Value Chain Envy: Explaining New Entry and Vertical Integration in Popular Music

The desirability of establishing a value chain at a particular stage in a value system can be considered to depend on the relation between the value that can be created and the value that can be captured at that particular stage. Value chain envy motivates firms to invade the more desirable stages of the value system, either through new entry or vertical integration. The feasibility of establishing a value chain, however, can be considered to depend on the efficacy of the means to value protection at that particular stage. The concepts of value creation, capture, and protection within value systems are employed to analyze recent developments in the recorded music industries, particularly those affecting the stage of music publishing. Over the course of the 20th century the value created at the stage of music publishing diminished steadily, while the value captured remained high, thereby giving rise to value chain envy. On the basis of the proposed theoretical framework one could expect these developments to trigger strategic responses to remedy this value chain envy. However, most actors, except the major record companies, were unable to do so until new information communication technologies were introduced. Industry level data do indeed corroborate that vertical integration by major record companies was followed, from the mid-1990’s onwards, by a significant increase in the prevalence rate of newly founded SMEs in the music publishing industry in the Netherlands. These newly founded firms are testimony to new entry or vertical integration by musician-entrepreneurs, thereby providing support for the advanced arguments. (also downloadable) in electronic version: http://som.rug.nl 1 Helpful suggestions and comments to this paper were provided by Thijs Broekhuizen, Charles Carroll, Stefan Mol, Ayse Saka and Filippo Carlo Wezel. The usual disclaimer applies.