Surviving the charts A research on the influence of label size on album performances. Wouter Derksen 10075070 Thesis Seminar Business Studies Academic year: 2013-2014 Supervisor: Frederik Situmeang Semester 2, Block 3 Abstract The music industry faced a lot of changes in the past ten years. Physical album sales extremely decreased and online album sales and streaming services increased extensively. The way we buy and listen to our favourite music has altered, affecting the influences labels have on album sales. It is important for labels to adapt their ways of making an album sell. During this research a combination of data on album lifespan and discography information per artist is used, acquired by using the Billboard Top 200 Charts and datasets from Rovi. We assessed the influence major labels have on album performances and how genre changes affect this relationship, by conducting regression analysis. As a result we found that as an artist it is more beneficial to be released through a major label since this leads to a longer album lifespan, higher peak rank and higher debut rank in the Billboard Charts. Genre changes in the new released product compared to the rest of the discography seem to lead to a higher peak and debut rank. I would like to thank Caroline Benelux for giving me the opportunity to do an internship at their office in Amsterdam and giving me insights in the music industry. Also many thanks to Michele Piazzai for supporting me with advice and helping me obtain the data used in this paper. 2 University of Amsterdam Introduction Every year over 30.000 albums are being released, just a few of these albums make it to the charts and sell successfully. This small part of albums that make it to the charts, bring in the biggest share of profit for the record company (Bhattacharjee et al., 2007, p. 1361). Most of the album sales are a result of the ‘committed fan base’ purchasing the album on the day of the release, being the main influence for the debut rank of the album in the charts. When an artist stays in the charts for a longer time, it is a reflection of the acceptation of the album by the ‘non-committed fans’ (Bhattacharjee et al., 2007, p.1361). For an artist it is a big achievement to make it into the charts, but even better to stay in the charts and reach superstardom. The music industry is changing and with that the way to measure the popularity and success of an artist. Not only the way we consume music has changed also the way artists reach stardom and thus successful album sales, has changed (Helmink, 2014, March 30). Downloads and streams give a better rending of how popular an artist actually is. Some people might think the more talented an artist is the more success this artist will have, unfortunately we cannot use talent as a predicting variable for success in sales. Franck & Neusch describe this in their research; talent is hard to determine and since people can have different perceptions on what talent is, the measurement of talent will cause problems (2012, p.205). Whether superstardom is reached by use of talent or marketing, it is one of the biggest influences on album sale. Besides this process, also the label plays a big part influencing the sales as they take care of all the marketing, promotion and retail of an album. Currently three record labels are dominating the music industry, namely: Universal Music Group, Warner Brothers and Sony-BMG, we refer to these labels as ‘major’ labels. Being signed by one of these labels seems as an achievement for beginning artists, surprisingly it was shown that the effect of being released by one of the major record labels has fallen over time. Independent labels have been closing the gap with the major labels over the past few years. Using new branding strategies such as word of mouth and use of new technologies such as social media lead to a bigger reach of potential customers (Bhattacharjee et al., 2007, p.1372). Therefor the main focus of this study is on album sales, and how these sales are influenced by different factors with the main factor being label size. It would be interesting to see whether this shows in the actual album sales and how this effect is influenced by different factors such as previous performances and genre changes. The Billboard Top 200 Chart will be our reflection of album sales; the more an artist sells the higher the position in the chart. In order to find specific info on how label size influences album sales we do not just look at minor versus major size, but also whether University of Amsterdam 3 previous albums were released by a minor or a major label, whether the artist released other products prior to the album and if the new album is of a different genre than the previous products. A more in-depth explanation of these variables will be given in the conceptual model and the methodology. To provide an answer to this research topic, quantitative research in the form of OLS regression analysis will be the overall design of this paper, in order to estimate the parameters in a linear regression. We will perform several regressions in which we will each time add more variables to get a more detailed view of what variables influence the album sales the most. The structure of the paper will be the following; next is a literature review, explaining previously studied issues related to this subject. Followed by the conceptual model, explaining the constructs and variables used in this research. After that, the methodology is explained, followed by the results and the discussion section in which we show the regression analysis and elaborate on them. Finally, the conclusion part answers the research question and shows what steps have to be taken for future research. Literature review In this section we will give an overview of the previous conducted literature that is relevant to support this research. Over the past few years a discussion raised, whether or not talent determines an artist to reach super stardom and in order reach the charts by successful album sales. The discussion argues whether high quality music sells better than music containing less talent and quality but is released by a bigger label. In other words, arguing whether music that is promoted and marketed more because of the bigger budgets and use of bigger networks as a result of being released by a major label, will sell more. Rosen showed that a small difference in talent could translate into a large difference in earnings. He describes the phenomenon of superstars, “wherein relatively small number of people earn enormous amounts of money and dominate the activities in which they engage” (1981, p.845). This is what we call, the superstar effect. Rosen stated that the people that marked the concentration of output do have the most talent (1981, p.847). As a contradiction to this statement, Adler explained that a hierarchy in income could exist without a hierarchy in talent: “Stardom is a market device to economize on learning costs in activities where ‘the more you know the more you enjoy.’ Thus stardom may be independent of the existence of a hierarchy of talent” (Adler, 1985, p.208). The main argument in his research is that the phenomenon of stardom exists where consumption requires knowledge. Meaning that consumers do not like to search for their products and 4 University of Amsterdam mostly decide to purchase products that are easy to reach. Also people would like to talk with other people about their purchases and want to be a part of a certain group and reach a level of recognition. This explains that superstars will remain superstars, even though an artist that is less known might be more talented than the superstar, consumers will have to go through a bigger search in order to find this artist. Most consumers choose not to do so and stick to the superstar (Adler, 1985, p.208). This is what we call the positive network externalities of popularity (Franck & Neusch, 2012, p.202). Positive network externalities explain why it is easier for a big artist to remain selling albums when the first albums are released through a major label. This type of consumer behavior makes it hard to measure when a song is a good song and if it will be successful in terms of sales. Previous study showed that no measure of a song’s quality can be a reliable predictor for success and that social influences determine the revenue distribution among artists and create the unpredictability of success in terms of sales (Franck & Neusch, 2012, p.205). Not every person has the same taste in music, people like different artists simply because of their taste and interest. Therefore it is hard to determine the quality of music and artists, because people’s opinions might differ. Franck & Neusch explain that it is quite simple to show the estimated earnings functions and to point out the differences in talent, although the independent measure of talent is untestable (Franck & Neusch, 2012, p. 205). The first issue in talent determination is its validity. One person might love a certain artist while another person might dislike the same artist. In arts there is an intrinsically subjective component to quality, which makes it difficult to get a valid determination of talent since people simply have different tastes in music. Besides validating talent, it is also hard to measure talent.