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 value-added 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 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.

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$120-millon-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 Journal[5] 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]

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

Figure 2: The new relationship of phonogram producers and the performing arts

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.

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 value-added 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, 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

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 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

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.

-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.