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Digital Technology and the Allocation of Ownership in the Music Industry

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  • Maija Halonen-Akatwijuka
  • Toby Regner

    ()

Abstract

This paper analyses the innovation process of music goods from an organisational point of view and the effects of digital technology on the allocation of property rights. We apply the property rights theory framework introduced by Grossman-Hart-Moore (GHM) to the music industry and study the contractual relationship between artists who create music and labels who promote and distribute it. In the spirit of GHM, different types of ownership structures are analysed. The result confirms the current allocation of property rights as it suggests that music labels, whose role in the production process is indispensable due to their promotion and distribution knowledge, should own the copyright. However as digital technology advances further, alternative ways to promote and distribute music develop - labels become less indispensable. We find scenarios where the incumbent ownership structure ceases to be optimal. Moreover, we discuss new organisational structures of the music industry. We introduce a mentor, an alternative intermediary to the label and analyse its effect on the optimal allocation of ownership. Our main result is that label ownership becomes less likely.

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File URL: http://www.bris.ac.uk/Depts/CMPO/workingpapers/wp96.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 04/096.

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Length: 26 pages
Date of creation: Jan 2004
Date of revision:
Handle: RePEc:bri:cmpowp:04/096

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Keywords: property rights theory; copyright; internet; music industry;

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  1. Raghuram G. Rajan & Luigi Zingales, . "Power in a Theory of the Firm," CRSP working papers 335, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(6), pages 1119-58, December.
  3. Richard E. Caves, 2003. "Contracts Between Art and Commerce," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 17(2), pages 73-83, Spring.
  4. Aghion, Philippe & Tirole, Jean, 1994. "The Management of Innovation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(4), pages 1185-1209, November.
  5. David de Meza & Ben Lockwood, 2003. "Appropriability, Investment Incentives and the Property Rights Theory of the Firm," The Centre for Market and Public Organisation, Department of Economics, University of Bristol, UK 03/068, Department of Economics, University of Bristol, UK.
  6. David De Meza & Ben Lockwood, 1998. "Does Asset Ownership Always Motivate Managers? Outside Options And The Property Rights Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 113(2), pages 361-386, May.
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