Essays on the Industrial Organization of the Modern Music Industry

Kellie J Konsor, Purdue University

Abstract

This dissertation contains three essays concerning the industrial organization of the modern recorded music industry particularly focusing on firm behavior as it relates to market structure. I use unique data on song characteristics and firm ownership to empirically investigate the variety-market structure relationship, acquisition behavior as it relates to product positioning and product release timing as it relates to firm structure. In the first chapter, I revisit the research on the relationship between product variety and market structure in the music industry. I build on previous research by analyzing the relationship between variety and concentration using updated data as well as an updated measure of market concentration that considers the well-established relationship between rank and sales. I find a non-monotonic relationship similar to previous results—variety is low when concentration is both low and high. Even though the data for this analysis cover a pre- and post- digital era, the major technological change that occurred in the early 2000s does not seem to significantly affect variety. In the second chapter, I focus on the relationship between the product portfolios of successful recording labels and their merger and acquisition behavior. The industry is dominated by a few major record labels which own a number of smaller sublabels; it is not uncommon for the sublabels to be acquisitions. Using data on song characteristics and acquisitions of labels and songs that have reached the top position on The Billboard Hot 100, I create a proximity measure using the musical characteristics of firm song portfolios to describe the distance between firms in product space which I use to estimate the relationship between firm relatedness and acquisition probability. I also characterize major labels by their most successful recordings as well as their acquisition behavior using principal components analysis. At the industry level, it appears acquisitions are more likely if the target and acquirer are producing similar music at the time of and prior to acquisition. I find that at the individual major level, major labels seem to have differing acquisition strategies—they are specializing along some musical dimensions but diversifying along others. Evidence suggests majors may be segmenting the market with respect to genres and are further specializing through acquisitions—behavior which could be mitigating the competition among the three remaining major labels. The third chapter investigates how firm ownership and product releases are related. Major consolidation has occurred in the recorded music industry over the past 20 years which has led some industry stakeholders to question the power and influence of the major remaining firms. I test whether there is evidence that subsidiaries of the large parent firms in this industry act as a cohesive unit or if they focus on maximizing their own profit without taking into consideration the effect they have on sister firms (other firms owned by the same parent). I do so by analyzing how release date timing differs between labels that are owned by the same parent company and those that are not. Using data on release dates, song/artist characteristics and label ownership for the top-10 Billboard Hot 100 hits from 1990 to 2013, I am able to compare the length of time between releases for songs released by co-owned labels and songs released by separately owned labels. I find that overall, there is not a systematic difference in the release of songs produced by the same major compared to songs produced by different majors. These results suggest that subsidiary labels may in fact be acting independently—not internalizing the effect they have on sister firms.

Degree

Ph.D.

Advisors

Martin, Purdue University.

Subject Area

Marketing|Music|Economics|Organizational behavior

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