Conceptualizing an Entrepreneurial Growth Model of the 21 st Century - - PowerPoint PPT Presentation

Vienna Music Business Research Days September 13, 2017

Conceptualizing an Entrepreneurial Growth Model of the 21st Century Music Industry

By Jason Burchard The London School of Economics and Political Science jason@rootnote.co

Contents

2

• Introduction
• Research Questions
• Relevant Literature
• Methodology
• Data and Results
• Findings
• Concluding Remarks
• Q&A
• Appendix

Introduction

3

5,597

• The number of companies reported as “music

and audio” related in crunchbase’s database of companies (as of September 5, 2017)

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

Introduction

4

$103.9 Billion

• Goldman

Sachs projected global recorded, publishing, and live music revenues by 2030

$23.8 $5.4 $24.7

2015 Global Industry Revenue (Billion USD)

Recoreded Music Publishing Live Music

$53.9 bn

$56.3 $9.3 $38.3

2030E Global Industry Revenue (Billion USD)

Recoreded Music Publishing Live Music

$103.9 bn

Numbers sourced to Music in the Air: Stairway to Heaven – The Goldman Sachs Group, Inc.

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

Introduction

5

45

• Number of revenue streams available to artists

Revenue stream opportunities sourced to Future of Music Coalition

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

Introduction

6

This is Exciting!

• New

technologies and

• rganizations

are challenging traditional roles and functions within the industry

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

• Music industry entrepreneurs are redefining

boundaries and creating new business models

• Artists are working with intermediaries in new

ways and reaching new levels of success

Research Questions

7

What kind of model could be used to describe the types of entrepreneurial activity that we are seeing?

What types of activities are independent musicians and music industry entrepreneurs performing?

1

Why are independent artists and music industry entrepreneurs doing what they do?

2

What kind of industry structure could support the types of entrepreneurial activities being observed?

3

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

Relevant Literature

8

Scope of literature review focused on literature that might help explain entrepreneurial activity within the music industry

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

• Academic work around music industry models
• Theories regarding firm formation
• Research on new ventures & entrepreneurial

growth

Relevant Literature

9

Music industry models

Music Industry Models Authors Phase Characteristics

Top 40’s Radio Loosely Coupled Systems (Hirsch, 1970) (Burnett and Weber, 1989) Pre- digitalization

• aggregate of subsystems that are part of a “pre-

selection process” where a significant amount of filtering occurs between each stage

• interaction between two subsystems – the

production system and the consumption system Musical Network Model (Leyshon, 2001) Concurrent

• network of sequential processes with four key

networks: creativity, reproduction, distribution, and consumption DIY Contemporary Manager (Kusek, 2014) (Hracs, 2015) Post- digitalization

• characterized by artistic choice and ability to self-

perform

• intermediary guided industry; intermediary

functions include coordination, co-production, co- promotion, curation, consultation, and connection

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

Relevant Literature

10

Theories regarding firm formation

• Transaction Costs Economics (TCE)

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

– Firm boundary equilibrium (Coase, 1937)

• Occurs where internal costs = external market costs
• Costs include organizing, negotiating, and contracting

– Asset specificity (Williamson, 1981)

• Market contracting occurs when assets non-specific
• Creativity networks have high asset specificity (Leyshon,

2001)

Relevant Literature

11

Theories regarding firm formation

• Entrepreneurial Theories

– Means / ends models

• Artists conduct entrepreneurial activities through their

means to achieve desired ends (Essig, 2015)

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

– Risk and likelihood of becoming an entrepreneur

• Choice to operate risky firm or work for riskless wage

(Kihlstrom and Laffont, 1979)

• Risk neutral with variable “productive efficiencies” (Laussel

and Le Breton, 1995)

Relevant Literature

12

Theories regarding firm formation

• Entrepreneurial Theories

– “Creative destruction” (Schumpeter, 1942)

• New

products, production methods, markets, product inputs, and forms of organizations replace the old

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

Relevant Literature

13

New ventures and entrepreneurial growth

• Entrepreneurial life cycles (Johnson et al, 2011)

The Entrepreneurial Life Cycle as adopted from Johnson et al, 2011

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

Relevant Literature

14

New ventures and entrepreneurial growth

• Artist taxonomies (Next Big Sound, 2016)

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

Methodology

15

Based on the scope of research and nature of the question, an exploratory and qualitative research methodology was employed. Focused on two groups of key actors:

• Independent Musicians and Songwriters
• Music industry entrepreneurs and professionals

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

Methodology – Independent Musicians and Songwriters

16

Independent Musicians and Songwriters

• Multiple genres; based in Nashville and London
• “Independent”  not currently signed to label
• r publishing deal

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

Methodology – Music Industry Entrepreneurs and Professionals

17

Music Industry Entrepreneurs and Professionals

• Based

in Nashville and London; senior management and founder level personnel

• Interviewees included those in more traditional

roles and emerging music technologist

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

Data and Results

18

Data

• Conducted

and recorded semi-structured interviews that followed organized topic guide

• Analyzed transcripts by thematic analysis, using

Leyshon’s Musical Network Model as a baseline

• Grouped by industry function (18 identified)

and summarized by emergent themes, perceived challenges, and new combinations

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

Data and Results

19

Results

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

Data and Results

20

Results: Artists are feeling pressures

• f

an expanded market

• Capital vs. control trade-off

– Accepting more business risk at early stages in exchange for more ownership of anticipated future revenue streams – Facing operational challenges associated with more responsibility, choice, and selectivity

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

Data and Results

21

Results: Artists are feeling pressures

• f

an expanded market

• Low Entry Barriers

– Focusing high quality content as mechanism to help

• vercome low market entry barriers

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

• Exposure vs. revenue paradox

– Incurring costs for the

• pportunity

to build reputation and fan base in competitive market

Data and Results

22

Results: Artists are being entrepreneurial

• Taking more active roles in management

– management team helping to source connections while artists are maintaining relationships

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

• Experimenting with branding and marketing

– Using technology to market to “evangelist” consumers – Promoting content of entire brand, not just the music

Data and Results

23

Results: Artists are being entrepreneurial

• Networking: “Service for service” collaboration

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

• Acquiring analytical skill sets
• Shopping

around in low “asset specific” networks (reproduction and distribution)

Data and Results

24

Results: Music industry entrepreneurs are creating new markets, processes, and products

• Markets

– new markets for live booking and capital allocation

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

• Processes

– new processes that facilitate networking, collaboration, and fan interaction platforms

• Products

– new products that enable virtual management and educate artists on business aspects of career

Data and Results

25

Results: The “old” industry is not dead

• Record labels and music publishing

– Artists viewed networks of resources as valuable

• fferings from labels and publishers

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

• Gatekeepers

– New tastemakers entering the promotion and distribution world, especially in streaming

Findings

26

Interpreting the results

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

Discovery of additional industry functions

1

• Key findings:

Conceptualization of Entrepreneurial Growth Model

2

Findings

27

Additional industry functions

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

Industry Function Description New Combinations

Alternative Finance Providers Alternative funding from traditional based systems. Includes raising money through crowdfunding and allocation of private investment

• New markets

Fan and consumer

• riented

services Next generation platforms that encourage fan-fan and fan-artist interaction. Provide new ways for fans to engage with artists, artist content and

• ther fans
• New products

Findings

28

The Entrepreneurial Growth Model

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

• A dynamic system of staged networks
• Key Components

– Growth curve – Musical networks – Stall points – Intermediaries

N1 N2 N3 N4 N5 Scale and Scope of Musician Network Dimensions

Cumulative musical network

Findings

29

The Entrepreneurial Growth Model

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

Artist Stage Progression Size of Artist Following Undiscovered Promising Mainstream Epic Established

Intermediary 2

• Growth phase

catalyst Intermediary 1

• Scale up Phase

Catalyst Intermediary 3

• Traditional Music

Label

X X X X

Findings

30

The Entrepreneurial Growth Model

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

• A few more thoughts:

– Entrepreneur benefit  Value of network creation: N1+N2+N3+N4 > N4 – Incumbent benefit  Reduced risk and uncertainty: More information and non-traditional resources to reduce downside of investment

Concluding remarks

31

Conclusion

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

• Industry is dynamic  continued study required
• More entrepreneurs and service providers will

enter marketplace  networks will grow and become increasingly complex

• Qualitative study of independent musicians,

entrepreneurs, and industry professionals  new industry functions and growth model

• New forms of intermediaries  new industry

players

Q&A?

32

Questions

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

Appendix

33

Questions

∙ Introduction ∙ Research Questions ∙ Relevant Literature ∙ Methodology ∙ Data and Results ∙ Findings ∙ Concluding Remarks ∙ Q&A

Relevant Literature

34

“The Organization of the Pop Music Industry” (Adopted from Hirsch 1970)

Artists Producer (A&R) Record Company Executives Promoter Distributer Sponsors Advertising Agencies “Top 40” Radio Programming Radio Station Personnel The Audience Record Consumption Sponsor Sales Process of the Industry (Hirsch, 1970): 1). Artist must be discovered by Producers (A&R) 2). Producers (A&R) must

• btain

approval and support

• f

Record Company Executives 3). Record Company Executives seek maximum sales through the Promoter Distributer 4). The Promoter Distributer promote new releases to get as much airplay as possible 5). Radio Station personnel sell both records and sponsors’ products to the audience

Relevant Literature

35

“The Loosely Coupled Systems Model” (Adopted from Burnett and Weber, 1989, as represented in Wikstrom, 2009)

Artists Studio Engineers Songwriters Musicians Aesthetic production Independent Producers Advertising / Promotion Major Companies Concert Production Production Wholesale Distributors Retail Sales Exposure via Media Peer opinion Leadership Attending Concerts Listening Differentiat- ion/rebellion Purchase Decision Gratification Repetition of the old Links Weak Links Conditional Link Production System Consumption System

Relevant Literature

36

Musical Network Model (Leyshon, 2001)

Musical instruments and supplies Studio musicians Sound engineers Producers Artists Song writing Performance venues Recording studios Manufacturing Promotion and distribution Retail Outlets Recording Companies Artists’ management / talent agencies Legal services Music publishing Shops / Stores Mail order Electronic delivery channels Consumption Distribution Reproduction Creativity Musical Network Model adopted from Leyshon, 2001

Relevant Literature

37

“The New Music Business Model” (Adopted and modified from Kusek, 2014)

Record Label Producer Manger Business Manger Attorney Online Stores Artist Platforms Artist / Writer Marketing and Social Radio Publishers Rights Organization Venues Money Flow Reciprocal Flow Merchandise Fans Artist Team

Relevant Literature

38

“The Contemporary Manger as an Intermediary Model” (Adopted from Hracs, 2015)

Manager

Coordinator

• Manage relationships between

musicians and their collaborators and contractors

• Monitor and Manage the

progress and completion of specific tasks by musicians, collaborators and contractors

Connector

• Connect musicians to “Helpers”

(fashion designers, grant writers, photographers)

• Connect musicians to local

resources (equipment and spaces for rehearsing, recording and performing)

Consultant

• Explain how the contemporary

music industry works

• Translate a musician’s creative

vision and career goals into an

• perational plan

Curator

• Identify and select music clients
• Identify and select appropriate

collaborators and/or contractors for specific tasks

Co-Promoter

• Use knowledge of market

dynamics, successful retail and promotional strategies to help develop unique products, marketing campaigns, distribution channels and revenue streams

Co-Producer

• Use knowledge of market trends

to help develop a sonic style

• Provide feedback on songs and

content

• Use knowledge of market trends

to help develop a corresponding visual style and overall persona

• Help develop a unique live show

and range of integrated merchandise