The music industry has become much more complex and intricate in recent years and there are now many more stakeholders in the music “ecosystem” than 20 or 30 years ago. Who are these hidden players, what do they do and what value do they actually bring into the chain? In order to create this network, almost 80 different stakeholders where considered, writes Ricardo R. Álvarez Vázquez in this essay.

The virtual impact

The cultural world has been experiencing profound changes in the last couple of decades due mainly to the emergence and widespread adoption of new digital technologies. These changes have had a direct impact on virtually all aspects of artistic life – both for creators and the creative industries that have established themselves around them.

Music has not been spared from these developments and, perhaps, is the cultural industry that has seen its business model reshape faster with the advent of personal computers, broadband Internet connections, P2P technology, and other associated tools, all of which have revolutionized the way music is created, produced, marketed, distributed, and consumed today. In other words, a full-fledged Schumpeterian “creative disruption” seems to have taken place, giving rise to new products, services, business models, and even markets.

The advancements in terms of digital technologies and distribution channels led some people to believe that artists and consumers would have a far more direct relationship, making the multitude of existing middlemen redundant, while at the same time undermining the dominance of the major companies in the music market, or that user-generated content would take market share from professionally produced content in the shape of the “prosumer.” Albeit, a closer look at the current state of the industry suggests that this has yet to come true and probably will not anytime soon.

Hypermediation

The music industry still requires efficient and knowledgeable intermediaries who can act as financiers, brokers, promoters, collectors, and distributors of revenues – whatever the creator does not do must be done by someone else. Disintermediation is in fact a very complex process: removing a middleman often implies having not only to reproduce the functionality of that intermediary’s core competence, but also replicate the information, material, knowledge, and cash flow of that particular player. In fact, far from disintermediation the Internet only seems to be leading towards “hypermediation,” i.e. the involvement of many more intermediaries than before in every transaction.

From this it is obvious that the music business, as any other business with a strong online presence or that relies heavily on digital technologies for its advancement, has become much more complex and intricate in recent years and that there are now many more stakeholders in the music “ecosystem” than 20 or 30 years ago. Hence analyzing it requires suitable, up-to-date tools.

The go-to device to analyze how the different departments of an organization or stakeholders in an industry interact with each other to create and add value to a product or service being offered is the value chain, a concept introduced by Michael Porter in 1985. The following image depicts a application of this concept to the music industry, where music must be created, produced, manufactured, reproduced, and distributed in order to reach a consumer:

Bildetekst

However, this picture is limited in the sense that it only shows the core stakeholders in the system. But behind every link in the chain there are many other players contributing value to the music industry. Who are these hidden players, what do they do and what value do they actually bring into the chain? Who do they serve and who serves them? Which of their interests are most important for the industry? Are all interests balanced?

As useful and insightful as it was when first introduced, the value chain framework remains a linear, mechanistic view of business based on the one-way flow of the production line of the industrial era, making its limited perspective evidently inadequate to understand value in the knowledge economy based on complex, uncertain, multi-stakeholder networks. Consequently, when trying to analyze the current state of the music industry and all its complexities with this framework, it becomes manifest that the value chain model has become outdated and that a more dynamic and comprehensive model is necessary, one that demonstrates more clearly the interrelationships between supply and demand within the network and which not only measures the economic relationships between the different links in the system but also other intangible and non-monetary value-creating processes.

From this perspective, it seems far more productive to consider the music industry as a web of specific investments built around a critical resource – music –, over which it has control, and analyze the complex network of interactions and processes from a living system mindset, one that dynamically changes and adapts to the ever-changing environment. A reasoning that leads to the “value network” approach, i.e. a network that generates monetary and non-monetary value “through complex dynamic value exchanges between one or more enterprises, its customers, suppliers, strategic partners, and the community. A concept derived from stakeholder theory, which deals basically with how all these individuals or groups of individuals, i.e. the “stakeholders,” interact to jointly create and trade value.

A Dynamic Music Industry Value Network

Based on the above, I propose an interactive and dynamic music industry value network model that takes into account the most recent changes experienced by the music business. To this end, the proper assessment of how each individual participant is providing value to other stakeholders in the music ecosystem is crucial and it confronts us at the same time with the constantly evolving issue of how is value created and traded.

Moreover, identifying the stakeholders to include in the model, and their definition of “value,” is one of the most important parts of the process; failure to include any key stakeholders could create unexpected difficulties should that stakeholder begin exerting influence later on, especially if the idea of value differs between players in the network. Stakeholders can be discriminated between two distinct, but not mutually excluding, groups: those who have either a legal, moral, or presumed claim and those who can influence the behavior, direction, process, or outcomes of the network. Furthermore, the different classes of stakeholders can be identified according to their possession or ascribed possession of any of three attributes: their power to influence the network, the legitimacy of the stakeholder's relationship with the network, and the urgency of the stakeholder's claim.

For the model presented here I have considered potential stakeholders as those who either have a direct or indirect influence on the music networks activities, receive direct or indirect benefits from these activities, or possess a significant, legitimate interest in the network's activities.

The intention of looking at the music industry from a value network perspective with the model presented here is not only to make it easier to understand what is happening in the industry, how it actually works presently and where it might be headed, but also to start a discussion about whether the industry should start thinking as a network, an ecosystem, where every link in the chain is as important as the next one and fair returns are the standard.

The model of the music industry value network proposed here takes into account the results of a basic stakeholder analysis to create a generic example considering both tangible and intangible value exchanges taking place between stakeholders. This model aims to describe the way the value network creates and captures value for and from all players in it. It is divided into overlapping “clusters” representing the three different core music industries: publishing, live music and recording.

In order to create this network, almost 80 different stakeholders from the traditional and the “new” music industry were considered and sorted according to their relevance to the three main music sectors: publishing, recording and live music. It is important to point out the generic nature of this model stressing the fact that not all of these stakeholders exist in every stakeholder’s own network, since many of the value-creating functions carried out by some of these stakeholders are actually incorporated in-house by some players, especially by large companies which have abundant resources.

 

Bildetekst

The graphic model presented here is accompanied by an interactive one available online here in an effort to try to map and capture the dynamics of the current music industry value network including as many relevant stakeholders as possible, and providing the possibility to visualize more clearly how each stakeholder interacts with the rest of the network.

Read the report from Ricardo here: