The New Economics of the Music Industry Essay Example | Topics and Well Written Essays - 4250 words

The New Economics of the Music Industry - Essay Example The technological boom has ushered countless innovations in almost all the sectors in the global economy. These advances have facilitated the spillover of positive and negative externalities in various industries facilitating the emergence of new trends that disrupt and refine the current economic equilibrium. Along with other sectors, the global music industry had been significantly altered by this technological boom notably, the internet and associated technologies. These innovations have revolutionized the market structure and value chain of the music industry through the alteration of the intermediation processes. These new technologies allowed the faster mobility of goods from the artist to the costumers as other processes in the value chain are eradicated. Aside from these obvious developments, technological changes have many other considerable implications for the music industry. ... Having a strong foothold on the entire music industry, these companies command high level of bargaining power among other important players as they have are involved in all the processes in the value chain. Figure 1. Market Share of the Big Five (2001) Source: Hannaford, 2005 However, the dominance of these companies is largely felt in America and Europe while the Asia Pacific market is mainly controlled by independents [3]. In this region independent record labels hold almost 40% of the entire market share. In this case, we can see a duopolistic competition where the Big Five abound together with a local competitive fringe. III. Traditional Market Structure Record label plays various roles in the operation of the music industry. It can be noted that these companies are almost always present in the entire traditional value chain. The value chain of the music industry begins with the acquisition of content which typically involves the contract signing between artists and the company to formalize the production of an album. The record label will then start the production of the album by allocating fund in order to cover the costs of providing a producer and engineers or subcontracting with an artist's own team. After the record is produced, discs are manufactured which is typically simultaneous with the launching of aggressive marketing efforts to promote the album [4]. Distribution of the album is usually done by the marketing arm of the record label. Artists heavily rely in the name and reputation of the label for their releases to succeed. The strong marketing muscle of the company has a large influence for different media in the promotion of an artist's music. Record label and music