Disintermediation and Reintermediation
of the Sound Recording Value Chain:
Two Case Studies
Arto Tuomola
University of Turku
ABSTRACT Digitalization and the Internet create the potential for
disintermediating the traditional value chain of the sound recording
industry, providing new opportunities for artists and music consumers to
interact and trade in recorded music. This article presents two case
studies in which artists have used information and communication
technology to disintermediate that chain. Their experiences show,
however, that some reintermediation is necessary and desirable to obtain
optimal market benefits. The remintermediation can be controlled to
provide substantial independence for artists.
KEY WORDS: sound recordings, value chain, Internet, industry structure
Popular music artists have traditionally needed record company
financing for the production, marketing, and distribution of a sound
recording. Even though the advent of the Internet has not fully shifted –
contrary to optimistic beliefs in recent years – the actual format and the
delivery method of commercial sound recordings from the material CD
soundcarrier, available in physical record stores, to immaterial sound
files available via the Internet, some artists have been able to
substantially benefit from the Internet as a communications medium.
Through a career of CD releases of high quality and regular touring,
a growing number of artists, although not superstars or household
names, have established themselves with a steady international fan base
of tens of thousand persons. By communicating worldwide directly with
their core audience via a we site and regular e-mail newsletters, these
artists have attained tools either to entirely bypass the record company
in the product route of their phonogram release – or at least to improve
Copyright © 2004 Journal of Media Business Studies. Arto Tuomola, “Disintermediation and
Remediation of the Sound Recording Value Chain: Two Case Studies,” 1(1): 27-46 (2004).
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their bargaining position with the company. By self-financing the
production, and selling the resulting CD by mailorder via their websites,
or acquiring the necessary financing directly from the fans, the artists
have been able to retain the copyright of the sound recording and thus
ensure higher returns per unit sold and greater control over the use of
their recordings.
This article examines the importance of finding alternative means of
financing and the importance of retaining the ownership of the sound
recording for the artist, and how the Internet can be of help in achieving
these. It explores how the value chain of the sound recording industry
can be changed by artists to their advantage because of the
disintermediation made possible by digitalization and the Internet. It
employs value chain analysis to examine the production and distribution
stages of sound recordings by artists Marillion and Aimee Mann, both of
which have made significant use of the new environment to enhance
their independence and maintain active recording careers.
LITERATURE REVIEW
The audio recording industry is an important economic contributor
worldwide but has received relatively little serious study. Most
publications have been focused on the needs of artists, managers,
lawyers, and others in the industry (e.g., Passman, 1997; Bagehot, 1998;
Krasilovsky & Shemel, 2000). Some scholarly attention has been turned
to practices of American recording industry (Hull, 1997), global practices
(Burnett, 1996), the role of publishers, collecting societies, and major
audio firms (Kretschmer, Klimis & Wallis, 1999), and intellectual
property rights (Kretschmer, 2000).
This article departs from previous research by focusing on the
activities and relations that support the recording industry using the
value chain concept.
The concept of the value chain was first introduced by Michael Porter
(1980, 1985) and has since become a standard tool in the literature of
economics and business management. It illustrates the course of a
product or service from the content creator or inventor to the customer,
the end-user. All of the actors in between add links to the value chain by
financing the production, by manufacturing, packaging, marketing, and
finally, delivery of the finished product to the customer.
This description is a rather simplified description of a value chain,
because there are in fact various individual value chains (e.g. Picard,
2002) within, and running parallel to, a value chain of one single product
– a Bruce Springsteen CD, for example. These include the value chain of
the producer (record company), comprised of content development and
production, CD manufacturing, CD booklet printing, promotional video
production, etc. The distributor parties' share of the value chain includes
Journal of Media Business Studies
29
delivery logistics, warehousing by the wholesaler, and regional
marketing.
The value chain includes more than the producer and distributor,
however. In fact, all of the participants have their own internal value
chains, including the supplier of raw materials and even the eventual
consumer. All the participants have their own suppliers from whom they
purchase supporting activities, everything from musical equipment to
blank CDs to production machine maintenance and cleaning services and
even rent for company premises (Lee, 1995). This article, however, will
focus on the value chain that in a direct and participating manner raises
the value of the product or service delivered to the customer (Heikkilä &
Laine, 2001).
Practically all products in the media and cultural industries can be
displayed in the value chain form, from a newspaper issue to a series of a
TV show released in VHS format. In fact even a one-time event such as a
theatrical performance or rock concert could be presented in value chain
form. One basic model of a value chain, applied for tangible music
delivery, has been presented by F&L Management in Figure 1.
Figure 1. The Value Chain of Sound Recordings by F & L Management
Creation
Development
Aggregation
Marketing
Distribution
Source: F&L Management, 1998
Wirtz (1999) has proposed a value chain of intangible multimedia
that approaches the value chain rather from the consumer end (Figure
2), differing from F&L’s model that pays little attention to how the
product is distributed. Wirtz omits the marketing stage altogether, and is
in general more distribution-oriented model.
Figure 2. The Value Chain of Multimedia by Bernd Wirtz
Content/
service
creation
Content/
service
aggregation
Value
added
services
Access/
connecting
Navigation/
interfacing
Consumer
Source: Wirtz, 1999
Wirtz's “value added services” step (I will return to the “content
aggregation” step below), includes services such as billing, customer
service and support and content hosting in data banks (1999). It can be
questioned as to whether these in fact fall into the category of supporting
activities of the producer. But if a computer file, for instance, is delivered
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to the consumer directly from the data banks of a service provider – not
via the producer or content aggregator – then the actor in the “value
added” step indeed is a distributor and an integral part of the product
value chain.
The “access/connecting” link contains transmission and the necessary
infrastructure, such as high-bandwidth cables. Companies that offer
Internet connections for customers – for individual users and companies
alike – are prominent examples of this step.
“Navigation and interfacing” are provided by companies like Dell and
Netscape that manufacture computers and web browsing software,
required to play or view the intangible product. In fact, without a web
browser even the act of purchase is not possible, as regards electronic
commerce. Regarding electronic commerce via digital TV, a provider of
set-top-boxes is another good example of the actors on this stage of the
multimedia value chain.
Picard (2002) pays closer attention also to the producer, and to the
separate steps inside his value chain: for instance, the content can either
be created in-house or acquired (or licensed) from outside. His value
chain stems from the printed media industry.
Figure 3. Picard’s Production and Distribution Value Chains of Media Firms
producer’s
value
chain
acquired
content
created
content
selecting,
organizing,
packaging,
and
processing
content
distribution
value
chain
production/
manufacturing/
transformation
of content into
distributable
form
distribution
marketing,
advertising,
and
promotion
Source: Picard, 2002
Picard’s second step explains the term “content aggregation” already
used in the two value chain models above: it consists of the selecting,
organizing, and packaging of content. With a sound recording, this would
mean song selection, assessing the running order of tracks, designing the
album cover art and writing the liner notes in the booklet. Here, the
content is still in intangible form, no matter what the eventual medium
will be: intangible sound file or tangible disc. Inside the very step Picard
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mentions a function, “processing of content,” that could be called the
mastering of content, distinct from the actual transformation of content
into a distributable product (e.g. CD mastering), not to mention
manufacturing (e.g. CD duplicating). This applies specifically well for
sound recordings, too. The mastered sound and graphics content will be
produced both as CDs and Mini Discs. Here we have a “perfect version,”
a first copy of the sound material, customarily called “the master tape,”
of which copies for commercial dissemination will be duplicated, no
matter what the eventual medium. A concept that particularly well
defines this stage in the process of a media product is the storage of the
music data in a ‘media-neutral database’ that Picard uses in his figure of
“Electronic Publishing Flow Chart” (2002: 40).
In fact Picard’s second step of the producer’s value chain includes
parts of both content development and aggregation, and the third one
contains elements from aggregation and manufacturing. With regard to
intangible products, this third step contains no actual manufacturing, as
there is no eventual physical product. Therefore with intangible media,
Picard’s “transformation of content into distributable form” would seem
absent. However, when we think of a mastered sound file, this far in a
“media-neutral” form, even for Internet distribution it has to be
“formatted,” converted to various formats – this process being equivalent
to CD mastering. Therefore step three of the producer’s value chain by
Picard applies well for immaterial delivery, too.
In Picard's model, the marketing, sales promotion and advertising
efforts are committed to the distributor's half of the value chain.
Regarding sound recordings, marketing efforts are, in fact, conducted
equally by the producer, the distributor and the retailer. We must bear in
mind that the producing record company and the distributor has to sell
the product not only to the consumer, but to the retailer, as well.
With commercial sound recordings, it is the producer that
commissions the shooting of promotional music videos, to be shown on
television. Foreign affiliates of a record company and licensees of, say, a
Madonna CD will also receive promotional material manufactured by the
producer (or content aggregator), such as promotional singles and
cardboard stands representing the artist in real size. The local
distributor may produce promotional material of his own or just forward
material from the producer to the retailer for in-store promotional
purposes. It is also in the distributor’s best interest to be able to sell the
retailers as many of the Madonna CDs as possible, so the retailers may
also receive as a gift concert tickets or special promotional items not
available for the buying public. In addition, all of the actors may place
print media advertisements: the producer in media with international
circulation such as Rolling Stone; the distributor in national music
media; and the retailer in local newspaper.
As an amalgamation of the value chains above, an “enhanced” value
chain for the purpose of this work, and designed specifically for the
production and digital delivery of intangible music, could be formulated
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to include content creation, development, production and mastering of
content, content formatting, value added services, access/connecting,
navigation/interfacing, and the consumer.
First, the marketing, sales promotion and advertising functions (here
in short: marketing) clearly add value to the product, and thus ought to
be included in the value chain. However, as noted above, and especially
with sound recordings, marketing is difficult to place in any certain
location along the product’s route from the author to the end-user. It is
not part of the product itself (although it can be a desirable product in
itself: think of a video clip on MTV promoting the album of a recording
artist that TV viewers tape on VHS, or the theft rate of H&M’s outdoor
ads featuring Claudia Schiffer in a bikini). As noted above, marketing is
conducted at several stages of the product value chain, by a number of
actors involved, and directed at various customers, and therefore it
rather should be seen as a moving, “phantom” component, appearing at
various stages.
Secondly, steps two and three could in fact be summed up and called
plain “content aggregation,” but they are presented here in a more
detailed form. Thirdly, although the value chain above is arranged for
the delivery of intangible content, we can easily draw comparisons to the
commerce of physical, tangible sound recordings. After all, what does a
distributor offer if not connection, and a record store retailer if not an
interface for the consumer?
Andrew Leyshon (2000) has, instead of the concept of value chain,
approached the sound recording industry by identifying four partly
overlapping musical networks: network of creativity, network of
reproduction, network of distribution, and network of consumption.
The network of creativity contains the stages of “composition and
representation,” i.e. songwriting and performance, respectively. The
latter includes both live performances and recording sessions conducted
in studio. The network of reproduction consists of “the manufacture of
multiple copies of audio recordings.” Networks of creativity and
reproduction are linked together by record companies, which
traditionally have been “powerful in the former and dominant in the
latter” (Leyshon 2000: 34).
The network of distribution contains no additional elements to those
discussed above: distribution companies “take delivery of manufactured
output from production plants and distribute this onwards to retail
outlets or mail order companies” (2000: 37–38).
Interestingly, Leyshon incorporates retailing into the network of
consumption, instead of the network of distribution. Eventually this is a
rather logical solution, considering the interaction between the retailer
and a customer. In addition, the retailer performs the first part of the
consumption process as he selects which releases to carry in his store.
This role is accentuated with large retail chains that have a centralized
acquisition department of goods.
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Figure 4. The “Enhanced” Value Chain and Musical Networks, with Main
Marketing Functions Indicated
When Leyshon’s overlapping networks are projected against the
“enhanced” value chain above, we notice (see Figure 4), that there is
even further overlapping because the “value added services” step can be
employed by actors both in the network of reproduction and distribution.
The exclusion of a “marketing, advertising and promotion” step from the
value chain is compensated by presenting main marketing and promotion
functions with arrows.
The system of musical networks has introduced the key actors of music
production and their position along the product value chain and in relation
to each other. By being projected against the “enhanced” value chain, the
system illustratively displays the overlapping nature of various functions
and that of the networks themselves.
DISINTERMEDIATION AND REINTERMEDIATION OF THE
VALUE CHAIN
Digitalization and distribution via digital means have been argued to
disintermediate the value chain (CIPREII, 2000). Roger Wallis (2001)
describes this phenomenon in the context of electronic commerce:
“Traditional physical sales-entities would be bypassed (“disintermediated”) as suppliers made direct contact with individual consumers via
the Net.” Thus disintermediation shortens the value chain, diminishing
the role of intermediaries or rendering them unnecessary. These
intermediaries include record companies, wholesalers, and retail stores.
Internet delivery of cultural products in an immaterial form can
greatly shorten the value chain, as there is no physical product
that needs delivery trucks, warehouses or store shelves. This
disintermediation also, at least theoretically, lowers the consumer price
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deal with one another over great geographical distances, inexpensively
and efficiently.
Nevertheless, it should be noted that a completely direct link is
purely theoretical, because the artist must include at least an Internet
service provider (‘ISP’) into his product value chain, for Internet
connection purposes. If the artist is selling, via his website, a CD that is
self-financed and recorded in a home studio, he still must include into his
internal value chain the purchase of CD mastering and duplication
services from an outside company – a self-made CD-R copy cannot be
considered a viable sales article. More directly affecting the principal
product value chain, distribution of the CD by postal delivery adds to the
final consumer price. This type of electronic commerce, “e-commerce,” is
customarily called “hybrid sales,” because the transaction takes place
electronically, but the product and the delivery is of the traditional,
“tangible” kind.
However, as we compare the value chains of F&L and Wirtz, we
notice that in fact immaterial distribution does not necessarily diminish
the number of steps or functions in the value chain, but instead changes
the participants, especially on the distribution half of the value chain.
This phenomenon, “the changing patterns of intermediation”
(Kretschmer et al. 2001: 433), can be called, akin to for example Leyshon
(2000), reintermediation.
One kind of company that facilitates reintermediation is a digital
distribution service provider, a DDSP, which serves content owners as
well as online retailers, “e-tailers.” The content is digitally encoded into
an appropriate file format and then placed in data banks that allow
music delivery over the Internet. The content owner – artist or record
company – can decide whether to sell music by track (a single song
download) or by album (a full album download). Financial clearing
services are provided for online sales.
The content owner may specify usage rules concerning track
expiration dates, territory restrictions and permissions for allowing the
music file to be burned onto CD. Time-limited downloads are particularly
useful when the artist wants to let his audience preview soon-to-bereleased material for a limited period, after which the material is
commercially available only. As release dates for tangible formats (i.e.
CDs) often vary depending on the territory of the world, various
combinations of territorial restriction and time-limited promotional
downloads can prove particularly useful.
In this article various processes and forms of disintermediation and
reintermediation of the value chain will be examined through the
experiences of two recording artists, Marillion and Aimee Mann. The
case examples will also show, that dis- or reintermediation happens not
only as a result of changing the product form (and channel of
distribution) from tangible to intangible, but from the use of the Internet
as a medium of information, communication and publicity, as well.
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CASE STUDIES
Marillion
Traditional value chain models have treated the consumer as a mere
receiver at the end of the chain and even Leyshon’s flexible model of
musical networks places the consumer in the network of consumption. In
these conceptualizations, the only decision that an individual member of
the audience makes is whether to buy a CD at a record store or not –
concert attendance, fan club membership, and other interactions are not
considered. The Internet changes this model significantly. Veteran rap
artist Chuck D argues that the major record companies “solely look at
the public as a consumer, whereas the Internet community looks at the
public as 1) a participant, 2) a would-be partner and 3) one with the
option to consume. With this three-pronged process, this is an industry
that can exist on its own scale” (Pesselnick, 2001).
When the British rock band Marillion began writing their twelfth
studio album Anoraknophobia in summer 2000, the public was perceived
as would-be-partners in the financing of the recording. Eventually more
than 12,000 of them actually pre-ordered and pre-paid their copies via
the Internet for £16 – before hearing a single note of the finished album.
This event moves the consumer to the very core of music industry: the
financing of sound recording productions.
What was revolutionary in the Anoraknophobia venture was not the
fact that 12,736 fans got a special double CD package a few weeks ahead
the public release of the regular single-CD version – similar things have
been happening for years as a part of fan club activities. What was
important was that Anoraknophobia was an official commercial release
intended for wider circulation in the retail market, as well.
In one sense the album “broke even” at 12,000 copies for Marillion, in
fact even earlier, because there were practically speaking no marketing
or distribution costs at this stage. The band had already previously been
selling live recordings through their record label, Racket Records, via
their website www.marillion.com, so the necessary infrastructure was
already in place: business contacts to CD pressing plants and CD sleeve
printing companies, the logistics to handle credit card transfers and CD
shipments etc., in addition to web-mastering and the running of web
servers.
However, to reach the entire potential audience via retail shops, and
through consecutive sales make additional profit, services from a
traditional record company were still required. As an established band,
Marillion could rely that there was a bigger market than those 12,000 for
their album. According to vocalist Steve Hogarth (Ling, 2001), the
previous two Marillion albums in 1998 and 1999, which had been
financed and distributed by an independent record company, had sold
70,000-80,000 copies each. With only some 15 percent of this potential
market already catered to with the pre-orders, the market prospects
looked promising.
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When the group approached a record company in July-August 2000
with (at that moment) 7,000 pre-orders and around £100,000 in their
pockets, they no longer needed any financial advance from the company.
This meant that they were able to retain the rights to the sound
recording, and ask only for a marketing and distribution deal. For the
record company, the proposal was practically free money. With the
prospect of 70,000 copies to be sold, only a hugely over-blown marketing
campaign and excessive stock of pressed CDs could make the company
lose money.
The record company approached was EMI, with whom Marillion’s
first incarnation began recording in 1982. Its career had peaked with the
1985’s album Misplaced Childhood, which sold around 1.5 million copies
worldwide (Marillion, 2003). The two had parted company in 1995, when
Marillion moved to the mid-sized British independent, Castle
Communications.
According to several Marillion interviews, the reasons behind the
1995 move away from EMI lay in disagreements over artistic and
financial control with EMI’s artists and repertoire department. In
addition, sales of Marillion albums had diminished over time, making the
group less appealing to EMI, which needed high sales in order to recoup
its investment and significant overhead costs.
The marketing and distribution arrangement proposed by Marillion
lowered the investment and costs for EMI and it agreed to become worldwide distributor for Anoraknophobia. A similar marketing and
distribution deal was made with the independent company Sanctuary,
exclusively for the North American markets. According to Racket
Records Marketing manager Lucy Jordache, the worldwide sales of
Anoraknophobia had, by the end of May 2002, surpassed the two
preceeding albums with total sales of about 100,000 copies (Jordache,
2002). This figure, however, includes the 12,000 pre-orders. The group
was happy with EMI’s extensive distribution, but disappointed with the
company’s marketing and promotional efforts (Marillion eWeb message,
2002).
Despite the fact that the arrangement produced only a modest rise in
sales figures (15,000-20,000 more than the previous albums), the EMI
company structure was beneficial by being more stable than that of
Castle, according to Steve Hogarth (Hakanen, 2001).
If one considers the relations of Marillion with the value chain during
its career, one can see that it gradually moved from record company
dependence early in its career to independence with Anoraknophobia.
After traditional contracts, the movement toward independence began
when the group released This Strange Engine (1997) on its own newly
established Intact record label (Hakanen, 1998) and made a specific deal
with Castle Communications in which Castle was not to invest any
personnel resources on content creation and development – Castle was to
receive finished masters directly from the band. This arrangement
guaranteed Marillion creative freedom, but not a financial one. The
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37
copyright of the sound recording remained a property of Castle.
Although Marillion recorded the album in their own studio, Castle
financed the mixing and provided the group with a financial advance to
support them during the several months’ long writing and recording
process. Four years and two albums later, Anoraknophobia, financed by a
select, active group of consumers, brought them nearly full independence.
Aimee Mann
When the American record label Geffen merged with the Interscope label
in the structuring of the Universal Music Group in 1999, the nearly
finished third solo album by the critically acclaimed adult pop singersongwriter Aimee Mann was shelved by Interscope (Pesselnick, 2001).
When the project was shelved, Mann succeeded in acquiring the
master tapes and released a CD at her own expense, Bachelor No. 2 – Or
the Last Remains of the Dodo, on her own SuperEgo Records label. While
recording the songs for Geffen/Interscope, Mann had not spent all the
advance money agreed for in the recording deal and – had Interscope
released the album – it would have been obliged to pay her the rest.
Instead, Mann and the company agreed upon a barter trade in which
Mann received the ownership of the songs she already had recorded and
the company was freed from any further payment commitments (Snyder,
2001).
The CD was first exclusively sold via Mann’s website at
www.aimeemann.com and generated sales of 25,000 units. The size of the
sales attracted an independent distributor and paved the way for it to
reach retail stores in the U.S. (Pesselnick, 2001).
During her summer 1999 acoustic tour, Mann managed to sell 2,500
copies of a “preview edition” EP containing material scheduled for
Bachelor No. 2. Although Mann was amazed to discover that “half of the
people who come to the shows will buy a record” (Bessmann, 1999b), it
was clear that only massive touring would reap sales in the league of the
Internet mail order sales of 25,000 units. In addition, touring with a full
band in the U.S. is expensive, and regularly requires tour support from a
record company (e.g. Grula 1990, Krasilovsky & Shemel, 2000).
The Mann saga took a turn after movie director Paul Thomas
Anderson, who was working on his movie Magnolia, heard some of the
songs Mann had written for Bachelor No. 2 and asked her to write more
music for his film (Bessman, 1999a). Magnolia, starring Tom Cruise and
Julianne Moore, premiered in December 1999 and became a hit. Of nine
songs by Mann on the soundtrack, four originated from the “Bachelor”
album and the soundtrack resulted in Oscar, Golden Globe, and Grammy
nominations for Mann.
By the end of 2000, Bachelor No. 2 had sold more than 150,000 copies
total, both via the website and traditional retail outlets, and in the
beginning of December 2000 songs from “Bachelor” were also distributed
individually as digital downloads by Liquid Audio.
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Although 25,000 CD copies sold via Mann’s website is a rather
impressive number, the extent to which the success of the Magnolia
soundtrack acted as a catalyst for these web sales remains a question.
According to a Billboard article, by March 2000 Mann had been selling
“Bachelor” via her website for two months with sales figures of 14,500,
whereas the Magnolia soundtrack, marketed and distributed by the
influential Warner label Reprise, had already garnered sales of 200,000
units (Paoletta, 2000). Eventually, the Magnolia soundtrack went gold
with more than 500,000 copies sold.
It is impossible to determine whether a consumer purchase of the
Magnolia soundtrack resulted in an additional, consequent purchase of
the “Bachelor” CD via Mann’s website, or if the sales of 25,000 units is a
stand-alone indicator of the power of the Internet. It can also be asked
whether it was the 25,000 online sales of “Bachelor” or the 200,000
offline sales of the Magnolia soundtrack that secured Mann the offline
distribution deal for Bachelor No. 2.
VALUE CHAIN ANALYSES OF THE CASE STUDIES
Common to the case examples above is the important fact that the artists
could obtain or retain rights to the sound recordings. In Marillion’s case
it was due to the fact that a large number of consumers were willing to
pre-pay their copies of the new album, and no record company financing
for production was required. In Aimee Mann’s case the ownership was
obtained through acquisition: something that artists seldom can afford,
even if allowed to by the record company.
For the purpose of value chain analysis of these two case examples,
the “enhanced” value chain model, presented above in Figure 4, will be
utilized and modified. The “enhanced” value chain was designed with
intangible distribution in mind, whereas the sound recordings by the two
artists were mainly distributed in the tangible CD format. The “content
formatting” step has been extended with the “reproduction” function. In
practice the first means the CD mastering, apart from the making of the
“master tapes,” the final recording studio mix, conducted in the previous
“mastering” step with the design of the album artwork. “Reproduction,”
on the other hand, implies the pressing of CDs and the printing of CD
sleeves.
“Marketing” (including promotion) has been added, for clarity’s sake,
to the model as one single step, and “access/connecting” has been
replaced with the more traditional “distribution.” The retailer’s step (or
“navigation/interfacing”) has been omitted from this model; neither does
the representation show the end-user, “the consumer,” at the very right
end of the value chain.
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Marillion
With Anoraknophobia and Mann’s Bachelor No. 2, an additional element
needs to be added to the value chain model (Figure 5).
Figure 5. The Anoraknophobia value chain, with additional financing feature
The element of ““fi
financing
nancing”” was not part of the economic model of the
value chain because it does not itself add value, but with these two case
examples, in order to fully comprehend the value chain from the artists’
point of view, the source of financing has to be identified.
Here “financing” indicates the source of the funding required for
content creation, the recording sessions and the mastering of content.
However, to stay true to the concept of value chain in its original and most
employed meaning, the financing functions are shown as an adjunct to
the value chain, and marked thus with a dashed line. Financing is rather
a supporting activity that facilitates production than a core element of a
value chain – even though it is one of the core elements in the recording
industry.
As mentioned previously, Intact is a record label solely owned by the
members of Marillion, and it takes care of the production and content
mastering. However, from this point onwards, the value chain is divided
into two branches. Branch 1 represents the pre-ordered album version.
Racket Records, also owned by Marillion, takes care of the pressing of
CDs and printing of CD sleeves. No marketing is required at this stage,
as the buyers have already been identified – hence the dashed box.
Naturally one could also say that the marketing was already conducted
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means the mailing of the CDs to those who subscribed. This branch,
like the first branch of the Bachelor No. 2 value chain (Figure 6),
represents the “hybrid sales” type of commerce, where the product and
the method of delivery is of the traditional, “tangible” kind, but the
“window-shopping” and the acquisition of the product take place in the
electronic environment of the Internet.
Branch 2 depicts the full retail distribution of the Anoraknophobia
CD product. The marketing and distribution deal between Marillion's
Intact label and EMI’s Liberty label states (Marillion press release, 2000)
that after the pre-ordered quota is delivered, Marillion is to cease
manufacture any further copies of Anoraknophobia, and EMI will take
care of CD pressing. (A similar contract is applied for North America
with the independent record company Sanctuary, not displayed). This is
also the first time that actual money is put into product marketing and
promotion in various media.
Branch 1 is an example of an almost perfect disintermediation of the
traditional value chain. The recording studio, the record label, the
logistics (The Racket Club, Intact, Racket Records, respectively) are all in
the hands of the band, even customer acquisition was conducted via email and the www.marillion.com website. The only things that had to be
subcontracted were the CD mastering, the pressing of CDs, and the
printing of CD sleeves of the special pre-order edition, and the delivery to
consumers via regular mail. Had the tracks of Anoraknophobia been
delivered via digital downloads to consumers, the only outside party
required would have been a digital service provider and, naturally, an
Internet service provider for network connections. However, in order to
reach the full potential audience, a slightly reintermediated branch 2 had
to be launched. Here Intact delivers the EMI Liberty label the masters
for the sound recording and cover art, and EMI takes care of
reproduction, marketing, and distribution, in a more traditional vein.
Aimee Mann
The value chain layout for Aimee Mann’s Bachelor No. 2 gets even more
complicated (Figure 6). First of all, there are two stages of “development,
production and mastering” displayed. Most of the songs on Bachelor No.
2 originate from the time Aimee Mann was recording for Geffen,
subsequently merged with Interscope under the ownership of the
Universal Music Group. However, when Mann left the label and acquired
the master tapes, she recorded some additional material for her own
small record label, SuperEgo. The same goes with the financing feature,
displayed apart from the value chain: most of the content creation was
financed by Geffen (“corporate capital”), but the new material by Mann
was created at her own, private expense.
Branch number 1 depicts the initial distribution method for Bachelor
No. 2: the SuperEgo label, owned by Mann, contracted out the pressing of
CD album copies, and marketed and distributed them by mail order via
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41
Branch number 1 depicts the initial distribution method for Bachelor
No. 2: the SuperEgo label, owned by Mann, contracted out the pressing of
CD album copies, and marketed and distributed them by mail order via
Figure 6. The Bachelor No. 2 Value Chain, with Additional Features Indicating
Financing and Master Tape Ownership
the aimeemann.com website. According to manager Michael Hausman,
marketing, promotion, and fulfilment (i.e., transaction and delivery)
were contracted out, to musicblitz.com and artistdirect.com, respectively
(Bessmann, 1999a). Due to the success of this method (and the sales
of the Magnolia soundtrack CD on Warner’s Reprise label), branch 2
emerged, as SuperEgo made a distribution deal with the independent
RED Distribution to get the CDs to retail outlets in the U.S. RED
was in 2000 the largest independent distributor in the U.S. (Music
& Copyright, 224). Presumably some cross-media marketing was
conducted at this stage, not by the distributor but by SuperEgo, on
the strength of the income from the previous CD sales via the website.
Branch 3, the branch that closest resembles the intangible
multimedia value chain by Wirtz, are the sales of Bachelor No. 2 (or
its individual tracks) via digital delivery, conducted on Mann’s behalf
by Liquid Audio. The marketing of these Liquid Audio files is mainly
been done by Mann’s own web-site, and the files are distributed to
the consumer by Liquid Audio. Additional sales come from various
web-sites that belong to the Liquid Audio Network of e-tailers.
There is also a fourth branch, indicating the European delivery of the
Bachelor No. 2. In this case, SuperEgo licensed the album to the British
independent company V2, owned by Richard Branson. In the U.S.
SuperEgo was able to commission all the CD manufacturing itself, and
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different areas of Europe. Bachelor No. 2 was distributed, for instance,
in France by Sony Music, in Italy by Universal Music, and in Germany
by Zomba, which just goes to show how an independent record company
like V2 seeks to find the optimal choice for distribution in each region,
oftentimes that being an affiliate of a large transnational.
When considering the level of dis- or reintermediation, there is not as
fully disintermediated a branch in the Bachelor No. 2 value chain as
there was with Anoraknophobia above. However, various processes of
reintermediation are going on.
First, Mann’s own SuperEgo label provides the mastered sound
recording and CD sleeve graphics. In branch 1 it is SuperEgo that also
contracts out the CD mastering and manufacturing. Because of limited
personnel resources (at the time only Mann, manager Hausman and one
employee [Snyder, 2001]), also marketing and distribution (here: CD
shipments and handling of credit card payments) are outsourced, to
musicblitz.com and artistdirect.com, respectively. With branch 2,
SuperEgo was, presumably, able to take care of some the marketing, too,
and only the distribution of CDs to retail stores was contracted out to
RED.
However, the most interesting value chain branch, regarding
reintermediation, is number 3. For the electronic commerce of intangible
digital downloads, a specialist company was hired. The sound files were
formatted to a secure format, with the consumer being able to “burn” the
Bachelor No. 2 tracks onto a CD-R. The customer initiated the
transaction on the aimeemann.com website, but was subsequently taken
to the transaction at the company’s website.
Branch 4 is similar to branch 2 of Anoraknophobia above in terms of
reintermediation, and requires no further comment here.
CONCLUSIONS
The Internet is a tremendous vehicle for the artist to gain and maintain
contact with his audience, or at least to a large portion of it that is living
in the Western developed countries. By setting up a computer unit that
works as a WWW server and having a website designed, the artist can
create a one-stop destination for both the audience and the press to
attain the latest news and background information on him, such as a
biography and a complete discography. In addition to being the ultimate
source of artist information, the website can let the visitor listen to
samples of his back-catalogue and latest music in various sound file
formats. E-mail mailing lists make even more direct and regular contact
with the fan base possible. Operating from his own, authorised website,
the artist is in full control of the information and public image being
conveyed. Should the music press and the promotion department of his
record company ignore him, this “virtual billboard” of his own can be
accessed from everywhere within the networked world with marginal
Journal of Media Business Studies
43
costs. This is particularly useful if the artist's fan base is
geographically fragmented and there is no clear “home market.”
Although a near-ideal communications and information channel, the
Internet yet has to be realized as a distribution channel of cultural goods.
The case examples of both Marillion and Aimee Mann not only show that
CD still is the format of commercial sound recordings, but that an access
to distribution channels leading to conventional record shops and outlets
still is necessary. The forms of e-commerce that would enable direct sale
from artist to consumer – digital download and placing a CD mail order
via a website – cannot yet compensate for brick-and-mortar retail sales,
if the artist wishes to reach sales beyond some 20,000 units of a sound
recording.
Despite this, the Internet does already at the moment offer the artist
indispensable tools to make a living as an independent entrepreneur.
The Internet pre-orders of 7,000 units of Anoraknophobia made it
possible for Marillion to approach a transnational record company and
distributor from a stronger bargaining position. Marillion was able to
secure a worldwide marketing and distribution deal without
compromising their artistic and financial freedom, most notably not
being forced to let go of the copyright to the sound recording. This way
Marillion is able to control the future use of the Anoraknophobia
material: possible re-releases of the entire album, synchronising to movie
soundtracks and TV commercials and, perhaps most notably, licensing of
individual tracks to budget-price compilation albums. This practice, in
the hands of a record company disassociated with the artist, often will do
disservice to the artist’s attempts to build and maintain a high-profile
public image, when different artists and musical performances of varying
level of artistic quality are “coupled” on the same compilation CD.
The evidence from the case studies clearly illustrates, that – at least
for the time being – the successful acquisition of alternative financing
requires that the artist is already an established one, with several
albums or years of career behind him, and as a result has attained a
certain core fan base. However, even with established artists, no
fanatical following is required: it must be taken into account that
eventually “only” about 40 percent of those on the Marillion e-mail
mailing list did agree to pre-order and pre-pay their copies of the
forthcoming Marillion album. By considering the audience not only as
consumers, but also as would-be partners, even participants (Marillion
proceeded by arranging an open remix contest for the finished material of
Anoraknophobia), such ventures become realistic alternatives.
By selling their self-produced and manufactured CD via mail order
from their website or at live performances, the artists can keep the value
chain in their own hands and as short as possible, which will result in
higher profit per unit sold, even though the web sales would not pass
that of ten or twenty thousand units. For additional sales, the artist can
conclude marketing and distribution deals with a major record company,
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as Marillion, or just distribution or licensing deals with independent
companies, as Aimee Mann.
The value chain analyses of Marillion’s Anoraknophobia and, in
particular, Aimee Mann’s Bachelor No. 2 clearly show that artists who
control the copyright of their sound recordings are in a position to find
the optimal reproduction, marketing, and distribution combination for
each type of commerce, method of delivery, and geographical market. In
Mann’s case the value chain divides in four branches in the latter half,
one of these value chains being completely intangible. Another one is
representing the so-called “hybrid sales” model, where the commerce
takes place in the intangible Internet environment, but the product itself
is a tangible CD and is delivered via traditional mail.
For overseas sales, both parties licensed their albums to a mid-sized
independent record company. Doing so, the artists simply must contend
to a contractually agreed royalty rate, meaning lower income per unit
sold. Marillion received, not only proportionally but also in total, a higher
net profit from the 12,700 CDs sold through their website than from the
approximately 85,000 units sold by EMI (and Sanctuary). Aimee Mann,
in turn, did better financially from her own web-generated sales of
20,000 units of Bachelor No. 2 than during her entire solo career as an
artist under contract to a record company (for comparison, the U.S. sales
of her first two solo albums were, by November 1999, 130,000 and 97,000
copies respectively [Bessman, 1999a]).
Even though Marillion and Mann did better financially selling the
CD themselves than through an outside “conventional” record company,
in order to cater to the rest of the buying public, it is crucial to have the
secondary distribution value chain that will take the CDs to record shops
nation- and continent-wide. After all, not all of the audience has the
enthusiasm to follow the artist’s career by regularly visiting his website
or receiving e-mail newsletters, or they simply do not dare to purchase
their copy via the Internet using credit card payment. Regarding both
the Internet connection and a credit card, lack of access may equally well
restrict the audience’s means of participation.
As Marillion found out with EMI, in the music markets outside the
boundaries of their own WWW domain and the core audience, an
extensive distribution still requires support from an adequate sales
promotion. Even if the CDs are widely available in record outlets, part of
the audience does not visit them, either, on a regular basis. However,
with a transnational company with numerous national subsidiaries, the
extent of local promotion is something that is out of the artist’s control.
Being in competition with national stars and the parent company’s
international “priority” artists, Marillion easily will remain in the
shadows and at 80,000 copies sold, as the major label strategy of
differential promotion, aimed at platinum sales, steps in.
Journal of Media Business Studies
45
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