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“Let’s make lots of money”: the determinants of performance in the recorded music sector

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Abstract

This research analyzes the performance of 467 record labels in eight European countries over a period of 13 years (2003–2015). The main goal is to explain a relative measure of profitability in terms of observed variables, although the nature of the dataset also allows us to include non-observed firm and country effects. To this end alternative models are estimated and three main research questions are tested, namely: (1) the effect of the dual structure of the recorded music market, in which a competitive segment and an oligopoly coexist; (2) the extent and source of the volatility of profits in record labels; and (3) the nonlinear impact of size on performance.

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Notes

  1. See http://winformusic.org/wintel/.

  2. While major labels usually retain the copyright on the sound recording of an act, independent labels do not.

  3. See SGAE (2012).

  4. Given the time span of the sample, we still include EMI as a separate firm.

  5. One needs to assume strong exogeneity, and error terms and random effects at both levels being iid. Let X be the set of explanatory variables. Then:

    $$\begin{aligned}&E[\epsilon _{ijt}|U_{0ij},U_{0j},X]=0 \\&\quad \epsilon _{ijt}\sim [0,\sigma _\epsilon ^2] \\&\quad U_{0ij}|X,u_{0i}\sim [0,\phi ^2] \\&\quad U_{0j}|X\sim [0,\psi ^2] \end{aligned}$$

  6. An anonymous referee suggested us to test for this increasingly negative effect. In so doing, we estimated the model for two subsamples: before and after 2008 (first introduction of Spotify, a music streaming service, in main European markets). The negative effect of the ratio of fixed assets over total assets is larger (and its significance greater) in the second sample, although the large standard error of the pre-2008 estimation yields wide confidence intervals.

  7. As the estimates of the fixed part of the model do not differ from those in model (d) in Table 4, we only report the variance decomposition in Table 5.

  8. However, there was some ambiguity as to the preferred model based on information criteria, as BIC and AIC led to contradictory results.

  9. E.g. ownership of sound recordings is considered an asset, a practice that is not that common for smaller independent firms.

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Acknowledgements

The authors would like to thank two anonymous referees for their helpful suggestions. Juan D. Montoro-Pons would also like to thank Peter Tschmuck and participants at the 5th Vienna Music Business Research Days for comments and discussion on a preliminary version of the paper. Usual disclaimer applies.

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Authors and Affiliations

  1. Departamento de Economía Aplicada, Universitat de València, Valencia, Spain

    Juan D. Montoro-Pons

  2. Departamento de Comercialización e Investigación de Mercados, Universitat de València, Valencia, Spain

    Manuel Cuadrado-García

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  1. Juan D. Montoro-Pons
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  2. Manuel Cuadrado-García
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Correspondence to Juan D. Montoro-Pons.

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Montoro-Pons, J.D., Cuadrado-García, M. “Let’s make lots of money”: the determinants of performance in the recorded music sector. J Cult Econ 42, 287–307 (2018). https://doi.org/10.1007/s10824-017-9304-2

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