Competition Policy and the Music Industries

A Business Model Perspective

Jenny Kanellopoulou

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000466478
• Edition: 1
• Topic: Médias et arts de la scène
• Subtopic: Musique

This book explores the nature of the music industries before and after the digital revolution from the point of view of the consumer, and explores the question of whether there is a role for competition policy intervention in the music industries. Considering the historically consolidated environment of the music industries, and their rapidly evolving business models in the twenty-first century, the author argues that there is a need for updated competition design to promote consumer welfare and competition in these markets. Opening a much-needed interdisciplinary dialogue across music studies, business, and law, the book applies business model literature to antitrust law in the context of the music industries. It offers a comprehensive history of encounters between the music industry and antitrust and regulatory authorities in the US, UK, and EU, from the payola scandals of the 1950s to the merger of Live Nation and Ticketmaster in 2010, showing how even as business models in the industry have changed, it has repeatedly moved towards consolidation with little regulation. Drawing on this history, it considers how competition policy can foster innovation and safeguard consumer interests in the music markets of the future. Offering new analytical and methodological tools, this book is relevant to those studying the music industries from business, legal, and cultural perspectives.

1
Business models for the music industries

DOI: 10.4324/9780429281419-1

1.1 Introduction

The inspiration behind this book (and investigation) stems from the merger between two key players of the music industries back in 2010: the merger between Live Nation Inc. and Ticketmaster Inc. The two companies entered into a merger agreement to form Live Nation Entertainment Inc., the world’s first fully vertically integrated provider of live music entertainment. Even though this merger was met with outcry by artists, consumers, and academics alike, nothing appeared to be technically “wrong” with the Department of Justice’s (DOJ) decision to clear the merger from a legal perspective. A closer look at the letter of the investigation, however, reveals a “struggle” from the part of the DOJ to read through the shape that the music industries had been taking at the time. In which market would the two companies pose a threat to competition? Do they even operate in the “music industry” given that this name has traditionally been affiliated with the recorded music sector? What products do they even offer: ticketing, management, touring agency, merchandising, or even recorded music?

However, it is important to note that drawing distinct lines between several products of the music industries such as the above can be misleading and might no longer correspond to the shape these industries are taking. The induction in the digital era in the late 1990s, the emergence of social media, as well as the global developments following the COVID pandemic, call for the adoption of a consumer-facing narrative. From the consumer’s point of view, the product for music has been subsidised by a bundle covering “all things music”, the overall music experience or products that the traditional recorded music industry (and most importantly, the “majors”) did not have on offer when the market demanded. This realisation came to the forefront in the early days of the digital era when the recorded music industry underwent seismic changes (Meese and Richman 2009:16). More recently, particularly due to the changes in the consumption of live music during the pandemic, there is a need for the players of the music industries to remain flexible in their product offering. As the attention of the music world turns to the East, similar flexibility in the markets for music can be seen in Korea, for example with Hybe Corporation, the new Korean entertainment platform formerly known as Big Hit Entertainment, responsible for the success of numerous K-pop groups including BTS. The music world has been overwhelmed with new paradigms in the last 15 to 20 years and the dust had only started to settle before the global pandemic hit. This book seizes the “opportunity” to stop and reflect (now that the whole world has come to a standstill), attempts a journey through time, and evaluates the evolution of the music industry vis-à-vis the competition authorities in the US, the UK, and in Europe. It is high time the following question got asked: what do consumers value when it comes to music and who delivers it to them?

At the turn of the twenty-first century, consumers were expressing the need to access products not offered by the traditional record companies, first through the sharing experience the internet had to offer and later by substituting and complementing between several music products, such as the live concert ticket and streaming. However, when it comes to the recording per se, initially faced with no legal alternative on the one hand (as initially record companies offered limited if any digital downloads) and with lawsuits against sharing platforms and private individuals on the other, consumers experienced a time of crisis, or in other words, a market failure. Moreover, very few in-depth studies had been conducted with respect to the demand for music from the consumers’ point of view prior to that point. Thus, this era of apparent market failure is further characterised by a lack of knowledge about the consumers of music, the mass market. Ultimately, assessing the role of the consumer in a failed market opens the door for competition policy: is there a need for intervention in the music industries in terms of competition policy, and if so, how is this intervention justified?

Hence, even though my investigation was triggered by a single merger case between two non-traditional players of the music industries, there was an apparent need to evaluate the competitive landscape of the music industries as a whole, something that had traditionally remained outside the interests of antitrust as such. Indeed, even though there has been much debate on the needs to reform copyright to deal with the music industries in the digital age, antitrust has not been evaluated as much. However, it is precisely this evaluation that places the consumer in the supply chain for music and, hence, helps understand how and why the tale of the music industry became the tale of a disenfranchised consumer at that point in time and can become again in the future.

Par example, as subsequent chapters will show, the end consumer is mostly absent from the supply chain for music in a strictly legal, antitrust context. This comes as no surprise since competition law and policy suggest the end consumer will reap the benefits of a competitive landscape indirectly, after such landscape has been created. Therefore, as far as competition authorities are concerned, the supply chain for music mostly ends with the direct customers of the record companies, for example retailers, wholesalers, and recently online streaming and downloading platforms. I hereby attempt to accommodate and include the end consumer in the supply chain for music as such, rather than examine relationships upstream in the supply chain of the musical product. Such an approach can show that consumer demand per se was irrelevant to antitrust law and competition policy in the music industries for the greater part of their history, which can partially justify the concerns raised above.

Further, one of the recurrent themes that emerged during my research was the inconsistent definition and competitive assessment of a relevant market, where the music industry’s major players operate, compete, and merge. This led to an examination of the reasons behind the divergent approaches to the recorded music industry throughout the years and across jurisdictions, especially since the recorded music industry had traditionally been marked by the presence of the same few multinational companies operating under the same business model:

Designed to deliver a homogeneous product (the “hit record”) to the mass market top-down, the recorded music industry was not ready to cope with the ability of the consumer to disrupt the traditional business model by blurring the lines of complementarity and substitutability between several products for music or requesting access to artists as such (“the experience”). Indeed, the fact that many innovative business models are currently in operation in a music industries context, can be attributed to those consumer-led changes in consumption following the digital era and more recently the emergence of social media culture. This vibrant “dialogue” between consumer and business model innovation translates into diversified views as to what the dominant product for music is.

The need to evaluate the above becomes evident in the relevant mergers, antitrust cases, and market investigations conducted in the music industries from the late 1950s until today. It appears that the Live Nation/Ticketmaster merger was just the tip of the iceberg. What lay beneath was a patchwork of (mostly) failed efforts to assess competition and define a market for both the traditional and the recent business models operating in the music industries, in both the US and the EU (as well the UK that I also examine herein).

Ultimately, the purpose of my investigation became clear: in order to assess the need for intervention in the music industries with respect to competition policy, there needs to be a clear evaluation of the previous ex post and ex ante attempts to assess competition in those industries and identify their market characteristics, meaning supply and demand for music. First, this would allow me to pinpoint exactly where the previous attempts had failed, leading to what I identify as market failures. Second, it would allow me to evaluate the assessment of emerging music markets, as resulting from new and innovative business models.

Ultimately, as no prior evaluation of antitrust and the music industries had been attempted in literature (otherwise Martin Cloonan’s 2007 book Popular Music and the State in the UK offers a comprehensive overview of policy making in Britain, e.g. state-funded initiatives), I endeavour this book to be more than a statement of its purpose. This book can be consulted as a historical overview of business model evolution in the music industries vis-à-vis the major antitrust investigations and regulatory interventions in the sector that concerned the majors. In this sense, the book follows the law; it examines the competitive and historical landscape surrounding the court cases and investigations that caught the attention of the relevant authorities during times of consolidation as well as during times of disruption.

The aim is to design a competitive landscape where innovation can outweigh consolidation’s negative effects. To achieve this, it is imperative that all sectors, professions, and authorities interested in the music industries “speak the same language” and appreciate the same business reality. Aiming to offer common conceptual ground, I enlist the aid of the business model narrative, to act as a consumer-centric tool in this investigation.

1.2 Is there a role for competition policy in the music industries?

Before proceeding any further, I would like to consider the theoretical foundations of this question. The traditionally unregulated environment of the music industries could benefit from some instances of intervention. I believe that this intervention should be left to antitrust, since this area of policy and law-making has been unsuccessful in its encounters with the music industries, leading to the recycling of a consolidated landscape.

When it comes to law and policy, the music industries, and the creative sector more broadly, form part of the Intellectual Property narrative. Copyright is of course the first port of call when it comes to addressing investment and intervention into the music industries, since it constitutes the sector’s main resource. Nevertheless, attempts to regulate the music industries via copyright have been controversial, as the subsequent chapters will highlight. Attempts to enforce copyright in the online environment, expand the scope of its protection, and prolong the period of protection have proven unpopular, even futile. As Ruth Towse poignantly observes (2014, 2017) change and success in the creative sector stem from the industry’s adaptation to the exogenous market conditions (what the market demands) rather than from changes in intellectual property regimes.

This is exactly why attention should be paid to competition law as the de facto area of law that deals with the free market and its operations. Competition policy becomes relevant when it comes to discussing the creative sector’s innovation and growth and helps justify any relevant interventionist attempts.

To illustrate with an example that most non-antirust scholars might be unfamiliar with, the US Horizontal Merger Guidelines of 2010 are construed around the hypothetical monopolist test; this focuses on demand substitution for defining product markets, where, subsequently, competition will be assessed. In brief, the hypothetical monopolist test supposes that the producer of a product introduces a Small but Significant Non-transitory Increase in Price (SSNIP) and asks to what extent this increase is sustainable. Should the customers migrate to other products because of the increase, these are considered substitutes to the hypothetical monopolist’s product and are included in the relevant product market. The SSNIP test is therefore demand driven. The guidelines, however, discourage a broad market definition for fear that such an approach leads to miscalculated market shares (Horizontal Merger Guidelines 8). This rationale reflects the general standpoint that it is always in the competition authorities’ best interest to provide a narrow definition contrary to, for example, the merging parties, to claim consolidation (Furse 2008:281).

Nevertheless, even if the authorities are discouraged from taking the broader picture of a specific industry into account (since in a broad market with many players competition appears to thrive), how much narrow-er should their approach be in lieu? Is there a way for the relevant authorities to appreciate an industry holistically and still be able to flag foreclosure or monopolisation concerns?

Hence, the purpose of the legal analyses included in this book is to re-define the antitrust markets for music as they result from both the traditional business model of the majors and the more recent innovative business model in the music industries, and to highlight the role of the consumer. By focusing on the consumer first, market definition stays demand dr...