandem with other forms of entertainment potentially means that we are exporting our ethics’ (Wilkins et al., 2009).
Thus, as the primary aim of business is to the generate profit, this generally outweighs the ethical implications, ‘the drive for profit trumps ethical principles in all but the most extreme cases’ (Wilkins et al., 2009). Therefore a scenario occurs where the causing effect of the media is not considered; rather the contribution to a climate is of key concern. The possibility of a muted marketplace of ideas and less aggressive competition is entirely plausible when the fundamental outlets of expression are controlled by a select few. Consequently, in a marketplace where commoditisation is unregulated, differentiation is reduced, and as such the marketplace become monopolistic through their access to mass audiences, stifling innovative change.
The British Phonographic Industry and Public Performance Limited have implemented an ‘education awareness campaign’ (BPI, 2014), to relay knowledge in regards to piracy and the wider the music industry. Additionally, the BRIT School intertwined with British Phonographic Industry. Both of these representative organisations were founded by recording companies, therefore it appears that the BRIT school is effectively a nurturing ground for the recording companies. As such, the principles taught would be directly parallel to the opinions of the representative organisations, which have the appearance of being biased towards to major recording companies. Therefore it can be considered unethical for students to gain knowledge that is of one particular political stance.
In general, business is riddled with non-disclosure agreements; this is seen nowhere more than in the music industry. The most recent widely reported agreement, which has been surrounded by criticism, is the agreement formed between the major recording companies and the on-demand streaming service Spotify. The non-disclosure agreements frustrate discussions on the legality and morality of such business transactions, and ultimately remove accountability. The data defining the revenue generated for the major recording companies through Spotify, is information that cannot be obtained; evidently a large proportion of this revenue is not distributed to the artists. This is indicated from the fact that while artists continue to complain about the low royalty rate that they receive from Spotify, the major recording companies have not publicly expressed any dissatisfaction.
Recording companies owe their artists a fiduciary duty, ‘imposing particular duties of care on those to whom confidence is entrusted’ (Poole, 2010). These duties outline that the fiduciaries have a legal obligation to act solely in the artists’ interest. This duty can be actively viewed in the Beggars Group decision to adapt their royalty system to divide streaming revenues between their record labels and artists ‘50/50’ (Music Week, 2012). Most contracts between recording companies and artists were formed prior to the advent of on-demand streaming services, as such, the royalty rate that these agreements are subject to, generally account for manufacturing and distribution expenditure, which is no longer relevant for these methods of digital distribution.
In the case of the agreement in question, between the major recording companies and Spotify, it can be assumed that due to the fact that the major recording companies receive revenue from Spotify in a circular fashion, in addition to the fact that the royalty rate for artists has remained unchanged, the royalties that should rightly be distributed to artists are currently being consumed by the major recording companies, which suggests that these recording companies are not maintaining their fiduciary duty, but instead acting in their own interest. This issue poses a provoking paradox, as the main aim of the major recording companies, is to generate profit for their share holders, yet in doing so they are breaching their fiduciary role, thus the capitalistic behaviour of these recording companies appears to be unlawful from the viewpoint of their contractual obligations.
Furthermore, the royalty rate maintained by the major recording companies deems their contracts with artists potentially in restraint of trade. In the court case, Schroeder Music Publishing Co. v Macaulay, Lord Reid stated –
“If contractual restrictions appear to be unnecessary or to be reasonably capable of enforcement in an oppressive manner, then they must be justified before they can be enforced” (Schroeder Music Publishing Co. v Macaulay, 1974).
Although, a contract in restraint of trade may be considered legal if the restraint is ‘reasonably necessary to protect the legitimate business interests of the person imposing the restrictions’ (Harrison, 2008). It is questionable as to whether a failing business model is a legitimate reason to enforce a contract of this kind. Moreover, in the scenario whereby an artist is not benefiting from the agreement with a recording company, as legal aid is no longer available, it is unlikely that an artist would have the financial support to be able to legally challenge this issue.
The fundamental concern in regards to research into the intricacies of the music industry is that due to the large proportion of non-disclosure agreements, it is particularly difficult to obtain a true analysis of the underlying mechanics of the wider industry. Nevertheless, this fact can indicate the general behaviour of those within the industry. Evidently, in relation to contractual conduct, the major recording companies portray the appearance of being overly distrustful, and while trust is generally considered an asset to an organisation, ‘distrust can be beneficial in the work-place’ (Kramer, 2002). Distrust reduces vulnerability, the major recording companies have exemplified their vulnerability and as such it is expected of them to now behave in such a way. The major recording companies are currently trapped in a paradox, they have received criticism for not adapting to technological innovation, yet when engaging with technology companies, such as Spotify, the criticism has continued. While it cannot be definitively proven that the major recording companies have engaged in malpractice, the simple fact that a non-disclosure agreement is in place begs the question of whether misconduct has occurred.
Furthermore, primary research in the form of interviews with those within the recorded music sector would be entirely ineffective, as the vast majority of those operational within the major recording companies maintain an overly biased view on the current marketplace, and in their opinion, the recorded music sector would appear to uphold more power within the music industry than what would be considered true. Additionally, in the same fashion, the data that has been analysed for use within this text has for the most part been obtained through the representative organisations, which could also be considered biased, in order to justify their actions and lobbying efforts. Therefore, analysis of separate data, across a wider cross-section of the industry, covering a far greater period of time, would outline the anomalies to conclude how data is being presented, which in turn would summarize an understanding of the behaviours of the organisations where the information was obtained.
In order for this to be achieved, it would be necessary to undertake a long-term study across a number of years, particularly as the evolution of the music industries in the digital age has not completed its course.
‘The realignment of revenue is merely a precursor to the new business models, products and career paths that will emerge to capitalize on the new world order’ (Mulligan, 2014).
The actions of the technology companies, and the reactions of the recording companies would need to be analysed across the fore coming years, as in its current form, midway through a fundamental business model transformation, it is particularly difficult to predict the outcome as of yet.
While unable to make predictions, an educated opinion would lead the author to believe that, in regards to the immediate music industry, the music publishing sector will evolve to maintain a central role, as opposed the recorded music sector. As this transformation unveils, music publishers will gain a larger proportion of power over the contours of the wider music industry and will be an artist’s primary avenue economically. The live music sector, while considered by the media and academics to be the long-term saviour of the music industry, common ‘growth, stagnation and decline’ theories allow one to understand that as marketplaces become oversubscribed, as the live music sector currently is, consumer attention steadily declines, reducing the overall demand.
The major recording companies will experience a diminishing of their power, while the independent recording companies will gain power within that sector, levelling the overall landscape, as the independent recording companies are able to adapt more easily to consumer demand. Although this is not expected to take place until the major recording companies back catalogue enters the public domain. Recorded music will continue to be the consumers main avenue for interacting with music, therefore the recorded music sector will sustain its power in regards to the overall importance to an artists career. The extensive availability of consumption habits to the major recording companies will aid these companies to understand the marketplace and will potentially grant them the means to predict consumer behaviour, which may contribute to their efforts to maintain their centralised point within the industry, although as music continues to become commoditised, it will be increasingly difficult for these companies to achieve profitability.
In the instance that profitability declines to a point where the major recording companies cannot sustain themselves, the share prices of these companies will follow this trend, ultimately making them vulnerable to acquisition from the technology corporations. The technology corporations, with their increasing disposable income, will potentially have the opportunity to expand their business vertically, in regards to the supply chain this means acquiring the production element of this chain. Although due to the fact that there is a high level of homogenisation at the heart of the music industry, regardless of whether the recording companies eventually fail to the point of extinction, the parent companies will still own various other businesses within the industry.
The competition between the technology corporations for ease of access is expected to follow typical business trends, with only a small number of those succeeding. The power within the recorded music industry has inexplicably transferred from the recording companies to the distribution companies, yet this power has a number of levels, like the artist and recording company scenario, neither can currently maintain their business model without the other.
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