Technological change in the recorded music industry has spurred changes-file sharing, unbundling singles from albums, and streaming-that have eroded firms' abilities to generate revenues. Other technological changes have reduced the costs of production, distribution, and promotion, as well as the search for talent. These changes have influenced the strategic positioning of major and independent record labels. We examine the new music releases of major and independent labels before and after the technological change, using a differences-in-differences design and unique data on over 63,000 albums released in the United States between 1990 and 2010. We find, first, that major labels increasingly choose artists that have been previously successful, both on the same label and on other labels; second, that music releases increase for independent labels but decrease for major labels; and third, that this selective approach appears to work, as a growing share of major label releases achieve commercial success on the Billboard charts. Despite growing relative success, because overall revenue is declining in the industry, U.S. revenues for major labels fall, while the revenues of independent labels are stable. Our results support the idea that major labels deploy their high-cost capabilities in a narrowing segment of the market, releasing successful artists that have broad market appeal and high revenue, while independents adopt lower cost approaches, pursuing more music releases for smaller, lower revenue audiences. Thus, prechange strategic positions appear to influence the labels' responses to-and adoption of-the technological change, resulting in even more heterogeneous positions post-change.
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The authors thank Strategy Science Editor Daniel Levinthal and three anonymous reviewers for constructive advice on the paper, and Myles Shaver, conference participants at the Strategy Science track at the 2014 INFORMS Annual Meeting in San Francisco, and seminar audiences at MIT, IESE, and Bocconi University for helpful comments. The authors also thank Rosa Kim for research assistance.
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- Organizational capabilities
- Recorded music industry
- Strategic positioning
- Technological change