Chapter 41: The Music Industry
Andrew E. Burke This chapter provides a perspective on the changing economics of the music business. It is selective and largely driven by a desire to understand the performance of the recorded music sector (excluding classical music). This sector is, if anything, highly dynamic, with high levels of product differentiation in music titles, high levels of entry and exit among artists, and ongoing technological innovation in audio software and hardware. Thus one would expect enterprise to play a prominent role in any analysis of the industry. Indeed the various forms of entrepreneurship can be found with ease within the music industry including creative/imaginative (Shackle, 1979) musicians, risk-taking (Knight, 1921) music publishers and record companies who are alert (Kirzner, 1979) to new market trends, and R&D intensive (Schumpeter, 1942) audio hardware multinationals. Simultaneously, the record industry has also demonstrated features more commonly associated with more static industries with features such as highly concentrated markets and low levels of change in firm ranking (in terms of market share). However, disruptive technology in the form of the Internet and digital distribution has been transforming the core economics that has dominated the industry over the last 50 years. In this chapter we examine the implications of this emerging process for the performance of the recording industry. In the next section we focus on the economics underlying the traditional physical record industry and then we show how these are affected by the digital record music revolution outlining the main implications for performance and policy....
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