Les nouvelles relations entre le spectacle vivant et l’industrie de la
musique enregistrée
The new relationships between performing arts and the record
music industry
by Peter Tschmuck
Abstract
A revolution of the music industry is taken place, in which the performing arts sector (concert
organizers, booking agencies etc.) plays a new and different role in the value-added network.
Thus, the presentation starts with a short overview of the recent developments in this respect
(all-inclusive contracts as in the case of Madonna and a concert organizer, the Vienna
Philharmonic Orchestra and a Swiss PR-agency or Anna Netrebko/Elina Garanca and
Universal Music) and will further provide a neo-institutionalist model that explains this
structural change in the music industry.
Introduction
The music industry is faced a tremendous structural change in which the traditional valueadded network is reshaped. While phonogram sales are rapidly declining, new players like
computer manufacturers (Apple with iTunes), online-traders (amazon.com), soft-drink
companies (Coca Cola) and mobile-phone firms (Nokia and Sony Ericsson) entered the
industry and established innovative business models of the distribution and marketing of
music. And peer-to-peer networks (e.g. KaZaa and BitTorrent) as well as social community
websites like myspace, bebo, youtube and facebook as well as myriads of music weblogs
changed the way music is promoted and consumened.
But in such a structural change also the relationship between established actors of the music
business is remodeled. Especially the network of musicians, performing arts sector and the
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phonographic companies is untied and newly knit. In this respect, I would like to provide
some empirical evidence.
In 1999 the London Symphony Orchestra (LSO) was dropped by its record label Virgin
Classics, a subdivision of the EMI Music Group. Instead of searching for a new contract, the
LSO successfully launched its own record label, LSO Live. The ownership of the label
remains with LSO Ltd whose only shareholders in turn are the orchestra’s players. Thus,
players, conductors and soloists are stakeholders in each recording, receiving profits instead
of royalties or fees.1
In 2006 the Vienna Philharmonic Orchestra joined in a cooperation with the Swiss-based
T.E.A.M. Marketing Agency, which also promotes the UEFA Champions League as well as
the Eurovision Song Contest. In the official press release the new partners stated that the aim
of the agreement is to develop the brand “Vienna Philharmonic Orchestra” and to implement
a communication strategy to promote and evolve classical music.2 In particular the Swiss
marketing agency is responsible for the world-wide promotion of the Viennese New Year’s
Concert as well as the annual summer-concert in Schönbrunn Castle.
While renowned orchestras start record labels on their own or professionalise its marketing
apart from phonogram companies, the world-wide biggest record label Universal Music
Group launched in June 2008 a new London-based sub-division, Universal Music Classical
Artists Management and Productions. According to an internal statement the new division is
meant to provide management services for and produce live events for prominent classical
musicians like the soprano Anna Netrebko and the mezzo- soprano Elina Garanca, both
signed exclusively to Deutsche Grammophon, a record label owned and operated by
Universal Classics. Other artists working with the new company are the soprano Karita
Mattila, the tenor Joseph Calleja and the baritone Thomas Hampson. Another star performer,
the tenor Rolando Villazón, is said to have expressed his intention to work with Universal
when his current contract with the IMG-agency expires. Though the current roster is
composed of singers, instrumentalists and conductors are expected to be added.
1
http://lso.co.uk/aboutlsolive (Retrieved on Sep 8th 2008).
2
http://www.ots.at/presseaussendung.php?schluessel=OTS_20070523_OTS0284&ch=kultur (Retrieved on Sep
th
8 2008).
2
However, the developments in classical branch only foreshadow a fundamental change in the
music industry’s main sector, the pop and rock music business. On its website The Wall
Stress Journal reported on Oct 9th 2007 that the pop-star Madonna would sign a US$ 120millon-pact with the concert promoter Live Nation. In a so-called 360 degree deal Madonna
would receive a mix of cash and stock and give Live Nation the rights to sell three studio
albums, promote concert tours, sell merchandise and license her name. According to the
Journal the package includes a general advance of US$ 17.5 million and advance payments
for three albums of $50 million to $60 million. In contrast, when Madonna signed her first
contract with her former record label Warner Bros. Music advances of $25 million per album
were reported. However it is not the record deal which is spectacular but that Madonna defied
“(...) the music industry’s traditional structure by exiting her longtime record label (…) for a
lucrative deal that relies heavily on her longevity as a live-concert attraction” as the New
York Times stated in a commentary.3
In fact, in the Madonna-Live Nation deal the concert revenues become more important than
the record sales. For example the “Confessions on a Dance Floor” tour pulled in US$195
million worldwide whereas the “Confessions on a Dance Floor” album sold “only” an
estimated 1.6 million copies in the United States.4 As the The Wall Street Journal5 pointed
out the $50 to $60 million she will get as an advance for the albums means she would likely
have to sell 15 million or more of each before the company gets a profit on that part of the
deal. Though she has to reach her best selling albums, “The Immaculate Collection” (1990)
with 22.0 million and “True Blue” (1986) with 20.0 million copies sold world-wide to fulfill
this goal. However, we can draw the conclusion that Live Nation eventually bears a loss from
the record sales whereas it wants to control Madonna’s music activities exclusively and to
profit from other income streams. In the meantime the Irish rock-band U2 as well as the US
rapper Jay-Z signed similar contracts with Live Nation. 6
3
www.nytimes.com/2007/10/11/business/media/11madonna.html (Retrieved on Sep 5th 2008).
4
www.nypost.com/seven/06242008/business/madonna_sale_sag_116957.htm (Retrieved on Sep 5th 2008).
5
The Wall Street Journal, Oct 11th 2007.
6
The U2-deal, however, is not a true 360-degree pact, as there is no publishing component and the band retains
its relationship with Universal Music to release music (www.billboard.com/bbcom/news/article_display.jsp?
vnu_content_id=1003782687. Retrieved on Sep 5th 2008). In the Jay-Z $150-partnership Live Nation will
finance future start-up ventures by Jay-Z, which include his own label, music publishing, and artist consulting
and managing (www.billboard.com/bbcom/news/article_display.jsp?vnu_content_id=1003784806&inp=true.
(Retrieved on Sep 5th 2008).
3
In this new business-model the world largest concert promoter tries to share in all of an
artist’s business lines, like publishing, merchandise sales and endorsement fees, which turn
the music business up-side-down. While in the traditional business model concert tours are
instrumental to sell phonograms, in the new world of the music industry it is vice versa.
Records should promote live performances in combination with other income streams from
publishing, digital sales and merchandising.
Figure 1: The old relationship of phonogram producers and the performing arts
Main value-added network
Artist &
Repertoire
Publishing
Music
Phonogram
Phonogram
Production
Manufacturing
Distribution
Retail
Artist Management
Live Performances
Property Rights Systems
Radio & TV Promotion
Merchandising
Support structures
Figure 2: The new relationship of phonogram producers and the performing arts
Main value-added network
Online and Mobile
Distribution
Artist &
Repertoire
Publishing
Music
Production
Live Performances
Artist Management
Online and Multimedia
Promotion
Property Rights Systems
Phonograms
Merchandising
Support structures
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The Paradigm Shift in the Music Industry
Thus, the question arises what are the driving forces behind the current developments in the
music industry? Therefore, I would like to give a neo-institutionalist explanation that reaches
far beyond the music industry and even beyond the so-called cultural/creative industries.
Generally, an industry can be defined in terms of the technology shared by its members. In the
“music industry,” the basic technology is still embodied in the production, distribution, and
marketing of phonograms. Therefore, the core of the music industry is the phonographic
industry. But with invasion of the Internet and broadly spoken digitalization of music content
the core competence of the phonographic companies is fostered. The industry’s routines,
which have been valid since the 1950s, are jeopardized by new players from outside the
industry.
In organization theory, routines are defined as “...forms, rules, procedures, conventions,
strategies, and technologies around which organizations are constructed and through which
they operate” (Levitt und March 1999, 76). In order to solve problems, organizations employ
a comprehensive repertory of routinized activities for each situation. March and Simon (1958)
distinguish between performance programs that are part of an existing organization’s
repertory (programmed activities) and those which are not (unprogrammed activities). The
latter ones, called initiations and innovations, cannot be introduced by a simple application of
programmed switching of rules. They appear either accidentally in company with anomalies,
or occur if programmed activities fail to meet their ‘aspiration level’ (March and Simon 1958,
182). Innovation, therefore, is a very rare and unlikely phenomenon to happen in an
organization’s internal decision-making process. This means that a changing environment
does not automatically lead to innovative activities within an organization.
Nelson and Winter (1982) apply the findings of behaviouristic organization theory to
industrial economics. In their view, industries develop along ‘natural trajectories’ that are
based on a certain technological regime. Sahal (1985) talks about ‘technological guide posts’
that can be defined as basic artefacts (e.g. phonographic records) whose techno-economic
characteristics are progressively improved (e.g. Edison cylinder, shellac-disc, vinyl-disc,
music cassette, compact disc, etc.). The development and improvement of these basic
artefacts involve the development of specific competences and rules.
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However, the evolutionary conception of innovation exclusively deals with technological
innovation and totally neglects aesthetic and stylistic innovations. This is a crucial oversight
because in so-called ‘creative industries’ where creativity functions as an in- and output, the
innovation process cannot satisfactorily be explained without a concept of creativity. Thus,
the existing economic explanatory scheme - technological paradigms and trajectories - are
incomplete and should be broadened. It is necessary to consider cultural and aesthetic
artefacts and heuristics in addition to technological ones (Tschmuck 2003: 130).
Therefore we need a useful definition of creativity. According to renowned psychologist
Mihaly Csikszentmihalyi (1988, 325) “we cannot study creativity by isolating individuals and
their works from the social and historical milieu in which their actions are carried out.” In
conclusion, we cannot find creativity in a person’s brain or embodied in artefacts; instead, it
results from an interaction between a person’s thinking and the socio-cultural context.
(Csikszentmihalyi 1988, 1996, 1999). In order to understand creativity, it must be interpreted
in relation to collective action. Collective action can be defined as a process in which motives
and identities are constituted, and to which individual actions are related (Joas 1996). Thus,
creative action can be seen as a collective process that is embedded in a pre-structured social
and cultural reality. Creativity therefore can be defined as a collective process of action in
which novelty is recognized and accepted. And the outcome of creative action is an
innovation process in which novelty materializes itself in various forms, like new products
and production processes but also in the form of new social institutions , including new social
fields of action (Tschmuck 2006: 204).
The emergence of performing arts institutions as core players in the music industry’s valueadded network can be seen as such an innovation process that is triggered by creative forces.
But how?
In accordance with the evolutionary concept of innovation (e.g. Nelson/Winter, Dosi,
Freeman & Perez etc.) the cultural paradigm of the music industry provides the framework for
their actors‘ thought and behavioral processes. These thought and behavioral systems
determine ways of production, distribution, and reception of music. The fundamental routines
as well as behavioral heuristics are selected in an evolutionary process. What succeeded in the
past was retained, that which failed was dropped. Success, here, depends on the degree to
which these systems adapted to the basic conditions of the cultural paradigm. In this manner,
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typical thought- and behavior patterns emerge for the respective cultural paradigms, which do
not form randomly and arbitrarily but rather along the lines of specific developmental paths.
The development of the path depends on the extent to which novelty is realized, recognized,
and accepted in a collective process of action. In this sense, I want to designate the
developmental paths within an existing cultural paradigm as creative paths (Tschmuck 2006:
216).
Each developmental path is characterized by systems of thought and action. The elements of
these action systems are specific business practices (customs), technological possibilities,
social actors, and specific music practices. These elements work together in a very particular
way, which differentiates them from other creative paths (Figure 1).
How elements operate together determines the direction of creativity. The extent to which
novelty is realized, recognized, and accepted makes possible for innovation to occur on all
levels of action in the music industry. If a concert organizer enters the record business by
promoting a pop-superstar like Madonna or if a London symphony orchestra starts its own
record label, these are the outcomes of innovative processes.
Figure 3: The elements of a creative path in the music industry
social
actors
music
technological
practices
possibilities
business
practices
elements of action
action routines
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But in contrast to the usual evolutionary change within a creative path, the new role of
performing arts institutions in the music industry is the result of a paradigm shift in which the
dominant system of the production, distribution and reception of music is destroyed. The
carriers of this paradigmatic change are radical innovations that are based on „system-alien“
creativity in the sense of collective processes of action that realize, recognize, and accept
novelty.
„System-alien“ creativity breaks up the routinzed relationsships between individual elements
of action, which opens up the space for new possibilities of interaction (e.g. the cooperation of
the Vienna Philharmonic Orchestra and a Swiss marketing agency or the launch of an
classical artist management agency by Universal Music Group). In addition, technological
possibilities expand, new music practices emerge, the number of actors increases, and new
business practices form during the period of paradigm change. The increase of action
elements and the break-up of routinized behavior patterns abruptly lead to an increase in
complexity. Complexity means that it is impossible to predict which action elements are
going to interact with each other, thus resulting in an increase of the potential for creativity
within the entire system of action. However, this heightens the uncertainty about the result of
actions and lowers the ability to venture a prognosis. As a result, actors are going to try to
eliminate uncertainty by preferring some interactions to others. Slowly, action- routines and
patterns form and thus provide the basis for new creative paths. Over time, creative paths are
going to stabilize according to the principle of evolutionary selection. A new system of
production, distribution, and reception takes shape, and the paradigmatic frame, which
determines them, begins to close. This process ends with the establishment of a new
paradigm. This does not mean, however, that all creative paths of the old paradigm are bound
to disappear; rather, they will now be subordinated to the new paradigm's system of
production, distribution, and reception. Figure 4 schematically represents the process of
paradigm shift in the music industry (Tschmuck 2006: 218-219).
Each phase of the paradigm shift is connected to a different extent of creativity. During the
phase of improvising and experimental creativity, which begins soon after the structural
break, multiple and unpredictable links between individual elements of action are possible.
Connections are either established with elements of actions that used to lie outside of the old
paradigmatic framework, or these elements are integrated into the system of action. Such
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unforeseeable links form the basis for those radical innovations that can occur only during a
paradigm shift.
Figure 4: A model of paradigm shift in the music industry
phase 1: improvisatorial and
experimental creativity
phase 2: influenced
creativity
= creative chaos
= emergence of creative
trajectories
phase 3: controlled creativity
= routinization and
standardization
In the present stage of the music industry’s development, we can identify all the elements of a
paradigm shift.
-
„System-alien“ creativity from actors outside the old paradigmatic framework breaks
up production, distribution and reception routines. Thus, computer companies like
Apple with its iTunes music download portal as well as telecommunication
conglomerates but also mobile phone manufacturers (Nokia and Sony Ericsson) and
soft-drink producers (Coca Cola) are still engaged in the music business.
-
The business-model of traditional record producers, especially music majors, is
jeopardized by rapidly declining record sales. Instead digital sales by the new music
distributors show rising annual growth rates. But also the live-performing sector is a
boom-segment.
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-
Music as a materialized product embodied in phonograms (e.g. CDs) is replaced by
the access to music as a service as the cnew ore competence in the music industry’s
business model.
-
The artists are enabled to market and channel their music directly to the consumers.
-
The present rigid copyright system, based on the old music industry’s paradigm, is
fostered by so-called „infringement practices“ of P2P-download services like KaZaa
or BitTorrent.
-
The music recipients won’t be any longer passive consumers but already participate in
the production and distribution of music in Web 2.0 applications like youtube,
myspace, facebook and music blogs.
To sum up, the whole value-added-network of the music industry is remodeled by the digital
revolution.
Conclusion
If the hypothesis of a cultural paradigm shift in the music industry is true, we will be faced
with a totally different network of music production, distribution and reception. As the new
role of the live performing arts indicates, the division of labor between the industry’s actors
will be revolutionized. Not only the market entrance of new players (computer firms, online
traders, mobile phone producers, soft drink companies etc.), but also the reconfiguration of
the relationship between already established actors, like record labels, artists, music
publishers, concert promoters, property rights agencies etc. are part of the ongoing revolution
in the music industry.
Instead of phonograms, the access to music as a service becomes the core “technology” of an
emerging new value-added network. Thus, the performing arts sector plays a more important
role than in the phonographic paradigm. Hand in hand with online and mobile music sales it
generates crucial income for the artists that suffer from decreasing record sales. Whereas
phonograms will loose its economic relevance and will become a kind of visiting-card and
promotion tool for the artists’ reputation.
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The future business models in the music industry, therefore, have to rely upon a multitude of
income sources, ranging from the exploitation of copyrights, over digital sales on the Internet
and mobile devices to live performances and merchandising. Those actors, who will be able to
control and to gatekeep the new value-added network, will be the future major companies in
the music industry and probable we will find among them players of the performing arts
sector.
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