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In this guest post, French music industry blogger Hugo Amsellem returns with a radical suggestion: what if the ISPs merged with the majors?


In times of crisis, phenomena of concentration are common, and the music industry has not escaped this rule for a century. We have seen it before with the advent of radio or rock&roll, and after the introduction of the CD. The music industry has known many vertical and horizontal concentrations between stakeholders in the music industry and other tech industry stakeholders.

 

 

This was the case with the invention of the cylinder, when record companies merged with major technology players holding patents for both cylinders and gramophones. At the onset and development of radio, new actors have been integrated with labels in order to create synergy between the 2 activities (promotion and distribution).

 

Vertical integration

 

It’s very likely that the majors will merge with the new online music distributors: the Internet access providers / operators. In fact, these players are now in place to end the value chain, control the dissemination of music and grant the access to the end-users.

 

 

 

 

The players themselves may soon begin to integrate vertically by buying or developing platforms for streaming music (Deezer, WorMee) and block the end of the value chain of digital music. This alliance between content creators and content providers must be done in a more stable and less controlled business environment so that content providers may freely use the music as a loss leader.

 

 

 

 

And it is precisely this fact that is not being respected, so that the use of music by ISPs is subject to the control of the majors ahead of the value chain. Therefore the music is subject to the regime of exclusive rights and ISPs must negotiate catalogs at exorbitant prices. Once these barriers fall, vertical integration is possible to achieve economies of scale, all within large groups.

 

 

 

 

 

 

The ultimate goal is to recreate and control all value chains of the music industry within the same group.

 

 

 

Produce an artist in the majors, promote him through radio and now the ISPs and streaming services, distribute the music via an ISP and through traditional channels controlled by the majors. Now the integration of a technical partner – like Sony with the CD – does not make so much sense anymore. It is necessary to rethink the artist’s contract by going 360° and getting the most benefit from these controlled income sources and preferably creating synergies between the different organs of this great group.

 

 

 

 

Thus Vivendi is currently able to do with Universal, SFR and Canal +. Universal is currently selecting a 360° strategy, acquiring concert halls and music-event companies (such as Parisian venue L’Olympia). This control of the value chain by these large groups seems quite unlikely in the short term, but this scenario of concentration and vertical integration is a possible scenario in the medium – long term.

 

 

 

 

 

Such a strategy can be adopted by the major labels in search of survival, not in quest of development. A vertical integration similar to that described would have several goals:

 

  • Create economies of scale
  • Create synergies between the activities
  • Monetize listening to music, transforming it into a loss leader for the purchase of other products

 

 


Weakness and disadvantages


 

This strategy stems from many negative effects for the music industry as an artistic entity. For indeed, if groups of this size had become the norm, it would mean that music can no longer be sold as a product. These groups inevitably relegate the music as a loss leader, and the cultural character would disappear. Thus the music produced will be chosen based on its potential to reach the largest audience possible. One possible consequence would be an even greater onslaught of successful artists belonging to these major groups, by all means of promotion in the possession. Does it sound like Universal Music Group?

 

 

 



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