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Re-Thinking Crisis in the Digital Economy: A Contemporary Case Study of the Phonographic Industries in Ireland J. Rogers Thesis presented for the award of PhD, September 2010 Institution: School of Communications, Dublin City University Supervisors: Professor Paschal Preston & Dr. Des McGuinness Declaration: I hereby certify that this material, which I now submit for assessment on the programme of study leading to the award of Doctor of Philosophy is entirely my own work, that I have exercised reasonable care to ensure that the work is original, and does not to the best of my knowledge breach any law of copyright, and has not been taken from the work of others save and to the extent that such work has been cited and acknowledged within the text of my work. Signed: ______________________ Date: ______________________ Abstract Many commentators and reports popularly place the record industry in an increasing state of crisis since the advent of digital copying and distribution. This thesis addresses how the interplay of technological, economic, legal and policy factors, particularly the copyright strand of intellectual property law, shape the form and extent of the Internet’s disruptive potential in the music industry. It points to significant continuities regarding the music industry in an environment where it is often regarded as experiencing turbulence and change, and in doing so the thesis challenges the form and extent of the crisis the music industry currently claims to be battling. The thesis questions the impact the internet is having on the power or role of major music companies, their revenue streams, their relationships with other actors in the music industry chain and their final consumers. The thesis further questions the extent to which the internet has evolved to realise its disruptive potential on the organisation and structure of the record industry by democratising the channels of distribution. It also serves to illuminate the impact of the internet on the role of more traditional intermediaries, particularly radio, in the circulation and promotion of music in the contemporary era. For its primary research material, the thesis draws on a series of thirty-nine interviews conducted with record industry management and personnel as well as key informants from the fields of music publishing, artist management, music retailing, radio, the music press, related industry bodies and policy fields, and other key commentators. Table of Contents Chapter 1 Introduction 1 1.1 Introduction 1 1.2 Matters of definition: Which music industry is under scrutiny here 6 1.3 The music industry is a rights-based industry 9 Music copyright and the shaping of the digital distribution domain 10 1.4 Why study the music industry through its relationship with the internet? 13 1.5 Methodological approach 15 1.6 Outline of chapters in this thesis 16 Chapter 2 Theories of Market and State 21 2.1 Introduction 21 2.2 Early capitalism and the emergence of ‘appropriation by disposition’ 23 2.3 Political-economic context of change within cultural and media industries 28 The long downturn 30 The growth of neo-liberalism 32 Change in the sphere of telecommunications and broadcasting 35 Shifts in investment towards service industries 37 Technology and shifts in organisation strategies 38 2.4 The de-regulation of international finance and the role of the state in contemporary capitalism 40 2.5 WTO, TRIPs and a new form of global governance of culture 44 2.6 The music industry in the neo-liberal era 47 Critical political economy 48 Golding and Murdock: historical processes central to critical political economy of culture 49 Production and consumption: two aspects of political economy of the media 52 Instrumentalism and structuralism 54 2.8 Chapter summary 54 Chapter 3 Key Perspectives on the Power and Role of Digital Technologies 56 3.1 Introduction 56 3.2 Digital deliria: Kelly and Negroponte 57 3.3 Winston’s model for the nature of change in media technologies 59 3.4 Lessig’s model for malleable internet architecture 62 3.5 The ‘negotiable’ outcome of the phonograph 68 3.6 Chapter summary 71 Chapter 4 The Internet Music Economy – A Review of Literature 72 4.1 Introduction 72 4.2 The promise and potential of the internet 73 4.3 The internet as a technology of opportunity 75 MP3.com and Napster 78 Copyright law and DRM/CRM 80 4.4 Music as a copyright industry 82 The rights of the author 83 Neighbouring rights 85 The era of economic interests 86 TRIPs and music 87 4.5 Concentration, synergy, conglomeration: historical trends in music industry ownership and organisation 88 Post-Fordist disintegration in the record industry? 91 4.6 Chapter summary 94 Chapter 5 Methodology 96 5.1 Introduction 96 5.2 Research framework 96 5.3 Ethnographic interview as a research method 97 Selecting and approaching interviewees 99 Conducting the interviews 105 5.4 Author to reader 106 5.5 Chapter summary 106 Chapter 6 Findings 1: Music Industry Problems 107 6.1 Introduction 107 6.2 Primary perception of change: file-sharing = downturn in sales 108 Contradictory reports on the ‘effects’ of file-sharing 115 6.3 Other key ‘evidence’ of record industry decline 118 Job cuts at major labels 118 The collapse of retail outlets 120 6.4 Other digital factors perceived as causing record industry decline 122 CD burning technologies 122 Portable storage devices 124 Shifting formats and associated consumption habits driving revenues down 126 6.5 Perceptions of record industry inefficiency 129 6.6 Supermarkets driving revenues down and stifling creativity 134 Supermarkets driving down recorded music sales revenues 135 Supermarkets narrow-casting and devaluing music 137 Supermarkets collapsing music retailing 138 6.7 Chapter summary 140 Chapter 7 Findings 2: Music Industry Responses 142 7.1 Introduction 142 7.2 Copyright, internet service providers and the courts 143 The pursuit of internet service providers through the courts 146 7.3 Growing the digital market: proliferating markets for music in digital era 149 7.4 New licensing rights deals for new digital formats 152 YouTube 152 Vevo 153 MySpace 154 Ad-supported streaming partnerships 155 7.5 Proliferating revenue streams from secondary sources 156 The growing music publishing market 157 Synchronisation fees 158 Recent trends regarding music in advertising 161 Digital games and music revenues 163 7.6 The live music industry 164 Secondary revenue streams generated by the live music industry 169 Secondary ticketing 169 Live Nation Entertainment: growing concentration and vertical integration in the live music industry 170 7.7 Ongoing content-technology conglomeration 172 7.8 360-degree artist deals 175 7.9 New ‘physical’ markets and new possibilities for music 178 7.10 Chapter summary 181 Chapter 8 Findings 3: New Rules for the New Music Economy? 182 8.1 Introduction 182 8.2 The composition of the contemporary recorded music market 183 8.3 Getting music to market in the internet era 191 Digitalisation enhancing a ‘do-it-yourself’ approach 191 Using digital platforms and new digital tastemakers to break an artist 193 The emergence of public and private funded training initiatives 194 Limits of the ‘do-it-yourself’ approach in the contemporary environment 195 8.4 So why has disintermediation not occurred? 196 8.5 Making ‘hits’ in the internet era 203 The role of tastemakers 203 The contemporary role of radio 205 Remixing for radio 209 The contemporary role of television as a promoter of music 211 The contemporary role of the music press 213 8.6 Concepts of the consumer on the internet era 215 8.7 Chapter summary 221 Chapter 9 Discussion and Conclusions 223 9.1 Introduction 223 9.2 Convergence of music industry sub-sectors 224 The integrating live music value chain 225 Re-conceptualising the recording artists 226 A new music industry model 228 9.3 Unfolding record industry structures and value chain 234 Contemporary ‘music-to-market’ model 235 The ‘cult’ of the record producer 236 Implications arising from profiles of the consumer in the record industry chain 239 Network gatekeepers and issues of scarcity 240 Other record industry ‘spatial’ fixes 241 9.4 The reinforcement of music as a copyright industry 241 The role of the nation-state 244 9.5 Concluding summary and remarks 246 A note on implications for further music industry research 249 Gender: a lens for future study 250 Finally… 251 Bibliography 252 Appendices 273 Appendix A: Interviewee biographies 273 Appendix B: Record industry – ISP court cases and negotiations 283 Appendix C: Overview of additional music industry internet/mobile alliances 286 Appendix D: Examples of music in advertising 288 Appendix E: Examples of the growing use of music in digital games 290 Appendix F: Sample interview 1 293 Appendix G: Sample interview 2 313 Appendix H: Transcripts of speeches by Paul McGuinness 326 List of tables Table Title Page 2.1 Comparing the post-war boom and the ‘long downturn’ (annual average rates of change) 31 2.2 The shift to services 37 6.1 Retail value of recorded music sales 1999-2008 (combined physical and digital formats) 112 6.2 UK unit sales 2004-2008 (combined physical and digital formats) 126 6.3 Retail (list) price (ST£) of top ten selling albums in UK Album Chart - Week of Monday July 6th 2009 139 7.1 Global digital music sales market value 2003-2008 151 7.2 Gross performing royalties collected by the Irish Music Rights Organisation (IMRO) 1996-2006 157 7.3 Gross music publishing revenues collected by the PRS-MCPS Alliance 1997-2008 158 7.4 The value of US concert industry