MUSIC INDUSTRY IN THE DIGITAL AGE
1.The power of the record labels
The general rule was: get a record label, get success. Recording music involved costs and infrastructures, that most times, new artists could not afford nor have access to. Those artists needed the record labels in order to get a place to record their music, promotion to make their music known and to have access to distribution capabilities. The power was all with the record labels, which traded those services for the ownership of all music produced and a large part of the profits it made in order for that to happen.
According to The Economist, three major record labels own over half of the western world’s music, with Universal Music being the biggest. With the ownership of a voluminous and diverse portfolio labels are able to make the most profit from and have the most control over the value of music (Bockstedt, J., Kauffman, R. J., & Riggins, F. J.) . As stated by Clemons, et al., record labels retain 35% or more of all the profit made by retailers.
Also, when analyzing the graph below, it is possible to see the power of Warner Music, Universal Music and Sony Music in the music industry, specially when taking the variables market share and turnover into consideration.
​
Sources:
​
Bockstedt, J., Kauffman, R. J., & Riggins, F. J. (2005, January). The move to artist-led online music distribution: Explaining structural changes in the digital music market. In Proceedings of the 38th Annual Hawaii International Conference on System Sciences (pp. 180a-180a). IEEE.
​
Wagner, T. M., Benlian, A., & Hess, T. (2014). Converting freemium customers from free to premium—the role of the perceived premium fit in the case of music as a service. Electronic Markets, 24(4), 259-268.
​
Clemons, E. K., Gu, B., & Lang, K. R. (2002). Newly vulnerable markets in an age of pure information products: An analysis of online music and online news. Journal of Management Information Systems, 19(3), 17-41.
2.The power of artists with digitalization
The power was all in the hands of record label, however, there was a change. With the Digital Revolution, came digital music, which directly influenced the market structure. Because digital music is easy to store and transfer, but still maintains the same quality as a physical medium, it makes it cheap for artist to produce the music they wish to without the restraints of the record labels by simply uploading it on platforms such as Youtube or Spotify (do-it-yourself approach) .
According to a survey made by Ram D. Gopal Sudip Bhattacharjee and G. Lawrence on their article "Do artists benefit from online music sharing?", 83% of musicians and songwriters provide samples of their creations online. Free downloads increases the music's popularity, therefore, concert popularity. This new freedom that digitalization brings, gives artists a technological leverage that allows them to directly compete with record labels and obtain further gains.
​
An example would be the singer and song writer Jacob Whitesides. In 2008, Jacob started posting his music on Youtube and gained a significant fan base on the platform, which was later transferred to Instagram. Thanks to his direct contact with those who consumed his music and the ease of putting out music, Jacob had an immense leverage when signing his contract with the record label BMG in 2015. His contract gives him both the ownership of his music and total creative control, something that was not thought to be possible before digital music.
As we saw with Jacob Whitesides, new artists now have some power over record companies when negotiating their contracts. They don't necessarily need record labels, however record labels still need new artists. According to Nick Raphael, the president of Capital Records UK, “The most important thing for a record company is to find new talent”.
Sources:
​
Bockstedt, J., Kauffman, R. J., & Riggins, F. J. (2005, January). The move to artist-led online music distribution: Explaining structural changes in the digital music market. In Proceedings of the 38th Annual Hawaii International Conference on System Sciences (pp. 180a-180a). IEEE.
​
​
3. Before and after of how the market work
Sources:
Hull, G. P., Hutchison, T. W., & Strasser, R. (2011). The Music business and recording industry: Delivering music in the 21st century. Taylor & Francis.
4. Case study: Radiohead
Radiohead had a record deal with the label EMI, which stated that all the music produced by them was a EMI property until their contract ended in 2007. Right after their deal was over, Radiohead released their seventh album “In Rainbows”, which they now owned, as a pay-what-you-want release (fans are free to pay whatever they think the album is worth). It proved to be a commercial success, with them earning more digital income than all their previous albums combined. This move ignited a debate about the actual importance of a record label, now in the Digital Age, in order to be successful as an artist.
​
Sources:
​
​
​
​
​
​