Dynamic Developement of Market Structures - The Case of the Music Industry
Final Report Abstract
The music industry has experienced structural and enduring changes in the last years. Revenue from traditional sources (i.e., record sales) has steadily declined. Technical innovations on the one hand amplified this development because piracy was greatly facilitated (e.g., through file-sharing). On the other hand, it lead to new business models that enable the digital distribution of music (e.g., iTunes) and created new ways for consumers to learn about new music and to interact with other consumers. At the same time, the market for live performances saw large increases such that many artists were able to substitute lost revenue from the market for recorded music by revenue from the concert market. These significant changes are not adequately reflected in the academic literature and our understanding of the effects of these changes is incomplete. This study seeks to understand how the business model for artists is changing from one where recorded music represented the main source of income, to one where live concerts are the dominant revenue generator. We collect a unique data set that covers the activities of close to 500 artists from the German market between 2003 and mid-2010. We build an econometric model for how an artist can generate revenues with revenues from recorded music and revenues from concerts as the dependent variables. Our model assesses the effect of concert activities on record revenues and vice versa, and how these two variables are affected by the artist’s marketing (i.e., advertising, new album releases), broadcasting on radio and TV, and electronic word-of-mouth (volume and valence). Further, to understand how these changes impact the way this market works, we analyze how these effects evolve over time. The results suggest that the effectiveness of traditional marketing instruments (e.g., advertising) decreases over time, whereas new ways of learning about music become more important. We further find that concerts and record revenues positively affect one another. But, in contrast to our expectations, the increase in importance over time is not mutual, i.e., record revenues have an increasing effect over time on concert success, but the reverse is not true, i.e., the effect of concert activities on record revenues is not becoming stronger over time. One of the implications from this finding is that the concert market increasingly benefits from the record market as a promotional tool. This suggests that the record labels’ marketing investments positively affect the concert market although the record labels typically do not benefit from revenues generated in the market.
Publications
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The Times They Are a-Changin': The Increasing Role of Concerts in the Music Industry, extended abstract, 9th Marketing Dynamics Conference, Tilburg University, August 24, 2012
Papies, D., R. van der Lans & H. J. van Heerde
