Master thesis

The changes in the Dutch dance music industry value

chain due to the digitalization of the music industry

University of Groningen, faculty of Management & Organization Msc in Business Administration: Strategy & Innovation

Author: Meike Biesma Student number: 1677756 Supervisor: Iván Orosa Paleo Date: 11 May 2009

Abstract

During this research, the Dutch dance music industry was investigated. Because of the changes in the music industry, that are caused by the internet, the Dutch dance music industry has changed accordingly. By means of a qualitative research design, a literature study was done as well as personal interviews were performed in order to investigate what changes occurred in the Dutch dance music industry value chain. Where the Dutch dance music industry used to be a physical oriented industry, the digital music format has replaced the physical product. This has had major implications for actors in the industry, because the digital sales have not compensated the losses that were caused by the decrease in physical sales. The main trigger is music piracy. Digital music is difficult to protect, and it was found that almost 99% of all music available on the internet was illegal. Because of the decline in music sales revenues, actors in the industry have had to change their strategies to remain profitable. New actors have emerged, like digital music retailers and digital music distributors. Also, record companies have changed their business model by vertically integrating other tasks within the dance music industry value chain to be able to stay profitable. It was concluded that the value chain of the Dutch dance music industry has changed drastically because of the digitalization of the industry. In this report it is explained what has caused these changes and what exactly the changes are.

Table of contents

1. Introduction ...... 6 1.1 Research topic ...... 6 1.2 Research questions ...... 6 1.3 Reading guide ...... 7

2. Research methodology ...... 8 2.1 Research design ...... 8 2.2 Data collection ...... 9

3. Facts and figures ...... 11 3.1 The music industry ...... 11 3.1.1 Worldwide and Dutch music distribution ...... 12 3.1.2 Digitalization of the music industry ...... 13 3.1.3 Types of digital music sales ...... 14 3.2 The dance music industry ...... 15 3.2.1 Historical overview of the dance music industry ...... 15 3.2.2 Characteristics of the dance music industry ...... 16 3.3 The Dutch dance music industry ...... 18 3.3.1 Digitalization in the Netherlands ...... 19 3.4 Music piracy ...... 20 3.4.1 How to fight piracy ...... 22

4. Theoretical framework: value appropriation ...... 24 4.1 Capturing value ...... 24 4.1.1 Selection system theory ...... 25 4.1.2 The long-tail theory ...... 25 4.2 Value protection ...... 27 4.2.1 Intellectual property right (IPR) ...... 28 4.2.2 MP3 and IPR ...... 28 4.2.3 Creative Commons ...... 29

5. The Dutch dance music industry market structure ...... 32 5.1 The Dutch dance music industry actors ...... 32 5.1.1 Producers ...... 32 5.1.2 Record labels ...... 33 5.1.3 Distributors ...... 33 5.1.4 Record stores (online and physical) ...... 33 5.1.5 Dj’s and vj’s ...... 35 5.1.6 Booking agencies, promoters and agents ...... 35

5.1.7 Publishers ...... 35 5.1.8 Buma/Stemra ...... 36 5.1.8.1 Buma/Stemra initiatives ...... 36 5.1.9 Online communities ...... 38 5.1.10 Dance event organizers ...... 38 5.1.11 BVD (Belangen Vereniging Dance / branch society dance) ...... 39 5.2 Industrial frameworks ...... 39 5.2.1 Interest groups ...... 39 5.2.2 Live events industry actors ...... 40 5.2.3 Recorded music industry actors ...... 41

6. Changes in the Dutch dance music industry: from recorded to digital music ...... 44 6.1 Selection system ...... 44 6.2 The long-tail ...... 45 6.3 A changed dance music industry value chain ...... 46 6.3.1 Changes for producers ...... 47 6.3.2 Changes for record labels ...... 48 6.3.2.1 Vertical integration: 360 degrees model ...... 48 6.3.3 Impact of the digitalization on the marketing activities ...... 50 6.3.4 Impact of the digitalization on the distribution of music ...... 50 6.3.5 Impact of the digitalization on actors in the Dutch dance music industry value chain ...... 51 6.4 The use of intellectual property rights ...... 52 6.5 The effect of music piracy in the Dutch dance music industry ...... 53 6.6 Creative commons ...... 53 6.7 How actors in the Dutch dance music industry look at legal and illegal file sharing ...... 55

7. Discussion and conclusion ...... 57 7.1 Purpose of this research ...... 57 7.2 Main research results ...... 57 7.3 Limitation of research and future research suggestions ...... 59

References ...... 60

Appendix 1: Interview questions ...... 64

Appendix 2: Interview reports ...... 65 1. Interview met dj Fre4knc: Bertran van den Hoff d.d. 31 april 2008 .. Fout! Bladwijzer niet gedefinieerd. 2. Interview Strøm recordings: James Nidecker d.d. 7 juli 2008 ...... Fout! Bladwijzer niet gedefinieerd. 3. Interview Rob Jansen: Noculan Music d.d. 10 juli 2008 ...... Fout! Bladwijzer niet gedefinieerd. 4. Interview Manual Music: Paul Hazendonk d.d. 17 juli 2008 ...... Fout! Bladwijzer niet gedefinieerd. 5. Interview Fatal Music: Iris Kuipers d.d. 18 juli 2007 ...... Fout! Bladwijzer niet gedefinieerd. 6. Interview met Toco International: Marc de Raaff d.d. 22 juli 2008 ... Fout! Bladwijzer niet gedefinieerd. 7. Interview Offshore Dance: Piter Terpstra d.d. 30 juli 2008 ...... Fout! Bladwijzer niet gedefinieerd. 8. Interview BeatBoost: Bjorn de Ridder d.d .13 augustus 2008 ...... Fout! Bladwijzer niet gedefinieerd.

9. Interview DjPromotion: Danny Kuik d.d. 13 augustus 2008 ...... Fout! Bladwijzer niet gedefinieerd. 10. Interview Dospalomasnegras: Ton d.d. 14 augustus 2008 ...... Fout! Bladwijzer niet gedefinieerd. 11. Interview Alles Los: Jeroen van den Bogert d.d. 15 augustus 2008 .... Fout! Bladwijzer niet gedefinieerd. 12. Interview Triple Vision: Marco Grijsen d.d. 28 augustus 2008 ...... Fout! Bladwijzer niet gedefinieerd. 13. Interview Breakbeat Audio; Bertran van den Hoff d.d. 17 september 2008...... Fout! Bladwijzer niet gedefinieerd.

1. Introduction

In this chapter, an introduction of the research is given. In the first paragraph the research topic is introduced. In the second paragraph the research questions are formulated and in the third paragraph an overview of what can be expected in the chapters of this report is given.

1.1 Research topic The digital audio format and the wide distribution network that has become available via the internet are driving changes in the music industry and are therefore having a major impact on the players in the music industry value chain. This aspect will be the main focus of this research, targeted at the Dutch dance music industry. It will be investigated how the digitalization of the music industry has affected the dance music industry value chain.

The reason that I chose to investigate the Dutch dance music industry is that I have a deep interest in the music industry. During the courses of the Master programme Strategy and Innovation many cultural industries have been investigated in terms of innovations and strategy making. Since my thesis supervisor, Iván Orosa Paleo, was researching the Dutch dance music industry the choice was made to devote my research to this industry. After examining the Dutch dance music industry in general, I got really interested in the case of the digitalization of the industry. There are some major innovations taking place in the music industry and the digitalization of the industry is the driving force behind these changes. I was interested in finding out how this has affected the industry and how the actors in the industry have responded to the changes accordingly. There is very little literature written about the specific case of the dance music industry and therefore I decided to devote my master thesis research to the topic of the digitalization of the Dutch dance music industry. In specific I am trying to write a thesis that explains the changes that have occurred in the music industry in general and apply these changes to the case of the Dutch dance music industry. By means of interviews I will try to describe how the Dutch dance music industry value chain and the industry actors have responded to these changes.

1.2 Research questions The main research question is: What are the changes in the Dutch dance music industry value chain due to the digitalization of the music industry?

To guide the research towards answering the main research question, several sub-questions are formulated. The sub-research questions are: 1. What are the main characteristics of the Dutch dance music industry?

6 2. How does the value chain of the Dutch dance music industry look like? 3. What are the major changes that have occurred in the value chain of the Dutch dance music industry since the upcoming of the digitalization? 4. Has the impact of the internet and digitalization changed the business model of central actors in the industry? 5. How can the value creation process, the value appropriation and protection of the Dutch dance music industry be characterized? 6. Has the digitalization changed the value creation process and the protection of the music?

During this research, the main changes that the digitalization has caused are investigated by using primary as well as secondary data. The way the data is collected will be described in the next chapter. The data gathered will be discussed and tested by interviewing different actors in the Dutch dance music industry.

1.3 Reading guide In this paragraph an overview of what can be expected in this paper is given.

In chapter two, the research design and how the data was collected is described. Chapter three explains the music industry in general and the dance music industry in particular. In chapter four the theories that are used in this thesis. will be portrayed, In the fifth chapter the dance music industry in the Netherlands will be defined by explaining all of the industry actors that are involved in the industry, and the industrial frameworks that exist in the industry are visualized. In the sixth chapter the value chain of the Dutch dance music industry is represented, as well as the impact that the digitalization of the industry and music piracy has had on the value chain of the Dutch dance music industry. Thereafter, in the discussion and conclusion, the main research question will be answered and the outcomes of this research are discussed.

7 2. Research methodology

This section will describe how the research is designed and how the data is collected.

2.1 Research design I was interested in finding out how and why the Dutch dance music industry has changed due to the digitalization, and how the different actors in the industry have responded to these changes.

In designing this research, a qualitative research design is chosen. The research aims not only to explore certain phenomena, but to understand them within a particular context. Qualitative research examines perceptions in order to gain an understanding of social and human activities (Collis & Hussey 2003, p. 13), it investigates why something happens and how, instead of describing what, where and when things have happened, which can be investigated with quantitative research. In this research the ‘what’ question is also examined to explain what changes have occurred in the industry. When this is investigated, the ‘why’ and ‘how’ questions can be answered.

A case study is a qualitative research method. It implies a single unit of analysis, such as a company or a group of workers, an event, or a process or even an individual (Collis & Hussey 2003, p. 68). In this study, it involves gathering detailed information about the Dutch dance music industry.

Collis & Hussey (2003, p. 68) distinguish several types of case studies: • Descriptive: objective is restricted to describing current practice. • Illustrative: the research attempts to illustrate new and possibly innovative practices adopted by particular companies. • Experimental: the research examines the difficulties in implementing new procedures and techniques in an organization and evaluating the benefits. • Explanatory: where existing theory is used to understand and explain what is happening.

This study is descriptive and illustrative. The descriptive part will describe the dance music industry by investigating theories about the music industry in general and gathering data about the Dutch dance music industry. The theories and information gathered have been tested by completing interviews with different actors in the Dutch dance music industry. This will contain the illustrative part of the case study.

8 2.2 Data collection A literature study as well as personal interviews are techniques that are used in this research. The theoretical part, chapter three and four, will describe the dance music industry of the Netherlands, by using literature that is appropriate for and written about the music industry in general. Since not much is written about the effect the internet has had on the dance music industry, theory about the music industry in general forms the basis of this research.

In the illustrative part, chapter five and six, personal interviews have been used to test the theoretical findings, it will try to find out which changes have occurred in the industry, why and how. The choice to perform interviews instead of other data collection methods was made because interviews provide in- depth information. An interview allows the researcher to ask more complex questions and ask follow-up questions, which is not possible in other types of research methods. Also, an interview may provide a higher degree of confidence for the interviewee, which benefits the interviewer. The negative aspects of interviews are that it is a time consuming process, the questions should be asked in the same way, and the interviewees have to understand the questions in the same way. When this is not the case, the answers of the interview questions are biased.

There are three fundamental types of research interviews: structured, semi-structured and unstructured. For the research, I have used a semi-constructed interview. I have prepared the questions beforehand, but a reaction to the answers of the interviewees was also part of the interview. As the literature mentions, semi-structured interviews consist of several key questions that help to define the areas to be explored, but also allows the interviewer or interviewee to pursue an idea or response in more detail (Gill et al. 2008, p. 291).

I chose to perform the interviews by telephone, since face-to-face interviews are enormously time consuming. Telephone interviews enable a researcher to gather information rapidly, but still allows for some personal contact between the interviewer and the respondent like with face-to-face interviews. Another advantage of a telephone interview is that it provides an opportunity to talk to participants who are reluctant to participate in face-to-face interviews or from groups who are otherwise difficult to access in person (Sturges & Hanrahan 2004, p. 109).

The disadvantage of the telephone interview is that multiple methods of communication cannot be used during a telephone conversation. Changes in body language and other visual cues that may indicate confusion, irritability, and so on, are lost when undertaking telephone interviews (Musselwhite et al. 2007, p. 1067). This disadvantage does not overtake the advantages of the telephone interview. Also, Sturges and Hanrahan (2004, p. 115), concluded in their research that both face-to-face and telephone interviews yielded similar information.

9 During the research, thirteen interviews were performed with different actors in the Dutch dance music industry. The reason that I chose the specific actors to be interviewed is that these actors have a central place in the industry value chain. The interviewees consisted of 7 record companies, one online music shop, one booking agency, one distribution company, one promotion company, one dj and a company that is a broker in music rights. Because of the various views of the different actors in the Dutch dance music industry, a widespread of information is obtained, which is used to analyse the specific features of the Dutch dance music industry and the impact that the digitalization has had on the industry. Appendix 1 consists of the questions that are asked during the interviews, and in appendix 2 the interview reports are included. The time per interview varied between 22 and 58 minutes.

10 3. Facts and figures

In this chapter, data about the music industry in general, the dance music industry and the Dutch dance music industry in specific will be presented.

In the first paragraph, facts and figures regarding the music industry in general is provided to explain the changes that have occurred in the music industry worldwide and in the Netherlands. In paragraph 2, the characteristics of the dance music industry is explained, to give more information about the specific industry that is examined in this research. In the third paragraph the characteristics, as well as the enormous growth, of the Dutch dance music industry is discussed. In paragraph four, music piracy is explained. Due to the digitalization of the dance music industry, piracy has become a major threat to the industry. The consequences of music piracy and how piracy can be challenged in the Dutch dance music industry is declared.

3.1 The music industry Since there is no information to be found regarding the changes that has been caused by the digitalization regarding only the dance music industry, information about the music industry in general is used to describe the case of the dance music industry. Although the dance music industry is a distinct part of the music industry, both industries deal with changes that have been caused by the digitalization. Therefore, to analyze the changes that have occurred in the dance music industry due to digitalization, data about the music industry in general is used.

The music industry is one of the leading creative industries in the world, which is worth about 1.4 trillion USD worldwide (estimated by Price Waterhouse Coopers) (IFPI 2008). However, the music industry is changing rapidly. Where the music industry used to be a physical industry, the digital format is rising in popularity. The physical product, such as a cd, is being replaced by a digital product, which can be distributed via the internet. In this research, the physical industry that used to exist solitary is called the old model, and the industry that is more focused on a digital model with all of the consequences that have emerged is called the new model. What the consequences are of the digitalization of the dance music industry will be discussed throughout this report.

11 3.1.1 Worldwide and Dutch music distribution The IFPI, an organization that promotes the interests of the international recording industry worldwide, states that the change in music sales worldwide is enormous. Figure 1 shows that since the year 2000, the trade value of music sales worldwide is decreasing1.

2000 2001 2002 2003 2004 2005 2006 2007

Figure 1: Change in total music sales Source: IFPI2

In table 1, the development of the Dutch music market is visualized. In the table it is shown that the Dutch music distribution market is also declining. Development of the Dutch recorded music market Year Turnover * Growth of Volume ** Growth of turnover volume 2000 494 1% 39.9 1% 2001 498 -1.5% 28.7 -5.5% 2002 467 -6% 34.2 -11% 2003 444 -5% 33.3 -3% 2004 411 -7% 31.7 -4.8% 2005 338 -18% 27.2 -14% 2006 307 -9% 24.6 -9% 2007 282 -8% 22.9 -7% Table 1: Development of the Dutch recorded music market * in million euro’s Source: Auteursrecht 2007, p. 2 ** in million products sold

1 All of the figures were collected from IFPI members, which consist of 1400 major and independent companies in more than 70 countries, representing 100% of the market. 2 The data is drawn from several documents of the IFPI: ‐ Recorded music sales 2007: http://www.ifpi.org/content/library/Recorded-music-sales-2007.pdf ‐ Music market sales data 2006: http://www.ifpi.org/content/library/ ‐ World sales 2005: http://www.ifpi.org/content/library/worldsales2005.pdf ‐ World sales 2004: http://www.ifpi.org/content/library/worldsales2004.pdf ‐ World sales 2003: http://www.ifpi.org/content/library/worldsales2003.pdf ‐ World sales 2002: http://www.ifpi.org/content/library/worldsales2002.pdf ‐ World sales 2001: http://www.ifpi.org/content/library/worldsales2001.pdf ‐ World sales 2000: http://www.ifpi.org/content/library/worldsales2000.pdf

12 The main cause of this decline is the decrease in cd sales, a decline of 37%, and dvd sales, a decline of 19% (Auteursrecht 2007). The decline of music sales can have various causes, but experts say that the main cause is the digitalization of the music industry. The decline in music sales worldwide and in the Netherlands has various consequences for actors in the industry. Since both figure 1 and table 1 show that the music sales is decreasing every year, actors have to change their strategies to stay profitable. In order to change a companies’ strategy, the cause of the decline should be investigated because the changes to be made need to match with the challenges an actor is facing. Since the year 2001 the digitalized music market is becoming more and more important, which is shown in digital music sales as well as in the online music trade (both legal and illegal). Therefore the actors in the music industry believe that the digitalization of the industry is responsible for the decline in record sales. The actors that were interviewed for this research also agreed that the cutback in sales in the dance music industry is caused by the digitalization of the music industry and music piracy, which is a result of the digitalization.

In the next sub-paragraph, the exact impact that the digitalization has on the dance music industry will be discussed.

3.1.2 Digitalization of the music industry The greatest impact of the internet is that it enables the reconfiguration of existing industries that had been limited by high costs for communication, access to information, or making transactions (Porter 2001, p. 66). With the arrival of the internet and the upcoming of digital music, the traditional ‘old’ supply model that was dependent on physical distribution of music recordings, such as cd’s, changed to a more complex model (Graham et al. 2004, p. 1087). Figure 2 represents these changes. The new model includes not only physical music, but also digital music. Physical sales include: audio formats (single’s, lp’s, casettes, cd’s, dvd, minidisc) and music video formats (dvd, vhs, vcd). Digital sales include: single track downloads, album downloads, music video online downloads, streams3, master recording ringtones, full track audio download to mobile, ringback tunes4, music video downloads to mobile and subscription income5. With digital music, a new actor in the industry has emerged, the digital music retailer. Also, intellectual property rights protection becomes more and more important in the digitized music market. The exact consequences that the digitalization has had on the dance music industry will be discussed in chapter five.

3 Streaming is a method of delivering an audio signal to a computer over the Internet. It differs from downloading because with streaming you can listen to the music as it arrives to your computer, you do not have to wait for a complete download. For streaming, usually a software programme is necessary. 4 A ringback tune is the ringing that is heard on the telephone line by the calling party after dialling and prior to the call being answered at the receiving end. 5 Subscription income refers to online services that offer a music library of songs to users for a set monthly fee.

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Figure 2: Music industry market structure Source: Bockstedt et al. 2004, p. 10, p. 13

Due to the digitalization of the music industry, the industry can be characterized by innovation, experimentation and diversity of new business models (DMR 2008, p.5, par. 1). The consumer has the choice about how they would like to experience the music, they can buy a download, cd, mastertone, music video, wallpaper for their mobile phone, or register for a subscription service on the internet. Technology has enabled these changes. The digital market share revenue in the music industry is higher than in any other entertainment sector, except for the gaming industry (DMR 2008, p.5, par. 6). Figure 3 shows that in 2007 15% of all music sold was digital music, this is an increase of 38% compared to 2006, and 725% compared to 2004. However cd sales have declined and the digital sales have not compromised the decline in record sales in the worldwide market (p. 5, par. 11). According to music industry actors, music piracy is responsible for this. This will be further discussed in this research.

Figure 3: Digital music revenues worldwide Source: DMR 2008, p. 6

3.1.3 Types of digital music sales Digital sales are split roughly 50:50 between online and mobile at the global level, but there are big regional differences (DMR 2008 p. 14). Digital sales in 2005 in the Netherlands amounted 2% of the total sales, of which 82% concerned sales online and 18% was related to mobile sales. According to the IFPI, mobile music has the most growth potential of the digital music sales. The biggest selling mobile music

14 format is mastertones6 (DMR 2008, p. 7). PriceWaterhoueCoopers estimates that by the year 2011, the digital distribution of music has surpassed the physical distribution (Marketingonline 2008). According to Enders Analysts (Wipo 2008), this estimation is not correct, but they do state that digital distribution is winning from physical sales, see also figure 4.

Figure 4: Forecast of music sales in the physical and digital format Source: Wipo 2008

3.2 The dance music industry The industry can be defined as a group of actors involved in a particular competitive process, offering goods that are comparable and that are compared in order to determine the value of each of them (Wijnberg 2004, p. 1415). In the dance music industry actors are involved with dance music; making music, selling music and earning money from the music that is sold or exploited in another way. To fully understand how the dance music industry value chain is characterized, in this paragraph a short historical overview is presented. The characteristics of the dance music industry will be described, and the application of the long-tail in the Dutch dance music industry is investigated.

3.2.1 Historical overview of the dance music industry In the mid 1980s the sampler was introduced, an innovation that caused the dance music industry to develop. The sampler has had a major influence in the development of the dance industry (Dansinfo, n.d.). With a sampler, an artist can record a piece of music and do endless things with it, the music can be modified in many different ways.

6 A mastertone is a short fragment from an original track that plays when a phone rings.

15

Historically, electronic music was considered to be any music created with the use of electronic musical instruments or electronic processing (Wikipedia, n.d.). Today, that distinction has been lost because almost all recorded music, and the majority of live music performances, depend on the use of electronics.

Dance music is the new name, for what was once called House music, which was formed in the ‘80s (Storm 2008). The word House comes from the Warehouse Club where Frankie Kunckles, a famous dj that is seen as the ground layer of house music, played his music in Chicago, USA. But another dj, Ron Hardy, was really responsible for the house explosion (Cheeseman 2003). In 1988 House music really began to diversify, and many new music genres were introduced , therefore, the name House music does not cover the variety of the music that exists nowadays. The main term that refers to the style of music is dance music. Therefore, in this report the music style is referred to as dance.

3.2.2 Characteristics of the dance music industry Unlike conventional music, dance music is not played, it is programmed. Because of this, dance music depends on technology to make it what it is, and to make it better and different than what it was. Music instruments have remained the same since their creation, but electronic music is constantly evolving and changing its sound with the application of technology (Techno, n.d.). Technological innovation is therefore an important part of the dance music industry.

The Dutch dance music industry is divided in many genres. Lena (2006) argues that music genres emerge because producers react to the environment, which affects musical content. Musical content includes lyrical diversity, melodic and chordal structure, musical similarity and musical material. Different approaches to musical content leads to sub-genre development. Her research is based on the rap music industry. But Lena’s theory also applies to the dance music industry. In the dance music industry, many types of sub-genres exist, where House is one of. These genres have their own type of music, their own dj’s, own parties and events, own clothing style and their own culture. Most of the actors in the industry focus on one or a few genres that exist in the dance music industry. Genres and sub-genres emerge rapidly in the dance music industry and it is easy to get lost in finding the right sub-genre in which new music can be placed. However, the music genres are important for the dance music industry. A dj for example, has to place his or her music in a particular genre. For the promotion of a producer or a new track it is also important to categorize the music in a specific genre and sub-genre.

The first distinction that can be made between the different genres is the mainstream and underground types of genres. Mainstream genres are very popular commercial genres, which attracts a lot of people. Underground genres are non-commercial niche genres that attract only a small group of people. The distinctions of music genres are based on:

16 • Beats per minute (bpm): this indicates the speed of the music • Instruments used • Use of vocals or not • Use of break beat or not. Break beat dance music is: hip-hop, drum & bass, break beat, trip-hop. The other types of styles do not have a break beat.

As mentioned, dance music comes in many different forms, from disco to hip-hop. The music styles that can be distinguished amongst others are (Electronic dance, n.d.): Acid, Ambient, Breakbeat, Big Beats, Club-Dance, Dance, Dance-Pop, Deep House, Detroit, Disco, Down Tempo, Electronic, Euro-Dance, Experimental, Freestyle, Gabber, Garage-House, Goa, Happy Hardcore, Hard-House, Hard Trance, Hi-NRG, House, IDM, Industrial-Electronic, Intelligent Techno, Latin Dance, Latin Freestyle, Minimal, Noise, Progressive-Dream, Rave, Techno, Teen Pop, Trance, Urban, Vocal House. These genres are only the tip of the iceberg. Every genre in the dance music industry also has their sub-genres and approximately every month a new genre or sub-genre arises.

In this research, there is no distinction made between music genres, and therefore no more attention will be paid to explaining the difference in genres. The dance industry in general is investigated. When necessary, a distinction is made between mainstream and underground genres.

Hesmondhalgh (1998) studied the dance music industry, and the Britisch industry in particular. He found that dance music resists certain key features of other sections of the music industry. It is common to hear the claim that the lack of a star system within dance music concentrates attention on the music itself, rather than on personality and image (Hesmondhalgh 1998, p. 234). Hesmondhalgh argues that the attention is on the style of the music, rather than on the identity of performers (1998, p. 238). The opinions of the interviewees of the research to the Dutch dance music industry differed. Some said that the focus lies much more on the music than on the artist, especially in the more underground genres within the dance music industry. There were also some interviewees that stated that the artist is more important than the music. What Hesmondhalgh does not consider is that famous dj’s are selling records because of their famous name, like DJ Tiesto, Armin van Buuren, etc. All the interviewees agreed that when a famous name in the industry releases a record, people are more interested in listening to that music. A reason for this is recognizability, because so much music is released nowadays. People assume that a new track of a famous dj automatically means that the music is of high quality. A track of a famous artist is therefore more likely to become a hit than that similar track of an unknown artist. In accordance to this star system, many record labels hire a famous dj to remix a track of an unknown artist. When people like the track, the infamous artists will become better known and is more likely to do well in the future. This result challenges the theory of Hesmondhalgh (1998). The theory of Hesmondhalgh is the most applicable in the dance music industry, but there is also a star system present in the industry.

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As mentioned, the dance music industry is characterized by many genres and sub-genres. The focus on music style and sub-genre, rather than on authorship, in the dance music culture is visual in record shops. In the big stores, the main categories of music are pop/rock, jazz, rap and classical. The cd albums within these genres are arranged according to artist. But dance shops sell mainly 12-inch vinyl singles, and these are categorized according to a constantly shifting set of sub-genres (Hesmondhalgh 1998, p. 238).

These factors altogether characterize the dance music industry from other music cultures.

3.3 The Dutch dance music industry In the beginning of the 1980s Dutch people got familiar with dance music, and the first parties were organized in the underground scene in Amsterdam. The late summer of 1988 is known as the Summer of Love (Terphoven & Beemsterboer 2004, p. 28), where a lot of people in the Netherlands got familiar with dance music. After that, the dance music industry started growing, with clubs starting to open their doors for dance music.

Nowadays, the dance industry is the biggest leisure industry in the Netherlands (Terphoven & Beemsterboer 2004, p. 126), and therefore a very important cultural stream. Market investigation by De Vos & Jansen in 2002 showed that 2.3 million people in the Netherlands in the age of 15 to 35 are interested in dance music, that is 5.,6% of the people in this group.

Tom ter Bogt, a culture psychologist and an academic teacher in pop music, calls the dance industry the third major music stream. According to him ‘dance is here to stay’. He says that it is visible that the market is getting mature because there are all kinds of trends in dance music, like the mix with pop music (Dijksterhuis 2005, par. 7). From the information of the NVPI that is shown in table 4, it can be concluded that from the total spending of Dutch people on music, 8% was spend on dance music in 2007. Also, starting from 2007, dance music is the third category on which people spend the most money, in 2006 dance was the fourth category.

Table 4: Total spending on music in the Netherlands Source: NVPI 2007, p. 5

18 It can be concluded that the Dutch dance music industry is growing rapidly. Not only the spending of Dutch people are responsible for this growth, but also the spending of foreign people on Dutch dance music is responsible for the market growth. In 2006, 25% of the Dutch music export revenues came from dance performances, which was about 36 million euro. In 2005 the contribution of the dance industry was less than half of that percentage, namely 10% (Club Judge 2008).

Earlier in this chapter, the digitalization of the digital music sales were analyzed. In the next sub- paragraph, the digitalization of music sales in the Netherlands are discussed.

3.3.1 Digitalization in the Netherlands According to sales data of both physical and digital music in the Netherlands in 2006 and 2007, which are shown in table 2, the revenue of music sales has decreased but the total number of music sold in 2007 increased due to the rising sales of music downloads. The data suggests that there is not more music sold, but the revenues made are lower. In 2007, the number of music downloads increased with 19%, but the music sales of albums and singles and music videos have decreased. A music download costs about € 1 per track. Compared to cd’s, which each cost between € 15 and € 20, the costs per track are lower. Also, when buying a cd you pay for all of the tracks of the cd. When buying a download, people are interested in a particular track and usually do not buy all of the music that is available on the cd. The consequence is that consumers buy in a different way, more targeted at particular tracks from different artists. People in the industry say that the decrease in revenue of music sales is due to the digitalization. Industry actors claim that the main reason why digital sales have not made up for the decline in physical sales is piracy; illegal downloading and peer-to-peer (P2P) file sharing. Not only is digital music downloaded for a fee, it is more common that the music is available on the internet for free. Industry actors believe that if music piracy did not exist and people would pay for the music instead of illegally downloading it, the industry would not face any damages due to the digitalization. In chapter six music piracy will be further discussed.

Retail value (in million euro’s) Units sold (in million) 2006 2007 % change 2006 2007 % change Albums 247.9 238.2 -3.9% 19.5 19 -2.6% Singles 6.4 4.2 -34.4% 1.7 1 -41.2% Music 52.5 39.3 -25.1% 3.5 2.8 -20% video Downloads 10.1 12 18.8% 10.1 12 18.7% Total audio 316.9 293.9 -7.3% 34.8 34.9 0.3% Table 2: Sales data in the Netherlands 2006, 2007 Source: data 2006: http://www.musicaememoria.com/docs/ifpi-2006.pdf data 2007: http://www.auteursrecht.nl/assets/nvpi/jaarcijferstabel%202007.pdf

Also in 2008, it can be seen that although the total number of downloads are still increasing, the Dutch music industry revenue is declining even further by 5.5 %, table 3 represents the half year figures in 2008.

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Retail value (in million euro’s) Units sold (in million) 2007 2008 % change 2007 2008 % change Albums 96.8 91.7 -5.3% 7.8 7.5 -3.8% Singles 2.2 1.3 -40.9% 0.5 0.4 -20% Music 17.1 15.5 -9.3% 1.2 1.2 0% video Downloads 5.3 6.2 16.9% 5.4 6.3 16.7% Total audio 121.4 114.7 -5.5% 14.8 15.4 4.1% Table 3: Half year figures 2008 of music sales in the Netherlands Source: http://www.auteursrecht.nl/assets/nvpi/Halfjaarcijfers%202008.pdf

3.4 Music piracy Where the Dutch dance music industry is growing into an important cultural stream, the music industry, including the dance music industry, is dealing with a decrease of music sales.

As mentioned in paragraph 3.1.2, the decline of the music sales is believed to be caused by the digitalization of the music industry. With digitized music, music is available in a digital format that can easily be offered online. Digital music can be traded with friends and it is also offered online for people to download. This is illegal and refers to music piracy. Piracy occurs when an original video or sound carrier is copied and distributed without permission of the copyright owner. Piracy is not only a violation of the rights of the copyright owner but also harms the interests of producers, distributors and retailers. These actors all earn money from music sales, and when music is offered for free no money can be earned. Music piracy is one of the biggest threats for the music industry because the revenues that are usually made by several actors in the industry is lost, because the music is not sold but offered for free.

Piracy exists in several forms. People can copy cd’s, burn cd’s with MP3 format tracks, use the internet to exchange music downloads, illegally copy digital music streams or use a mobile phone for music piracy. Figure 5 represents the different forms of music piracy.

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Figure 5: Diverse forms of piracy Source: IFPI 2006, p. 5

Illegal downloading, also called internet piracy, is one of the forms of piracy. While piracy on the internet is the most common form of music piracy, mobile music piracy is another threat facing the music industry. With a mobile phone, music can be traded by means of Bluetooth transfers, or by exchanging memory cards (IFPI 2006, p. 5).

There are three types of internet piracy that can be distinguished (IFPI 2002, p. 9, par. 4-6): 1- Offering copied files on the internet or via FTP7 server, which everybody with an internet connection can download. 2- Offering files on links sites or hacking sites. Links sites are sites that contain numerous links to files from other servers. Hacking sites are sites that supply access codes, serial numbers, or software with which people are able to copy files that have copy-control technology. 3- Peer-to-peer services, like SoulSeeek, Kazaa, and Napster. These websites offer an online file sharing service that enables people to transfer MP3 files online.

The IFPI (2006, p. 4) estimates that the music piracy industry was worth 4.5 billion dollars in 2005 worldwide. In their 2008 report, the IFPI refers to research done by Jupiter (p. 18) that 28% of the internet users in the Netherlands are regularly sharing illegal files.

It is very difficult to estimate how many music files are shared on the internet, but the IFPI stated that approximately 99% of the music files that were available on the internet in 2001 was illegal (IFPI 2002, p. 9, par. 8). On their website, the IFPI states that about 80% of all of the file exchanges with the use of the internet, contains the distribution of illegal files (DMR 2008). This has tremendous effects on the music

7 FTP stands for file transfer protocol and is used to transfer data from one computer to another through the internet.

21 industry. Income for many actors in the dance music industry is lost. This loss of revenue has the consequence that many actors in the industry have to change their strategies to stay profitable. During the interviews, the effect that piracy has had on actors in the dance music industry will be investigated.

3.4.1 How to fight piracy As mentioned in the previous paragraph, music piracy has a negative effect on many actors in the dance music industry with many actors losing money because of it. Therefore, fighting piracy is a good option for these actors to diminish the consequences of music piracy.

Digital piracy causes the biggest threat to the dance music industry, according to the interviewees. Internet Service Providers (ISP’s) can have an important role in fighting online piracy. While most ISP’s refuse their customers to use the internet for illegal file sharing, they rarely punish their customers if they do.

Fighting piracy can be done in several ways (IFPI 2006, p. 6-7): • Providing new legal downloading services results in more legal online distribution, which will decline the online piracy. • Educating people about copyright, and the vital role it has for the music industry. There are many people that are unaware of the damage music piracy has on the music industry. • Spreading viruses with illegal files has played a significant part in fighting piracy. • Taking action towards illegal downloading sites and peer-to-peer networks. • Taking action against physical piracy.

An example of taking action against peer-to-peer services is the fight against Napster, which resulted in the determination of the service (Napster 2008). In 1999, Napster was sued by the metalband Metallica and in July 2001 Napster had to terminate their illegal file sharing services on the internet. Since 2004 Napster is online again and has become a website where digital music can be bought. The fight against Napster resulted in a change of strategy for the company, from illegal file sharing to a paid downloading website. Although closing down Napster was a very important milestone in fighting digital music piracy, there are still many peer-to-peer services that are still accessible like Soulseek and Kazaa. Soulseek is one of the biggest peer-to-peer services that is popular in the dance music industry (Soulseek 2008).

An example of taking action against physical piracy is an investigation for music piracy during the Dutch cd-fair held in November 2005, which is one of the biggest record fairs in the world. There were 14 stands discovered that offered illegal cd’s. More than 1600 illegal music products were confiscated (Techzine 2008).

22 Governments can also take an active role in fighting piracy (IFPI 2006, p. 19). This involves: • Guarantee penalties for copyright crimes. • Investing in resources to enforce intellectual property laws. • Educating the public about the importance of copyright. • Getting cooperation from internet service providers (ISPs).

The music industry actors hope that in the near future, music piracy will be better fought and that more digital music files are exchanged in a legal circuit.

23 4. Theoretical framework: value appropriation

Throughout this research, several theories will be used to explain the case of the Dutch dance music industry. In this chapter, the theories are discussed. These theories form the basis of the research about the digitalization of the dance music industry. The following chapters will be build upon the theories mentioned in this chapter.

In the first paragraph the value creation process of musical products is discussed and presents the ways that value can be created in the dance music industry. It is stated that value can be appropriated only when a product is selected by the consumers. There are different selection system theories that are discussed in paragraph one. The most common theory is the selection system theory of Wijnberg (2004). Another theory that has emerged in the digital era is the long-tail theory of Anderson (2008). According to Anderson, selection takes place on the basis of what is offered online. He states that according to the availability of music on the internet, the power of hits in the music industry is slowly disappearing and many niche markets are emerging. the long-tail theory of Anderson (2008) is introduced which has a close relation with the selection system theory.

Creating value and capturing value is important, but just as important is protecting the value. If the value of a product cannot be protected, no income of the created product can be earned. The second paragraph of this chapter will deal with the achievable measures that can be used to protect the value of a musical product. The use of intellectual property rights are introduced, as well as the use of the creative commons licenses.

4.1 Capturing value Producers who make music, want to earn money to be able to live from the music they make. Value refers to the importance or worth of something for someone, which can be expressed in terms of money. Producers of music have to create value, but to be successful in economic terms they also have to capture the value that they have created. Capturing value of music differs per exploitation form. For live performances, dj’s and artists capture the value they create by receiving a fee for their performance. For recorded music however, capturing value is much more complicated.

There are various ways to capture the value that is created from recorded music. One way is by using intellectual property rights (IPR) to protect the created music product from piracy. Another way is by using Creative Commons licenses. How value can be created is discussed in the selection system theory in the first sub-paragraph. How value can be protected is discussed in sub-paragraph two, following by two sub-paragraphs that explain the use of intellectual property rights that can protect the music. In the last

24 sub-paragraph, the use of Creative Commons is introduced, which is a value protection method that is relatively new to the music industry and bears no resemblance to the traditional IPR protection methods of music.

4.1.1 Selection system theory To capture the value you create, the created product needs to be selected. According to Gemser (2008) it does not matter how much value you create, it is more significant how much value you capture. The value that is created is measured by the total amount of value that is acknowledged by the selectors of the final product. In the dance music industry the final selectors are the consumers, the people who buy the recorded music or the visitors of live performances.

To illustrate how the selection system works, the theory of Wijnberg (2004, p. 1415) is used. The selection system theory of Wijnberg can be divided into three variants of selection: 1- Market selection: the consumers are the selectors and the producers the selected. 2- Peer selection: the opinions of others determine the outcome of the competitive process. 3- Expert selection: the competitive success or failure is determined by the opinions of a category of people who are neither consumers nor producers but to whom particular knowledge or expertise is ascribed.

The selection system considers not only these three selection variants, but also recognizes that an actual selection system can also be a particular mix of these three selection types. It is not rare that all three selection types occur in one industry. To capture the value of a product, the selectors (final consumers) have to acknowledge value to the product. The selection system is an important indicator of how much value is created. Anderson (2008) has researched the selection system theory and argues that selection takes place on the basis of what is offered. In paragraph 4.1.2 the long-tail theory of Anderson is discussed.

4.1.2 The long-tail theory As mentioned in the first paragraph of this chapter, there are various selection systems possible in an industry. The long-tail theory of Anderson (2008) notes that the selection of a certain musical product has changed due to the digitalization. The long-tail theory indicates that because of the distribution of digital music recordings on the internet, the selection of consumers has shifted from hits to niche products. According to Anderson (2008), the economic power of hits that used to be very important in the music industry is nowadays slowly disappearing. The long-tail theory states that the mass market of hits is disappearing and spreading into countless numbers of niche markets (p. 11). Anderson mentions that consumers of music used to select music by the popularity of the product, which relates to peer- and expert selection. But since the digitalization, more music is available on the internet and consumers have

25 more choice. The long-tail is nothing more than having unrestricted choice, that is enabled by the use of the internet (p. 193).

The focus on a small number of hits in mainstream markets and products shifts in the long-tail theory to the discovery of consumers’ own style that can be found in countless numbers of niches, as is presented in figure 8. The internet is making this shift possible because every music recording can be found on the internet, which enables people to find their own music style instead of harmonizing with the mainstream.

Figure 8: The long-tail Source: Anderson 2008, http://www.thelongtail.com/about.html

Long-tails exist due to an economical trigger, that is the reduction of costs. Three features that characterize the long-tail are (Anderson 2008, p. 62-64): • Supply and demand come together on the internet, which results in a shift from hits to niche products. As a result of digitalization, digital distribution and online search engines emerged which consumers can use to find music they might enjoy. Rankings of music and recommendations of peers are also available on the internet. The consumer has more choice and has access to an infinite number of music. The long-tail appears when a consumer is encouraged by a renowned dj, music rankings or by friends to listen to or buy music, that the consumer would otherwise not have access to or find in record stores. • When more products are available, the tail becomes thicker. • Worldwide distribution makes the access to niches possible, which makes the tail thicker.

26 Scarcity concludes in hits, if storage is scarce than it is wise to only have products in stock that sell good. However if there is enough storage to offer every product available, why not offer everything that you can, because Anderson states that there is interest for everything that is offered online. This theory is tested in the field research of this study. Anderson claims that because adding an extra file requires only a few megabytes of storage on a server, which barely costs anything, online stores have no reason not to offer everything that is available (2008, p. 101).

According to Nielsen SoundScan8, the strongest effect of the long-tail can be found in the music industry. In 2005, the physical sales of new albums were responsible for 68% of the music sales, the other 32% of the music sales came from older music. In that same year, the online sales of music was the other way around, one third of the music sales came from new music, two third from older music (Anderson 2008, p. 142). This is twice the amount of physical sales. The CEO of Ecast9 states that 98% of each track that is available on the internet, sells at least one time per quarter (Anderson 2008, p. 16).

Although the selection systems are an important aspect of the music value chain, protecting the value is just as important. Only if the value can be protected, money can be made for actors in the music industry. The next sub-paragraph discusses the various ways music can be protected.

4.2 Value protection The protection of the value that is created can be secured by formal and informal instruments to prevent imitation by competitors.

An informal value protection instrument is reputation (Gemser & Wijnberg 2001, p 565). Reputation is a set of economic and non-economic attributes ascribed to a certain actor in an industry related to the actor’s past actions. While a solid reputation can be an important intangible asset contributing to success, empirical research has indicated that it is also fragile in the sense that it can be easily lost or destroyed. (Gemser & Wijnberg 2001, p 566). A producer, dj or a record label can have a very good reputation. However, by one indiscreet activity, like copying another producer’s track, the actor’s reputation can be destroyed, because their credibility has diminished. Actors in the dance music industry find credibility and honesty very important according to the interviewees. If an actor lacks these qualities, their probability to work with other actors will recede. Therefore, the threat of losing one’s reputation inhibits an actor to be involved with imitative behavior and piracy.

8 Nielsen SoundScan is an information system that tracks sales of music and music video products. 9 Ecast is a digital jukebox company.

27 The formal way of protection the value that you create is via the use of intellectual property right. This will be discussed in the next sub-paragraph.

4.2.1 Intellectual property right (IPR) IPR consists of three different protection methods: patents, copyright, and trademarks (Gemser 2007, slide 15). A patent is a set of exclusive rights granted by a state to an inventor for 20 years. A trademark is any sign capable of distinguishing or identifying the product (goods and services) of a company from those of another company and that can be represented graphically. Copyright is a right that gives the author of artistic work the exclusive privilege of making copies of the work and publishing and selling the copies for a limited period of time. The purposes are to motivate the creators of the innovation, and to motivate investors. Copyright protection is the most applicable IPR for the music industry and will be discussed further in this paragraph.

A copyright is automatically created if an original idea is given a fixed expression. Copyright does not give its owner the right to prevent others from using the idea contained in the copyrighted work, it only restricts the use of the work itself. Protected is the form of expression, not the idea expressed (unlike a patents that protects ideas). In music, expression and idea are difficult to distinguish, but in short the idea must be fixed in a tangible medium of expression to be able to get a copyright (Kretschmer 2000, p. 213). The copyright has a duration for 70 years after the author’s decease or 70 years after the first publication if the author is an organization.

With the introduction of the internet, challenges regarding IPR emerged (Gemser 2008): • New types of works, publication and distribution emerged. • Serious enforcement problems started to surface(piracy, DRM, stricter laws). • The internet enabled a new type of creators and ways of producing content to appear.

Because of the new types of music that appeared because of the internet, like MP3’s, IPR protection also became more of a challenge. This is discussed in the next sub-paragraph.

4.2.2 MP3 and IPR The MP3 is the worldwide standard for digital music. The MP3 is compressed to reduce the amount of data that is required and is therefore ten times as small as a normal music file. Because of this, MP3’s can be easily traded between people over the internet. Whether or not digital music trading is legal differs per country. The Dutch law says the following (Buma/Stemra): • It is legal to transfer a music file to a MP3 file for your own use. • It is legal to download a song, but only if it is for your own use.

28 • If you want to offer a song on the internet (upload the music), the copyright owner of the music has to give you permission. It is thus illegal to upload music without permission from the copyright owner.

Music is protected with copyright, which means that the owner of the copyright has to give permission to the internet service to offer the music file online. In most cases this permission is not granted, which makes the service illegal. This refers to music piracy. It is however legal for people to download the files that are offered online. The music industry is not satisfied with the current law because it only states that people who offer music are disobeying the law, but people who download illegal music should also be penalized. As a result of music piracy, the dance music industry deals with decreasing revenues of cd sales (Downloadvergelijker 2008).

Not everyone in the music industry considers piracy to have a negative effect on music revenues. There are also people in the industry that see piracy in a positive light. Studies suggest that consumers like getting products and services for free. Being free offers an incentive to consumers to try a new product. By giving away free music, artists can create exposure for their music. The distribution of free samples increases the probability that consumers would buy the product in the future, which makes the MP3 format and internet file sharing a new marketing tool. If people like the music, consumers are more likely to listen to more music of that particular artist, and they are induced to buy music that the artist will release in the future. According to Kusek & Leonhard (2005, p. 5) internet file-sharing is here to stay, and therefore the music industry should embrace it as a great method to market music. This marketing is free and can be the next biggest marketing tool in the dance music industry.

4.2.3 Creative Commons As mentioned in the previous paragraph, there are many artists that see the positive side of music piracy, namely a cheap way of creating exposure. However, piracy is illegal and the artist and other actors lose revenue from music sales. Another way to promote music, but in a way that is legal, is to offer music for free, and attach your own terms of conditions to this free use by using Creative Commons licenses. Creative Commons (CC) provides free tools that let producers of creative work easily mark their creation with the freedoms they want it to carry, from all rights reserved to some rights reserved (Creative Commons 2008). CC is an open content license, but cannot be mistaken with open source licenses. CC for example can restrict the commercial use of the works, while open source licenses do not reserve any rights from the content. CC distinguishes four basic conditions under which others can copy, distribute, display or perform the work, these conditions are visualised by graphic icons. The following conditions exist for the use of CC:

29 Attribution (by): Work (and derivatives) can be used only if credit is given to the original creator. Non-commercial (nc): Work (and derivatives) can be used only for non-commercial purposes. No Derivative work (nd): Work can be used only in ‘verbatim’ form; new works based on the Creative Commons original are not allowed. Sharealike (sa): Derivatives are allowed only if published under a license identical to that which governs the original work. Figure 6: Creative commons conditions Source: Creative Commons Licensing (2008)

From these four conditions, six licenses can be chosen by a producer, ranging from very restrictive (1) to very open (6) (Creative Commons 2008): 1. by-nc-nd: Someone’s work can only be downloaded, but nothing can be modified or edited. 2. by-nc-sa: Peope are allowed to remix, tweak and modify the work non-commercially. All the modified work is credited to the original owner. 3. by-nd: Work may be redistributed for commercial and non-commercial purposes, but it may not be modified and the original maker must be credited. 4. by-nc: The same applies as the above, but the new work may be licensed on different conditions. 5. by-sa: Others can remix, tweak, and build upon the work even for commercial reasons, as long as they credit the original maker and license their new creations under the identical terms. 6. by: Others can distribute, remix, and build upon the work, even commercially, as long as they credit the original maker for the original creation. This is the most open form of what others can do with your work.

In figure 7, the six CC licences are visualized, from restrictive to open.

Figure 7: Six licenses of Creative Commons Source: slide 26, course lecture Martijn Arnoldus, Stichting Nederland Kennisland d.d. 18 December 2007

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Buma/Stemra started a collaboration with Creative Commons to offer musicians the possibility to circulate their work on the internet for non-commercial activities. The three types of Creative Commons licenses that do not allow commercial use of the work used, the by-nc-sa, the by-nc, and by-nd. This allows Buma/Stemra to still make an income for musicians for their work for commercial means (CC 2007). The objective is to stimulate creative and legal reuse of another person’s work. Innovation is a very important criteria for stimulating this. In the dance music industry, reusing someone else’s record is frequently done, but it is not always done in a legal way. When there are no preservations for reconstructing someone else’s record, producers are stimulated to produce their own record by building on the work of another producer. Producers can have a slightly different approach of making a record, for example by using different types of techniques which can make a record unique, but it still will be an adaption from the original record. By stimulating the reuse of the musical piece, innovation is stimulated because someone can get inspired by the music, and be allowed to build upon the work of another producer and make something unique. This way, something new is created with an added value, which is the definition of an innovation by Jacobs (2007, p. 32).

With a CC license, earning revenues from the product is still possible. Revenues can come from: • Promotion/marketing. An example of this is Jamendo (2009). Jamendo is an internet community, which offers free music that is published under CC licenses. Jamendo shares 50% of their advertising revenue with the artists that sign up with Jamendo. The artists receive money on the basis of the number of page views they get in a specific timeframe. • Selling other services or products. Open content can be used to stimulate the demand for other content that are not given a CC license, like other records of artists. It can also boost demand for life performances and other exploitation forms that artists and record companies use in the new business model (see also chapter six). • Dual licensing. With a dual license, content is available for non-commercial use for everybody to use, but the creator can also use the content commercially, with which the creator can create an income.

Creative Commons is a new way of using the internet and music file sharing in a positive way to create exposure. There are many actors in the dance music industry that embrace the use of CC, but there are also many actors that cling to the traditional way of creating exposure and fighting music piracy.

31 5. The Dutch dance music industry market structure

In this chapter the market structure of the Dutch dance music industry is discussed. In the first paragraph, the most important actors that are present in the dance music industry are differentiated, with an explanation of their function in the industry. In the second paragraph, an overview is given of the industrial framework of the dance music industry which consists of the different actors that are discussed in the first paragraph.

5.1 The Dutch dance music industry actors An industry contains different actors that are involved with a certain product. Based on the interview data, the following actors play an important role the Dutch dance music industry: • Producers • Record companies • Distributors (physical and digital) • Record stores (physical and digital) • Dj’s and vj’s • Booking agencies / promoters / agents • Publishers • Buma/Stemra (Dutch Intellectual Property Rights enforcement body) • Online communities • Dance event organisers • BVD (Belangen Vereniging Dance / branch society dance)

In the next sub-paragraphs the task and function that each of these actors have will be explained. The data is based on the interviews. In paragraph 5.2, the link between each actor is visualized in an industrial framework.

5.1.1 Producers The producer is the one who makes the music. According to dj Tiësto, the best dj of the Netherlands, producing a record is more important than playing a record. Producing a record consists of different tasks. The music has to be written, performed, recorded, mixed10 and mastered11. In the dance music industry, the producer can be represented by various people. An artist or a producer can write and perform the

10 Mixing a record refers to adjusting the music in such a way that the sound is recorded in a high quality, the music is fine-tuned and made ready for distribution on cd, MP3 or vinyl. 11 Mastering involves fine-tuning the music so that the quality is be high enough for live events.

32 music, the recording can be done by the producer, an artist, various artists, or the record company. This counts for both the original music track and the mixed track. Mixing and mastering can also be done by various people. As mastering is a very specific and complex task, it is likely that an expert will be hired to complete the mastering task.

With digitalization, it is possible for the producer to be the only person involved in the production of a record, since new technologies have made it possible for an artist to producer their record on a computer with affordable software. In that case, the artist is the same actor as the producer. On the other hand, a producer can be represented by various people with specific tasks.

5.1.2 Record labels The tasks of record labels vary widely per label. The main activities of labels are producing, releasing and distributing music records in exchange for money. Also, taking care of the financial side of the music is an important part of a label’s business, which includes the collection of revenue from sales and licensing, providing support and ensuring that everyone who needs to get paid, gets paid. Other activities that labels fulfil are identifying new talent, artist management, promotion activities, and bookings.

5.1.3 Distributors The distribution of music is undergoing a revolution. The cd business is gradually declining as more and more people switch to digital music, both legal and illegal (Tayler 2008, p. 4). Therefore, the distribution of music is divided in physical distribution and digital music distribution.

Physical distributors distribute music of record labels. The distributors take care of the pressing on vinyl or cd and the distribution of the music worldwide. The choice of the distributor depends on the music genre. In the dance music industry in the Netherlands there are several distributors, with each distributor representing certain dance music genres.

Digital distributors are called aggregators, they make sure that the music is available on music webshops. There are many record labels that arrange this themselves, but some have outsourced it to an aggregator.

5.1.4 Record stores (online and physical) Since the recorded dance music industry is divided in a physical industry and a digital industry, record stores are also available in both industries. The task of a record store is to sell music. The difference in selling physical music and digital music is shown in the way music is sold.

33 Physical record stores are shops that sell vinyl and cd’s in a traditional store, but in the dance music industry these stores are slowly disappearing. Major shops still exist, but smaller ones have closed their doors because of the diminishing music sales. Where the revenues of record stores used to be tremendous, nowadays the revenues are decreasing every year.

Online record stores are music downloading companies that sell audio files to end consumers on a pay- per-download basis or subscription based service (e.g., iTunes and Beatport). These companies provide music for music downloading services and other content users (e.g., mobile phone companies, film, TV, advertising, video games and webradios) (Gustavo 2006, par. 52). With the new digital technologies and the internet, artists can distribute music directly to consumers through the internet, bypassing intermediaries involved in the production and distribution of physical music media like record labels and music distributors (Bockstedt et al. 2004, p. 14).

Beatport is the world leader in dance music downloads. Beatport.com allows users to access the world of club music through secure, legal, hi-speed, high quality downloads in MP312, MP413, and WAV14 formats on a pay per download basis. Wav-files cost €1 more per track compared to MP3’s and MP4’s, since the quality is so much higher. People that are interested in this high quality music formats are happy to pay the extra money, the CEO of Beatport explains that "it's actually so much cheaper than buying vinyl" (Brown 2007, par. 41).

Since Beatport started in January 2004, it has grown into a company that has a global presence in the dance music industry, with their website available in 7 languages and 70 employees in four offices (Denver, Berlin, New York, London). 350,000 users are registered with the site. 1,000 registered users are joining Beatport daily. 6,500 record labels are participating, providing tracks for download. For new content on the site, Beatport works exclusively with several electronic music labels. Beatport does not deal with artists directly and also not with small unknown record labels to maintain a certain music quality. 275,000 electronic and dance music tracks are available for users to download, and 4,000 tracks are added to the site weekly. A 10% growth in paid downloads is seen every month (Brown 2007, Par. 44). The revenue of the company has grown with 829% from $2.2 million to $20.4 million. These numbers show that the digital music sales has grown in the last couple of years.

12 MP3 stands for MPEG-1, Layer 3. A MP3 is a digital audio file that is compressed, to reduce the amount of data that is required to represent the audio recording. 13 MP4 stands for MPEG-4 Part 14. A MP4 file can be seen as a MP3 file that is used for video files. 14 A waveform audio file. A Wav-file digitalizes sounds, that is 100% faithful to the original source because it is a lossless format.

34 5.1.5 Dj’s and vj’s A dj has various roles in the dance music industry. A dj can be an artist, producer, selector, consumer as well as a dj that plays records during live events. As an artist, a dj writes music. As a producer, a dj produces music. As a selector, a dj selects the music that he/she plays at a live event. As a consumer a dj can buy music to play it privately, at an event, or remix it for the production of a new record. Therefore, it is too short to state that a dj only plays records. However, originally dj is the one who mixes and plays a records during live events. The music that a dj plays can be a record of the dj itself or a record made by another producer. The dj is free to play another dj’s record. No money has to be paid to the copyright owner of the music by the dj because the event organizers pay money to Buma/Stemra for this specific reason (see also 5.1.8). How a dj plays music during live events differs per performer. The records are mixed together in a certain order, speed, and with special effects, which makes it a musical piece instead of different songs. The dance records do not exist on their own, they are all part of the mix. A good dj plays his mix in waves, the audience is taken on a journey towards the explosion of the music. Therefore, a dj can be seen as an entertainer instead of an artist.

A vj is a performance artist who creates moving visual art at events. A vj does not only plays and mixes records, he or she also makes a show of their performance. Therefore, a vj is much more interesting to look at for visitors to live events than a dj.

5.1.6 Booking agencies, promoters and agents Booking a dj or a vj mostly goes via booking agencies. A booking agency books artists for events, but also programs music for festivals and other shows. Programming involves making a day - or a more days - programme and also doing bookings for that particular festival or event.

There is a difference between a promoter/booker and an agent. A promoter or a booker is someone who books artists within one country. An agent is someone who coordinates a tour of an artist worldwide. Usually, the agent contacts bookers in specific countries to arrange bookings on festivals and parties, since the agent does not have the contacts and the network the booker has in those countries. Eventually, both are responsible for dj or vj bookings, depending if a dj or vj works in one country or worldwide an agent comes to assist the booking agency with their bookings task.

5.1.7 Publishers A music publisher is someone who registers the music of producers, licenses the use of the music and monitors when the music is used to ensure that the owner of the music copyright receives a payment for playing the music. There are record labels that perform these publishing tasks, but some record labels also outsource this task to publishers. The publishers have direct contact with Buma/Stemra.

35 5.1.8 Buma/Stemra Buma/Stemra is a company that promotes the interest of copyright owners of a music recording. Buma/Stemra has been active in the Netherlands for decades in the field of musical performing rights, making it the longest established copyright organization in the Netherlands (Bumastemra 2002, p. 1). The main task of Buma/Stemra is to collect and distribute compensation and management of music royalties. Buma/Stemra grants users of music the right to the perform, record and/or reproduce a music recording for a fee, which Buma/Stemra distributes to the copyright owner of the music recording (Bumastemra 2002, p. 6). For example, event organizers of dance music events pay a certain amount to Buma/Stemra. Dj’s and vj’s are than free to play music of the artists they prefer and accordingly Buma/Stemra pay artists that are affiliated with Buma/Stemra a fee for their musical work.

According to the Copyright Act, copyright is “the exclusive right of the creator of a work of literature, science or art or of his assignee(s) to make such work public and to reproduce it, subject to the restrictions laid down by law” (Bumastemra 2002, p. 5). Buma/Stemra is split into two different fields of work. The ‘making public’ of a work belongs to Buma’s field of activities, whereas ‘reproduction’ belongs to the responsibility of Stemra.

Stemra is active in the field of mechanical reproduction rights, whereas Buma focuses on the performing rights of musical works. Performing rights consider concerts, but also broadcasts via the radio and television, music in shopping centres, discos, cafes and restaurants. So making music public entails more than live performances alone (Bumastemra 2002, p. 7).

Stemra’s clients include record companies, broadcasting organizations, audio-visual producers, video distributors, producers of background music and advertising firms (Bumastemra 2002, p. 9).

Composers, songwriters, and music publishers become affiliated with Buma and Stemra by concluding an exploitation contract. To join Buma/Stemra, a one-time entry fee must be paid, followed by an annual contribution. Artists who are affiliated with Buma/Stemra are obliged to transfer their musical performing rights and mechanical reproduction rights to Buma/Stemra for exploitation. Buma/Stemra collects the copyright royalties for the use of these works. The money must then be divided as fairly as possible among the rights owners. This is called distribution. Buma and Stemra do not realize a profit. All the money that is collected is paid out after a deduction of the expenses made by Buma/Stemra.

5.1.8.1 Buma/Stemra initiatives Next to the promotion of the interest of copyright owners of a music recording, Buma/Stemra has started several initiatives. The initiatives that are realized in the dance music industry are the cooperation with Beatport, the fingerprinting technique, and the organization of the Amsterdam Dance Event.

36

Cooperation with Beatport In July 2008, Beatport, signed a deal with Buma/Stemra for author's rights covering all of the world's music repertoire (Bumastemra 2008).

Fingerprinting Buma/Stemra collects 5% of the revenue of ticket sales from event organisers. Although this is a good thing, most of the money does not end up with the originators of the musical work. Buma/Stemra and the BVD (see paragraph 5.1.15) wanted to change this and therefore they have developed the DJMonitor, a worldwide innovation in the dance music industry (Technology 2005 par.3). With the collaboration, Buma/Stemra and BVD adapted the monitoring system that already existed so that it is also suitable for monitoring music during live dance events. DJ Monitor started in the Netherlands, but it will set up a complete music database, which can be used all over the world so that all copyright owners of music can receive the royalties they deserve (Technology 2005, par. 6). Fingerprinting was used by Buma/Stemra to register the music sets of radio stations and television stations, by giving music a fingerprint that cannot be heard but can be traced. Together with BVD, the technique is also made available for the dance music industry. The fingerprinting technique includes a fingerprint on a musical piece. When a track is played during an event, the fingerprints will be compared to an exclusive song database. Once a match is found in the database, the music is identified. DJ Monitor creates reports for the organizations, who can submit these to Buma, who in turn will pay the rightful composer for using their music during events (DjMonitor, n.d.). With the fingerprinting technique, the owners of music are better able to protect their music and it can be traced when and by whom their music is used (Music Management 2008).

According to KPMG (2002, p. 31), Buma/Stemra collected approximately 1.5 million euro’s from dance organizers, the total fees paid by event organizers was 2.4 million euro’s. This means that the earnings from dance events is 62.5% of the total income.

Amsterdam Dance Event There is an international agreement that copyright organizations may devote a maximum of 10% of the amount available for distribution to social and cultural activities. Buma supports the Conamus Foundation, amongst others, which aims to promote Dutch popular music nationally as well as internationally. The successful Amsterdam Dance Event is one of the events that is organized by Conamus.

The Amsterdam Dance Event (ADE) is the world’s biggest club festival with over 700 dj's and acts performing in 40 locations in Amsterdam. In 2008, the ADE is organized for the 13th time, and has grown into a business conference that attracts 1900 professionals and a club festival audience of 72.000 people (Festival 2008). The ADE is all about networking during the day and partying by night. The ADE

37 features three networking lounges, over twenty panels geared toward new developments, a range of keynote speeches and discussions, and a night program. One day of the programme is especially organized for talented young dj’s and producers, which is called the D3. D3 is a day full of workshops, clinics and information by young aspiring dj’s and producers of dance and electronic music. Buma Cultuur and ADE organize this event to help young talent forwarding their career and knowledge of music, equipment and the music industry (D3 2008).

5.1.9 Online communities Online communities are websites such as MySpace and Hyves that artists can use to expose themselves to the world. There are many artists and labels that use websites like MySpace and Hyves to promote themselves.

Myspace is an online community website that is renowned for the many artists and record labels that have a webpage on this site. Via Myspace, an artist or a label can open a webpage to promote their music, upload their latest tracks, and expand their network of people. Through this website, it is also easy for people to find new music, and for record companies to find new talent. The website also generates information about the artists and labels, a blog can be part of the website, and other information that artists and labels would like to upload to their personal Myspace site.

Mike Smith, Managing Director of Columbia Records, said “Ten years ago I would hear about a potentially great act and spend all day on the phone to everyone I knew. Eventually somebody would have a tape and I would send a bike across town to get it. I would listen to it and then try and track down the manager, get him on the phone and try to arrange to see the band playing live. Now, if someone mentions a potentially great act I check them out on YouTube or MySpace. You are immediately listening to their music, seeing what they look like and you have all of their contact details in front of you.” (DMR 2008, p. 13).

Another online community site is Hyves. Hyves has the same features as Myspace but is not as popular as Myspace and is only used within the Netherlands.

5.1.10 Dance event organizers There are many dance event organizers in the Netherlands. Every event organizer has its own music genre it focuses on, its own style of organizing an event, and attracts a certain type of audience to their events (Terphoven & Beemsterboer 2004, p. 82). The audience is attracted for an event by the reputation of the event and the event organizer (KPMG 2002, p. 15). A big commercial event in the Netherlands is Pinkpop. This is a festival for all kinds of music styles and genres, from hardrock to dance. Since 1996

38 dance music has been programmed on Pinkpop, since then, dance has become a major part of large festival for different kinds of music genres (Terphoven & Beemsterboer 2004).

ID&T is the largest dance event organizer in the Netherlands. The company started in 1992 with the organization of the Final Exam party in Utrecht, which attracted 12.000 visitors, and has grown into a leading company in the dance industry worldwide by organizing its events all over the world.

The market for dance party’s is full, organizers will only be successful if they develop qualitative strong concepts. The challenge lays in the increase in quality like the facilities during the event, well known dj’s and many different stages with different dj’s and vj’s playing live music (KPMG 2002).

5.1.11 BVD (Belangen Vereniging Dance / branch society dance) In 2003, the Belangen Vereniging Dance (BVD) was established to improve the image of the dance music industry. In the BVD, the most important dance event organizing companies are represented. The central goal of the BVD is to enhance the professionalism of the dance music industry in the Netherlands. BVD is trying to accomplish this by introducing a certified license for dance events. With this license, certified events can be distinguished from not certified events. Certified events are organized in a legal way and stand for a high quality event. Also, the safety of the events and the artistic-music quality can be guaranteed because the police approves the events and works together with the event organizers to keep the event save for its visitors (Beileidsplan 2005, p. 5).

5.2 Industrial frameworks The actors discussed in the previous paragraph are all part of the dance music industry and have a relationship with each other. Some actors work closely together and some do not have contact directly. In this paragraph, three different frameworks are demonstrated that shows the relationship between the industry actors. The first figure is the framework of companies that take care of the interest of the actors in the Dutch dance music industry. The second framework explains which actors are involved with live events and the third framework visualizes the actors that are involved with the physical recording of dance music.

5.2.1 Interest groups The companies that take care of the interest of the actors in the dance music industry are the IFPI, Buma/Stemra and the BVD. Figure 9 relates the IFPI, Buma/Stemra and the BVD to each other. The IFPI represents the music industry worldwide, Buma/Stemra represents the music industry in the Netherlands and the BVD represents the dance music industry. Although the dance music industry may not be the focus of the IFPI, through Buma/Stemra they are linked to each other. Actors in the Dutch

39 dance music industry benefit from Buma/Stemra and the BVD, because they represent the actors in various ways (see also 5.1.10 and 5.1.15).

Figure 9: Relation between IFPI, Buma/Sterma and BVD Source: Author’s own elaboration

5.2.2 Live events industry actors The actors that are involved in live events like festivals and dj shows, are the BVD, event organizers, booking agencies, locations, media and dj’s / vj’s. The hierarchical route is displayed in the next figure. Although this framework represents a much used way of organizing a live event, many different forms exist. A booking agency can be a division within a record company, or a stand-alone company. There are also artists that arrange their own bookings, or have managers that do the bookings for them, disregarding event organizers.

Figure 10: Dj bookings hierarchy Source: Author’s own elaboration

The event organizer is the central actor of live events. The organizers of events are the initiators of the events. The BVD is positioned above the event organizers because they represent the interests of event organizing companies. When organizing an event, event organizers have contact with various actors. The

40 most common contacts that event organizers have is with Buma/Stemra, booking agencies, locations and the media. Event organizers have to pay Buma/Stemra 5% of the revenue from ticket sales. With this payment, the dj’s and vj’s are allowed to play music of which they do not own copyright. Buma/Stemra makes sure that with the fingerprinting technique the rightful copyright owner recieves royalties for the music. Booking agencies can book specific dj’s and vj’s for live events, and can also provide a programme for a day or several days with several dj’s or vj’s. Locations provide a venue for an event and the media can give an event the attention it needs to atract customers.

In the next sub-paragraph the industrial framework of physical music is visualized. Because there is a significant distinction between live music and physical music, it was chosen to separate the two frameworks.

5.2.3 Recorded music industry actors In figure 11, the actors that are involved in the recorded dance music industry are represented, from production, recording, marketing, distributing, retailing, to end consumer. Each actor has its own task.

Figure 11: Recorded music course from production to consumer Source: Author’s own elaboration

41 Most actors are discussed in the previous paragraphs, the actors that are not explained are visible in the next table. Masterer A masterer is someone who makes the music suitable for either vinyl, cd or mp3. The masterer finetunes the music, in order for the music to sound great on a big sound system in clubs or on festivals. Vinyl / cd presser Companies that press vinyl or cd’s are important for the dance industry, since vinyl is still an important part of the industry. However, with the upcoming of the internet, the pressing of vinyl is decreasing rapidly. There are distributors that also do the pressing of vinyl and cd’s, but there are also distributors that outsource the pressing. Media Media can be the radio, press, television, magazines, flyers or a forum on a website. Computer and internet technologies are enhancing the ability of artists and labels to promote, market and distribute music more cheaply and widely. The traditional ways of marketing are declining, digital promotion is nowadays the most important part of the marketing used in the dance industry. Table 5: Explanation of actors in figure 11 Source: Interview outcomes

In figure 11, the hierarchical route from production to end-consumer is showed. First the record is produced. As mentioned in paragraph 5.1.1 the producer can be represented by many actors. When a record is produced, it will be recorded. Artists make the music, masterers finetune the music and publishers register the music for copyright protection. Buma/Stemra is placed in the recording phase because it’s task is to license the rights of recorded music. Record companies are also involved with music recording, they can provide their studios for the production of music or monitor the recording process as a whole. Furthermore, record companies have a significant role in the marketing and distribution phase. Record companies are the initiators of the marketing and distribution of music. Usually record companies arrange the marketing activities themselves and initiate the selection process. Record companies have contact with several media companies. Media companies can be both physical and digital companies. The selection process is the most critical phase in the process of selling music because the music has to be selected, people have to be interested in the product. The quality of the music and the attention that the music is receiving from the media and during live events determines the success that the music will have in the following phases. When the music is not very successful in the selection phase it may not be distributed for record sales, or just in a small selection of record stores. Record companies are the ones to decide whether or not the music is successful enough for distribution.

In the physical music industry, when recorded music is distributed it first needs to be pressed on cd or vinyl. Record companies arrange this with pressing companies. The distributors are the ones that distribute the music to record stores within the Netherlands as well as abroad. When the music is distributed in a digital form, pressers are not involved in the process. Distributors then have contact with

42 online record stores. It is also common that record companies directly contact online record stores and disregard distributors. In the final phase, record stores sell the music to the consumer or to dj’s and vj’s. The consumers buy the music for personal use, dj’s and vj’s may also use the music for live performances or remixes.

In this chapter the industry actors of the Dutch dance music industry have been introduced, as well as the visualization of the Dutch dance music industry market structure in the form of industrial frameworks. Since the digitalization, many actors have been replaced by digital actors, which is visibly shown in the selection and retailing section in figure 11. Due to the digitalization, the record company, and the distributor can be disregarded by producers. Producers can directly contact online record stores to sell their music. The Dutch dance music industry is facing many changes, which has consequences for the industry structure. This will be the topic of discussion in the next chapter.

43 6. Changes in the Dutch dance music industry: from recorded to digital music

As mentioned in the previous chapters, the value chain of the dance music industry is changing. The main cause of these changes is the digitalization of the industry. There has been a shift that lead to the decrease of interest in recorded music in a physical form that was sold in music stores towards a digital form that is available over the internet.

In this chapter, the changes that have taken place in the industry are discussed by means of the interviews and research outcomes. In the first paragraph the new selection system that has emerged will be discussed. In paragraph two the effect of the long-tail of the Dutch dance music industry is analyzed. In the third paragraph the changes for the most important industry actors are mentioned and in the final fourth paragraph the use of intellectual property rights and music piracy that takes place in the Dutch dance music industry nowadays is discussed.

6.1 Selection system There are many selection systems that are applicable to the Dutch dance music industry, the type of selection system depends on which actor in the industry is selected. This paragraph refers to the selection of the final music product.

According to Joram Timmerman, a student who did research at record company Universal on how the commercialisation process in the dance industry works, found that the role of dj’s has changed drastically in the last 10 years. Where the dj used to announce records that were send to him by the record companies, nowadays the dj is making the music on his own and he is the one to decide what a good record is. From Timmerman’s research can be concluded that the selection system has changed from the record company to the dj. For a record company to have influence on the success of a record they have to send as much records as possible to the dj. If it is a good record, the dj will play it, and the music will get known in the industry (Adamsappel 2004) and the consumer will select the music. The theory of Timmerman relates to the expert selection theory of Wijnberg (2004), since the dj is neither a consumer nor a producer. A dj can also be the same actor as the producer. In this case, market selection takes place, because the dj is the producer and the consumer is the selector. Both types of selection occur in the Dutch dance music industry.

During the interviews, eleven interviewees were asked about the selection system. Eight from the eleven interviewees responded that the dj is the main selector, whether it is a dj playing at a party or a radio dj. The track first needs to be successful on a party, an event or on the radio before it can be successful for

44 record sales (physical or digital). Therefore dj’s need to select the music. In the dance music industry it is not an exception that a hit track has been released for several years before it becomes a hit in the record charts. This result seems to support the outcomes of the research of Joram Timmerman. An additional response that many interviewees agreed on is that it is the record label that filters the music first, only if the music is good a label will release it and the dj can get familiar with the music. It therefore can be concluded that it is the record label that initially selects the music. Only in a later stage, when the selection of the final product takes place, the dj is the most important industry actor for selection.

Since the interviewees stated that a record first has to be successful during live events before it can be successful in record sales, live events are more important for the promotion of music than record sales. This also relates to the dj’s playing the music.

Hesmondhalgh (1998) mentions that the main focus of selectors of dance music is based on music style instead of the identity of performers. The interviewees’ opinions differed. When the focus is on the music, developing a brand name for the artists is less important, since familiarity is less important for the audience. However, when the focus is on the identity of the performer, familiarity is crucial in the promotion strategy. When there is a ‘star-system’, selection is based on the performers’ identity, as is the case in mainstream dance music genres. In the underground genres, selection is taking place on the basis of the quality of the music. The selectors of dance music are mainly influenced by dj’s. In mainstream genres selection also depends on whether the artist is a celebrity or not. In the underground genres selection of the quality of the music is more important. In both types of genres it is the dj that is the main selector where consumers base their decision on to purchase the music or to visit live events.

6.2 The long-tail As mentioned in chapter four, Anderson’s theory of the long-tail (2008) states that the mass market of hits is disappearing and spreading into countless numbers of niche markets. The long-tail is referred to as having an unrestricted choice of music that is available, and is enabled by the use of the internet.

The long-tail in the dance music industry has been investigated during the interviews. The dance music industry is an industry that consists of many niche markets. Only a few music genres within the dance music industry are mainstream markets, and many genres can be characterized as underground. During the interviews it became clear that having hits is not the most important aspect of actors in the dance music industry, the quality of the music is their main priority. Only 25% of the interviewees stated that they are targeted at hits. Therefore, the long-tail can be applied to the Dutch dance music industry, because of the focus on niche markets instead of hits.

45 The hit-focused companies are all part of the mainstream music genres. Focusing on hits is not the main priority of the music companies in the underground genres. As Anderson states, there is interest in everything that is offered online, and in the dance music industry there is an endless number of music available in record stores as well as on the internet. The long-tail is therefore applicable in the dance music industry, because it refers to many niche markets that have emerged, this has been the case in the dance music industry and in the underground genres especially. Because of the unrestricted choice of dance music available on the internet, many new artists benefit by using the internet as a promotional tool.

Anderson’s theory seems likely to be true in the case of the Dutch dance music industry, and the numbers seem to back this theory. However, Anita Elberse has done research and concluded that the long-tail does not appear in real-life. She used data from Nielsen Video Scan, Nielsen SoundScan, Quickflix and Rhapsody, and found that 78% of all sales came from the top 10% of songs and that the top 1% of songs alone sold 32% of all records. She recommends that the music and film industry keep their focus on hits (Belgiancowboys 2008). What she does not state however is that each track that is available on the internet gets sold regularly and provides extra income for the supplier. Anderson states that there is interest in everything that is offered online. According to the interviewees this is partly true, marketing the music is still very important for record sales.

There are also other actors in the underground genres of the dance music industry that have benefited from the long-tail model that has emerged due to the internet and the digitalization in the dance music industry. This will be further discussed in the next paragraphs.

6.3 A changed dance music industry value chain In the chapter three, the Dutch dance music industry value chain is explained. Due to the digitalization, actors in the dance music industry have had to change their strategies to maintain their profit levels. These changes will be discussed in this paragraph.

The digitalization has made the industry more accessible, all of the interviewees agreed that the internet has made it easy to reach a large number of people. Personal contacts are being replaced by digital contacts, which makes reaching people easier. The communication itself however has become more superficial, since people have so many contacts and face-to-face communication has diminished. Therefore it has become more difficult to distinguish yourself from the competition.

As is shown in figure 2 in paragraph 3.1.2, the digital music retailer is a new actor in the music distribution value chain. With digital distribution, there is only one link between the artist or record company and the consumer, that is the digital music retailer. As discussed in paragraph 3.1.2, physical music distribution and sales are declining and digital music distribution and sales are rising. It seems that vinyl is slowly disappearing in the dance music industry, it is becoming very expensive to release music on vinyl and

46 more and more dj’s are playing music digitally. The changes that actors in the Dutch dance music industry experience since the digitalization will be discussed in the next sub-paragraphs. In the final fifth sub- paragraph, the conclusion of the changes in the industry will be given, with an interpretation of which actors benefit and which do not benefit from the digitalization.

6.3.1 Changes for producers A producer can represent many actors in the dance music industry. In this paragraph, the producer is seen as the person who writes, performs and records the music. With digital music distribution, producers of dance music are able to disregard the hierarchical system that is displayed in figure 11 in paragraph 5.2.3. Figure 12 shows which actors the producers can contact directly.

Figure 12: Digitalized options for producers Source: Author’s own elaboration

A producer has the choice to sign with Buma/Stemra or not. There are producers that favour a registration with Buma/Stemra and there are producers that do not see benefits from a Buma/Stemra registration. When an artist prefers to keep everything in their own control and sell their records themselves, they can disregard the record labels and directly contact retailers or the consumers.

For artists and producers it is easy to contact digital music retailers and the consumers directly by the use of the internet, which the digitalization has made possible. This has some limitations however. During the interviews it became clear that the major digital music retailers, like Beatport, have limited the number of record labels for which they offer. Beatport has chosen this strategy to maintain a certain quality of the music they offer. For new artists or labels it is therefore difficult to spread the music via digital music retailers. Signing with a record label is therefore important for the music distribution. Another challenge that new artists have is to get exposure. Artists need to distinguish themselves from all of the other artists.

47 Record labels have the network to spread the name of an artist to the public, which most artists do not have. Also, most artists want to make music and are not interested in the financial and marketing aspects of the music industry. Therefore, signing a deal with a record label is still favourable by many producers. Many labels still believe that they have added value to offer to the dance music industry. This will be further discussed in the next paragraph.

6.3.2 Changes for record labels Not only the network of record labels is an important part of their survival in the digital era. The need for filtering, because of the explosion of information and music available on the internet, is another service of record labels which earns them an existence right. Due to the digitalization, social network sites on the internet have emerged (see also paragraph 5.1.9). With these sites, it is easy for a producer or a dj to promote themselves to the world and display their music. Therefore, the music distribution is becoming effortless. However, attracting real attention from these network websites is a real challenge, because of the countless number of producers and dj’s that are registered on the websites. Therefore, the need for filtering, selection, marketing and recommendation is greater than ever (DMR 2008, p. 13). That is where record companies can add value to the new digital world. However, offering a network of valuable contacts and filtering good music from an innumerable number of records available does not seem profitable enough for record companies to maintain profitable. Therefore, record companies have to adapt to the new situation they find themselves in due to the digitalization and find new strategies to keep their existence rights as an actor in the dance music industry. According to the record labels that were interviewed they will always be a part of the dance music industry, but their importance is descending. Therefore, many record companies have found new ways to create revenue by vertically integrating other tasks within the value chain of the dance music industry. This is explained in more detail in the next paragraph.

6.3.2.1 Vertical integration: 360 degrees model If at a certain stage of the value system, the share of value captured is higher than the share of value created, value chain envy will occur. This value chain envy will result in new entry and vertical integration towards that desirable stage (Mol et al. 2005, p 251). Vertical integration means that an actor in the value system adds at least one extra value creating activity to the existing value chain.

In the next figure it can be seen with which share in the music industry the most money can be earned. Unfortunately no information about the Dutch dance music industry in particular could be found. The interviewees however stressed that the revenues in the dance music industry does not vary considerably compared to the music industry in general. Therefore, general data is used.

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Figure 13: Revenues in the music sector Source: www.ifpi.org/content/library/the-broader-music-industry.pdf

In figure 13 it is confirmed that the revenues of record companies are diminishing, and that the revenues of the live sector is increasing rapidly, it grew up 16% in 2006. Merchandising and sponsorships are also growing rapidly, it is estimated to earn 30% of the total music industry revenues. For record companies to complement their current task with the live sector for example would help them compensate their losses and increase their income.

The Economist (2007, par. 3), Kusek & Leonhard (2005, p. 6) and Graham et al. (2004, p. 1092) predict that in the future, producers will sign with music companies which will merge the functions of record labels, artist management, music publishing, touring and merchandising, this is called the “360° contract”.

During the interviews, the 360° model was investigated. Some of the interviewed record labels started to work with a 360° model. Income from promotion material, publishing, artist management, bookings, as well as payment for dj shows have become activities of record labels in the dance music industry to maintain profitable in the digital era. Instead of settling for a cut of CD sales, record companies increasingly offer artists broader contracts that contain live performances, merchandising and sponsorship deals. By merging the touring and management aspects into the music company, the decreasing income due to piracy can be compensated.

49 6.3.3 Impact of the digitalization on the marketing activities The old way of marketing a new musical product or an artist was by promoting the artist to the public without the use of the internet. Many actors in the dance music industry nowadays only carry out digital marketing and see the digitalized marketing as a substitution for the old way of doing marketing. There are some actors however that see the digitalized marketing as an extra marketing channel and still do both types of marketing. All of the interviewees agreed that the digitalization has diminished the amount of time needed for marketing. Also, digital marketing is much cheaper than the traditional marketing. It has become easier to reach many people.

Record labels vary in their marketing strategies, but all companies seem to agree that having a large network is extremely important, as well has releasing great records. Since there is countless music available, the way to distinguish yourself is by producing an excellent record. Due to the internet, giving attention to music is easier. There are many people online, and if the record is great, dispersion goes quickly. The quality of the music is still the most important part, if the quality is good than the record will sell itself.

Because of the internet, there is more music available, amongst which is many bad quality music. In the past the music was filtered by record labels and distributors. Filtering is still done by record labels and major online distributors like Beatport, but most digital music distributers and retailers do not filter the music. Therefore, people need to put more effort in finding new music than in the past. On the internet, there are a few big webshops where everybody (artists and labels) tries to get attention. Consequently, it is nowadays more difficult to get exposure. Having a large network is therefore very important to get the message out into the world.

For Dutch dj’s the marketing activities have also changed. With the use of the digital promotional tool partyflock.nl artists can promote themselves to the public. Partyflock is a website where all of the dance music parties in the Netherlands are listed, including the dj’s that are performing during these parties. People can comment on the party’s and on the dj’s that play at these parties. Since the digitalization, websites like Partyflock have replaced the old promotion materials like flyers.

Next to the marketing activities the distribution of music has changed since the upcoming of the internet. This will be the topic of discussion in the next paragraph.

6.3.4 Impact of the digitalization on the distribution of music The old distribution model of the Dutch dance music industry mainly focussed on physical distribution. Digital distribution is replacing physical distribution more and more. Physical distribution products were: audio formats (single’s, lp’s, casettes, cd’s, dvd, minidisc) and music video formats (dvd, vhs, vcd). Digital

50 distribution products are single track downloads, album downloads, online music video downloads, streams, master recording ringtones, mobile full track audio downloads, ringback tunes, mobile music video downloads and subscription income.

The internet and the digitalization of music have enabled this change. Digital music is reproducible at almost zero costs, which reduces the distribution costs compared to physical distribution. As a result, many record stores have closed their doors and many online webshops have emerged. Not only is it much cheaper to distribute music via the internet, it is also cheaper because of the storage capacity that is no longer necessary. In physical stores records need to be stored, with high storage costs involved. On a website the storage costs are neglectable. Next to these advantages, the internet has also made it easier to distribute music. Most record labels only distribute their music digitally, because of these advantages, especially compared to the high costs of pressing and distributing vinyl.

6.3.5 Impact of the digitalization on actors in the Dutch dance music industry value chain Traditionally, record labels make the most profit and have the most control over the dance music industry value chain. However, with the advent of digital music formats, there are many opportunities for changes in the recorded music distribution value chain (Bockstedt et al. 2004, p. 11).

There are industry actors that lose control and profits, and there are players that gain control and thus profits from the upcoming of the internet. The players that benefit from the power shifts are the artists, digital music retailers and the consumers. Artists can disregard record labels and directly distribute their music via digital music retailers, they have therefore gained more control. Because of this artists can also increase their profits. But as mentioned in this paragraph, to effectively promote and market music artists may still need record labels. Digital music retailers have seen a growth of sales, where physical music retailers have seen their sales drop. Consumers benefit mostly by the digitalization. They have a new supply model; the digital supply model where they have more choices available, and the product has become cheaper.

On the other hand, artists also lose control over their music, because of the decreased copyright protection. Other actors that lose control are record labels and physical retailers. Record labels lose control over the production and distribution, because artists gain more control over the production and distribution. This results in a decrease in profits for record labels. Physical record stores also lose in the digitalized music market. Record stores lose sales due to the increased competition from digital record stores, which results in decreased profits.

51 With digital music formats and digital distribution, piracy is becoming a major threat to the dance music industry. To prevent piracy, or to at least minimize the damages that piracy has caused the dance music industry, piracy protection is rising in value.

6.4 The use of intellectual property rights The interviewees described that record labels and publishers collect money from copyrighted material with the use of music publishing. When artists release tracks trough a record label, the label usually becomes the copyright owner of that musical piece. The terms of conditions differ per label, from the artist staying master owner of the musical piece to the label becoming master owner. There are also labels that sign the music for five to ten years, after which the artist can get the ownership of the music back. Within the dance music industry, it is important for an artist to release records with different labels, because the networks of the labels differ. Different labels can get artists worldwide exposure. Artists have to make sure that they are able to release music through other labels if they sign a deal with a record label. Mostly, it is possible to release music through other labels, but the tracks that are licensed with one label generally cannot be released by another label.

For copyright protection, copyright owners can associate themselves with Buma/Stemra. There are record labels that prefer that their artists are not assigned with Buma/Stemra because Buma/Stemra collects a high percentage of the profits per record. Some record labels rather take care of music publishing themselves.

In the old model of selling music, artists and other actors in the dance music industry needed to make sure that they could and still can capture the value they have created with their music. In the new business model, selling music is still an important income for actors, but not for everyone. Other ways of earning money have become more important like performing at live events and parties. This has not changed the value protection methods directly, but it has changed how actors in the industry look at value protection. In the new business model that has emerged because of the digitalization, selling music is not the main task for some actors to earn money. Other exploitation forms like performing, merchandising and sponsorships are increasing in importance. The focus of IPR shifts due to this change because, as mentioned before, consumers like to get products for free. With distributing free products, other exploitation forms can create revenue more easily because of the free promotion of the products. Therefore, many actors do not put much effort in protecting their music anymore, instead they embrace the opportunities that has become available due to the unrecompensated music, like free marketing and exposure.

52 6.5 The effect of music piracy in the Dutch dance music industry The consequences of music piracy can be explained in a positive and negative way, depending on the industry actor’s view. According to many interviewees, in particular for record companies, piracy is the greatest threat that the music industry is facing today. It is difficult to calculate the economic loss that the music industry has to deal with, but that the music industry is losing money out of piracy is a fact. The actors that are losing money are artists who do not receive the compensation they should have because of illegal file sharing, governments who lose tax income because of a decrease in record sales, record labels earn less money from their artists because of the declining cd sales, and music distributors and retailers that see a decline in music sales, which results in a lower income for their company.

As mentioned in paragraph 3.1.4, since 2007 the total sales of music is increasing. The physical sales number is declining and the digital music sales are increasing, but declining revenue of physical sales are not compensated by digital sales revenues. According to the interviewees, the main reason why digital sales have not made up for the decline in physical sales is piracy; illegal downloading and peer-to-peer (P2P) file sharing.

In paragraph 3.4.1 many forms of fighting piracy are given. In the Dutch dance music industry the fingerprinting technique is used for fighting piracy (see also paragraph 5.1.10). Fingerprinting monitors music during dance events. With the fingerprinting technique, the owners of music are able to better protect their music since it can be traced when and by whom their music is used (Music Management 2008).

During the interviews it became clear that there are also positive aspects of music piracy. Music piracy increases the exposure for artists, which can result in more performance bookings, more revenue for life performances because of the name of the artist gets attention that it normally would not have, and more revenue for merchandising and sponsorships. Piracy can even result in the selling of records, either physically or digitally. When an artist is better known, which can be the result of piracy, the selling of future records may increase. Therefore, music piracy not only has a negative effect on the dance music industry, it can also lead to positive outcomes.

For artists to positively use the digitalization of music and free music distribution, the use of Creative Commons licences offers a solution. This will be discussed in the next paragraph.

6.6 Creative commons There are many artists that find peer-to-peer distribution and piracy a cheap way of creating exposure. This exposure can lead to an audience for live shows and is the new model for revenue capture. Another

53 way to create this exposure, is with the use of a Creative Commons license. CC licenses are often used by artists in the Dutch dance music industry.

CC is based on open content. Because of this open content, artists can draw upon the work of others to create something new. The benefit of the use of Creative Commons is the exposure of a free culture. Artists can label their music material as free reusable without giving up their rights. The re-users can access the music more easily because it is open content. An advantage of CC licenses is that the product gets free exposure, the license delimits the potential threat of hackers, and it encourages creativity which indirectly stimulates the innovative possibilities. CC licenses also can boost the demand for the product because it is available for free. When a product is available for free, like illegal downloads, people are more likely to hear the music. Creative Commons benefits from the same aspects, but the product is legal instead of illegal. Giving a product a CC license is profitable in the Dutch dance music industry, because the wide distribution of free music can help to reach the potential customer, and it can help an artist get exposure. All of the interviewees confirmed that releasing a record for free is one of the best ways to promote your music, next to getting played during a live event. The interviewees stated that the positive aspect of music piracy is that the music gets free promotion. Therefore, the Creative Commons licenses can help producers and record labels to overcome the damages that music piracy has left behind, by offering licenses that producers and record labels can use to freely promote their music without losing control over the music, as is the case with music piracy. With CC you can use your own terms of conditions with distributing your music for free, with piracy no terms of conditions are registered.

Under a Creative Commons license, one of the recent developments is the gesture of Moby, a musician who makes music that can be placed in the dance music industry. Moby licensed 44 tracks off his albums under Creative Commons. The tracks can be freely used by independent moviemakers. These moviemakers could also use music from other musicians, but this would seriously limit the places where the movie can be shown legitimately, since they have to pay for the music that they use. Moby however does not ask anything in return for the use of his music, and still keeps the rights to exploit his music in a commercial way. The only thing that the moviemakers have to do in return is to register on Moby’s website (Campbell 2007). For Moby this gesture results in free exposure, which is good for his reputation and his record sales.

Some of the artists and record companies that were interviewed also mentioned that they used the creative commons licenses. These people believe that it is better to release a record for free and get bookings for life events out of it, because consumers are more likely to come across the music when it is free. CC licensed music is believed to get the same amount of attention that illegally shared music is getting, but with better conditions for the copyright owner of the music.

54 6.7 How actors in the Dutch dance music industry look at legal and illegal file sharing The digitalization of the music industry has enabled illegal downloading. When a track is released on vinyl, illegal copies on the internet will not appear. But a digital release is guaranteed to be found on illegal download websites like SoulSeek (SoulSeek 2008). SoulSeek is one of the main piracy websites in the dance music industry. For people it is easy to put a digital track on the internet, but most people don’t take the effort to make a MP3 file from a vinyl record.

Every interviewee agreed that illegal downloads have managed to cut back the income of labels and artists, and that piracy is a major threat to the music industry. One of the interviewees mentioned that internet providers should release the IP-numbers to BREIN or Buma/Stemra so that the people who download illegally can be traced and prosecuted. Although this interviewee did not see any bright side of illegal downloading. This interviewee stated that the people who see music piracy positively only use it as an excuse to make right of something that is so wrong. Most of the interviewees looked at piracy in a positive way: The publicity and free promotion that the music gets when it is illegally available is seen as the most important aspect. One of the interviewees cited: “We acknowledge that an artist gets free publicity, the more people you reach, the better it is for the artist”.

Free promotion leads to exposure, which can lead to dj bookings and income for other exploitation forms. For most of the dj’s it is important to get their name recognized in order to receive more compensation for shows. According to the new business model that has raised since the digitalization of the dance music industry, dj’s and artists do not earn their money from releasing tracks, digital tracks are sold for one euro per track, of which they receive 28 to 50 cents (depending on the contract with the record label). The emphasis is therefore on the dj bookings. Illegal downloads can increase the reputation of dj’s and artists and can enhance their dj bookings. Next to illegal downloading, the creative commons licenses are also used to boost the popularity of dj’s for dj bookings. In some communities within the dance industry it is hot to release tracks under a creative commons license. These people believe that artists can better release the music for free and get bookings out of it. When the music is available for free, people are more likely to come across the music of an artist. This generates free exposure and can lead to a higher income from life performances, merchandising and sponsorship deals. Whether this free exposure comes from piracy or creative commons licensed music does not matter.

Piracy can not only benefit the artist or dj, there are also other actors in the dance music industry that acknowledge the positive side of free music distribution. As mentioned in paragraph 5.3.2, record companies have started to change their business model according to the new business model that has raised since the upcoming of the digitalization. With the 360° contracts, record companies also receive revenues from life performances, merchandising, publishing, and sponsorship deals. The emphasis has shifted away from selling music, to other exploitation forms. Therefore, record companies also benefit

55 from the free exposure that their artists and dj’s get from music piracy and legal filesharing. The more well-known artists and producers are, the more fee the record companies receive from life performances, and piracy can stimulate this.

One of the interviewees suggested to further examine a new business model that has appeared in the music industry. Free music is provided to the customers, which is sponsored in order for artists and record labels to still receive an income from the music. RCRD LBL is an example of this. RCRD LBL is a network of online record labels and blogs that offers free music downloads (Buskirk 2007). The website offers free MP3 downloads with a description of the bands and songs. RCRD LBL can offer the music for free to customers, because the music is sponsored. Record labels and artists get paid by RCRD LBL in advance for each single that is distributed on the website. Some of the music offered by RCRD LBL is published under a Creative Commons license, others are not licensed. For the customer, it takes a couple of clicks to get to the download pages, because ads are paying the free music. The new business model that RCRD LBL provides can be a solution for the piracy threat, because it offers the best practices for both the consumer and the artist. Artists earn money from music sales and customers get the music for fee. Only time will tell if this new business model will be the future for the music industry.

56 7. Discussion and conclusion

In this chapter the purpose of this research is explained and the main results are discussed. In the final paragraph the limitations of this research are analyzed and suggestions are given for future research.

7.1 Purpose of this research In the beginning of 1980 dance music industry emerged in the Netherlands. Nowadays the dance music industry is the biggest leisure industry in the Netherlands.

Where the Dutch dance music industry used to be a physical industry, the digital format is rising in popularity. The physical product, such as a cd, is being replaced by a digital product, the MP3, which can be distributed via the internet. Because of this, for actors in the industry it is essential to change their business model. Therefore, in this research it was investigated what changes have occurred in the Dutch dance music industry value chain because of the digitalization of the industry.

7.2 Main research results The trade value of music sales worldwide is decreasing, and the Dutch music distribution market also deals with a sales decline in volume and in turnover. This is mainly caused by the cutback in cd sales. The digital music product is becoming more and more important, and is replacing the physical music sales. However, the decline in physical sales is not compensated by the increase in digital sales.

Industry actors not only blame the digitalization, but also music piracy for the decline in music sales. Music piracy is one of the biggest threats for the music industry, because the revenues that are usually made by several actors in the industry are lost. The implications of music piracy are not easy to interpret, because the number of tracks that are available and used illegally are not available. However, the IFPI stated that in 2001 99% of all of the music files that were available on the internet were illegal. When music piracy occurs, the value is no longer protected and no revenue can be earned from the product. To protect the value of a product, intellectual property rights exist. When a musical product is created, it is automatically given a copyright.

Not everyone in the music industry considers piracy to have a negative effect on music revenues. There are also people in the industry that see piracy in a positive light. By giving away free music, artists can create exposure for their music. The distribution of free samples increases the probability that consumers will buy the product in the future, which makes the MP3 format and internet file sharing a new marketing tool. This marketing is free and can be the next biggest marketing tool in the dance music industry.

57 Another way to promote music for free is to use Creative Commons licenses, by attaching your own terms of conditions to the use of the music. People are able to listen to the music for free, but the owners of the music can still earn revenue for example by selling other products without the CC licenses. CC licensed music can be seen as free marketing for the music owner and when people are interested in more music they can buy the music. According to the new business model that has raised since the digitalization of the dance music industry, dj’s and artists do not earn their money from releasing tracks. The emphasis is put on dj bookings. Illegal downloads can increase the reputation of dj’s and artists and can enhance their dj bookings. Because of the shift in music value, the focus of intellectual property rights has changed also. Music piracy is very popular, because consumers like to get products for free. Therefore, many actors do not put much effort in protecting their music anymore, instead they embrace the opportunities that has become available due to the unrecompensated music, like free marketing and exposure.

The market structure of the Dutch dance music industry has changed drastically due to the digitalization. The digitalization has made the industry more accessible, it is easy to reach a large number of people. However, personal contacts are being replaced by digital contacts, which makes reaching people easier, but the communication itself has become more superficial. Therefore it has become more difficult to distinguish yourself from the competition.

There are industry actors that lose control and profits, and there are players that gain control and thus profits from the upcoming of the internet. The players that benefit from the power shifts are the artists, digital music retailers and the consumers. Artists can disregard record labels and directly distribute their music via digital music retailers, they have therefore gained more control. Because of this artists can also increase their profits. The digital music retailer is a new actor in the music distribution value chain. With digital distribution, there is only one link between the artist or record company and the consumer, that is the digital music retailer. For artists and producers it is easy to contact digital music retailers and the consumers directly by the use of the internet. Digital music retailers have seen a growth of sales, where physical music retailers have seen their sales drop. Consumers benefit mostly by the digitalization. They have a new supply model; the digital supply model where they have more choices available, and the product has become cheaper.

The actors that have lost value are record stores and record labels. Digital music is reproducible at almost zero costs, which reduces the distribution costs compared to physical distribution. As a result, many record stores have closed their doors and many internet shops (digital distributors) have emerged. Not only is it much cheaper to distribute music via the internet, it is also cheaper because of the storage capacity that is no longer necessary. Record labels are probably the ones that have had to change their business model the most. Not only the network of record labels is an important part of their survival in the digital era, the need for filtering is another service of record labels which earns them an existence right. However, it does not seem profitable enough for record companies. Therefore, many record companies

58 have found new ways to create revenue by vertically integrating other tasks within the value chain of the dance music industry. This is called the 360 degree model. Income from promotion material, publishing, artist management, bookings, as well as payment for dj shows have become activities of record labels in the dance music industry to maintain profitable in the digital era.

So what does the future looks like? None of the interviewees could give an answer. Some saw it very positive, with piracy diminishing in time, while other saw it negatively with music becoming a disposal product. An answer that could be the future is the model that the online record label RCRD LBL offers. RCRD LBL offers all of its music for free via Mp3 downloads, while the record labels and artists still get paid because they generate revenue through advertising and sponsorship. The new business model that RCRD LBL provides can be a solution for the piracy threat, offering best practices for both the consumer and the artist. Only time will tell if this business model will be the future for the music industry.

7.3 Limitation of research and future research suggestions The research results answers the main research question. However, there are limitations to this research. The study was conducted in 2008 and the results are based on a literature study and interview outcomes. The interviewees represented their own opinions, and performing a more extensive research with other interview participants can give other insights and different research outcomes. Also, the industry is changing rapidly and new business formats are emerging every day in the Dutch dance music industry. Further research in the next couple of years can give more insights in how the industry is adapting to the changes that the digitalization has caused.

59

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63 Appendix 1: Interview questions

1. Kunt u uitleggen wat uw bedrijf doet? 2. Werkt u ook voor meerdere genres in de dance industrie? Zo ja, verschilt uw werk ook per genre, zijn er verschillen in werkzaamheden, of andere verschillen te herkennen? 3. Met welke andere partijen in de dance muziek industrie heeft u allemaal te maken? 4. Zijn uw contacten met andere partijen ook verandert door de komst van de digitalisering? (vb. komst van digital distributors) 5. Klopt het dat met de komst van het internet artiesten veel meer zelf kunnen regelen? Hoe heeft dit effect gehad op uw business? 6. Hoe komt u in aanraking met nieuwe muziek, artiesten? 7. Welke marketing activiteiten zijn belangrijk voor het bekendmaken van muziek? (hitlists, or participating in events/festivals, DJ rankings, awards, collaborations with other artists) 8. Is de marketing van muziek, bekendmaken met muziek, artiesten, ook verandert door de digitalisering? (substitutie van oude kanalen, of juist een extra kanaal) 9. Regelt u als label het intellectuele eigendom van de muziek? (copyright) 10. Wie is de eigenaar van de muziek, de artiest of u als label? 11. Heeft de digitalisering uw visie op intellectueel eigendom verandert? (mbt piracy, aanbieden van gratis downloads, etc?) - Ik las ergens dat de gratis downloads publiek aantrekken voor feesten / events, hoe denkt u daarover? - Denkt u dat door de digitalisering van de industrie, labels overbodig worden? 12. Wat is het doel van de muziek dat u uitbrengt? Het halen van een hit, of wat anders? En verschilt dat per genre? 13. Wie bepaalt of een single een hit is? 14. Ik las dat in de dance industrie de focus meer ligt op muziekstijl, in plaats van op artiest. Klopt dat volgens u? Is hierin ook verschil te onderscheiden per genre? 15. Hoe distribueert u uw muziek? Welke verschillende verkoopkanalen gebruikt u? Zijn er ook nog andere kanalen die gebruikt kunnen worden, die u niet gebruikt? 16. Is dit ook veranderd sinds de digitalisering van de markt? 17. Heeft u ook overzichten van sales data over de afgelopen jaren? Dit zou ik willen gebruiken om een overzicht te krijgen van het aantal verkopen, voor en na de digitalisering van de markt. 18. Heeft u verder nog opmerkingen van onderwerpen die nog niet aan bod zijn gekomen tijdens dit interview?

64 Appendix 2: Interview reports

1: Interview with Dj Fre4knc 2: Interview with Strøm Recordings 3: Interview with Noculan Music 4: Interview with Manual Music 5: Interview with Fatal Music 6: Interview with Toco International 7: Interview with Offshore Dance 8: Interview with Dj Promotion 9: Interview with BeatBoost 10: Interview with Dospalomasnegras 11: Interview with Alles Los 12: Interview with Triple Vision 13: Interview with Break-fast Audio

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