Master Thesis the Changes in the Dutch Dance Music Industry Value

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 5.1.11
Dance event organizers................................................................................................................................ 38 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. 2. 3. 4. 5. 6. 7. 8.
Interview met dj Fre4knc: Bertran van den Hoff d.d. 31 april 2008 .. Fout! Bladwijzer niet gedefinieerd. Interview Strøm recordings: James Nidecker d.d. 7 juli 2008............ Fout! Bladwijzer niet gedefinieerd. Interview Rob Jansen: Noculan Music d.d. 10 juli 2008..................... Fout! Bladwijzer niet gedefinieerd. Interview Manual Music: Paul Hazendonk d.d. 17 juli 2008 ............. Fout! Bladwijzer niet gedefinieerd. Interview Fatal Music: Iris Kuipers d.d. 18 juli 2007.......................... Fout! Bladwijzer niet gedefinieerd. Interview met Toco International: Marc de Raaff d.d. 22 juli 2008 ... Fout! Bladwijzer niet gedefinieerd. Interview Offshore Dance: Piter Terpstra d.d. 30 juli 2008................ Fout! Bladwijzer niet gedefinieerd. 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?

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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.

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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:

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