ABSTRACT. The paper examines new record company
formation by music composers. In particular, it addresses their
decision to release a record i.e. either to contract their music
to record companies or to start-up their own company. In so
doing, the research entails the collection and analysis of new
data on the behaviour of musicians in the intermediate market
for music. The research finds that musicians regard incumbent
record companies to have a first mover advantage and that
they generally aspire to secure a record contract rather than
set-up their own company. Composers who start-up their own
company usually do so because of ‘push’ rather than ‘pull’
factors and hence usually represent artistic enterprise which
has been rejected by incumbent firms. In this manner, new
firm formation by composers does not appear to represent the
seeds of future industry.
1. Introduction
In most models of the supply of enterprise, such
as Kihlstrom and Laffont (1979) and Evans and
Jovanovic (1989), new firm formation is seen as
the result of an individual’s career choice between
wage work and self-employment. However, in
practice enterprise is often rewarded in the
employed sector so that a proportion of wage work
entails a reward for enterprise. Models of such a
market have been developed by Burke (1995a)
who augmented the model of Evans and Jovanovic
to include entrepreneurial employment and also
Holtz-Eakin et al. (1994) who allow for the
possibility that self-employed entrepreneurs may
merge their activities into partnerships or
corporate enterprises. From an empirical perspec-
tive the distinction is quite important as in the
former models new firms are always associated
with a net increase in enterprise, whereas in the
latter, new firms may be either dynamic new enter-
prise or rejected enterprise from the employment
sector. In the phraseology of Foreman-Peck
(1985), new firms may be either ‘seedcorn’ or
‘chaff’.
The functioning of the recording industry is
more akin to these latter models. Record com-
panies sell audio software (cassettes, compact
discs etc.) containing the recordings of unique
artists. The industry’s vertical structure is such that
composers licence the composer and phonographic
(particular recorded version of a composition)
rights to record companies for exclusive sale in
defined market areas; usually nations. The record
companies add further manufacturing, marketing
and managerial inputs in order to generate the final
pre-recorded audio software output e.g. albums
such as the Beatles’ ‘Abbey Road’ or REM’s
‘Monster’.
In this setting composers are faced with the
choice of licensing their musical output to record
companies or actually creating their own record
company. The paper aims to analyse this career
choice and this is pursued through an analysis of
a survey of Irish composers who are also members
of the Performing Rights Society (PRS). Since in
virtually all national markets the recording
industry is characterised by an oligopolistic
industry with product differentiation, the firms that
are created by musicians are usually ‘fringe’ firms:
they are small and have restricted market power.
The paper is divided into three sections. Section
one defines the theoretical framework. It models
the market for music and the expected income a
composer may hope to receive through a licensing
agreement with an existing record company, or
through the formation of her own company.
Section two uses a new data set taken from the
author’s D.Phil thesis which surveys Irish based
Small Firm Start-up by Composers
in the Recording Industry
Andrew E. Burke
Small Business Economics 9: 463–471, 1997.
1997 Kluwer Academic Publishers. Printed in the Netherlands.
Final version accepted on August 30, 1995
University of Saint Andrews
Department of Economics and the CRIEFF
St. Salvator’s College
Fife KY16 9AL
Scotland, U.K.
@Phil_Robichaud
@deepthiw
@JoseServera