The impact of the internet on the structure and conduct of the music market

The focus of industrial organisation theory, to date, has been mainly concerned with the activities of manufacturing
companies, the service (health) sector and more recently, a consideration of knowledge-based firms. Little attention
has been given to the industrial organisation (structure) and competitive (conduct) aspects of the cultural industries.
More research is needed to explore the operation of these newly emerging, but increasingly economically important
sectors. It is contentious, but the author's feel a plausible view, that the cultural industries are primarily concerned with the supply and demand of creative 'commodities' - literature, the visual arts, performing arts, cinema and TV films, even fashion (Caves, 2001). The underpinning contention proposed, by this paper, is one of industrial organisation theory - with its roots deeply embedded in transaction cost economics - not really being able to get to grips with the notion of a cultural or creative entity. Something which isn't focused on a business output, but more on the supply of an 'aesthetic' experience. It is this notion of an 'aesthetic' value inserted in the cultural product, which acts to distinguish the purely cultural (high creative input) - .music, fine art - from the less purer (e.g. television, films) and the non-cultural. This paper will focus on one cultural sector - the music market. It is centred on findings from initial research, which is being supported by the European Union's Leonardo initiative, into the disruptive impact of the Internet and complementary technological advances on the structure and conduct of the music market. It is evident from our initial research that the music market operates on two levels - upper and lower. At the lower level, one finds the small-scale 'picker' who will concentrate on the difficult and somewhat onerous task of selecting and
nurturing the creative music talent. These 'pickers' are immersed in artist activities and are very much devoted to
realizing the full potential of the creative process. The upper level is concerned with the widespread packaging,
marketing and distribution of the music product. This level, to all senses and purposes is a very efficient, large scale marketing machine with a huge, globally-based distribution system. The distributors (record companies) are working with highly developed and well-tested creative inputs (established artists). The distributors have largely controlled the supply and demand levels for music, historically. The Internet, in many ways has radically altered the structure and conduct of the music market. The music 'digital wave' is the consequence of a number of factors: including the emergence of communication technologies' that have provided the crucial infrastructure needed to supply music globally over the Internet. It is the consumer who is going to be freer to choose which music to purchase and they are going to be much less reliant on the conduct of the traditional intermediaries - record labels, agents and publishers.
The process of buying will be much less transaction oriented with the Internet facilitating more scope for relational buying - through asynchronous, virtual-based communication tools. This radicalisation impact is not only in offering the musician more potential, for alternative value creation - financially and aesthetically, but also newly emerging opportunities for distributing their music. Some appropriate case examples will be presented from various levels of the production chain to carefully illustrate the impact of Internet on market structure and conduct. The paper concludes,
by indicating that despite the radical potential of the Internet for the music market it is unlikely that the Internet will result in the complete cannibalisation, of value - aesthetic or financial, in the production chain of music. Even in a fully digitized music business, many traditional actiivites - such as finding and promoting new artists, producing and recording music and securing airplay will continue to be highly important. The Internet, isn't totally devoid of a past in the music context, it is the latest stage in the ongoing evolution of information and communication technologies. Given the lack of any control of one firm or nation over the event and the activities on the web, security and piracy
issues are likely to be unresolved in the short rum - for the music market.