Indie Music Industry – Change in Functioning.
The prices of audio and potential substitute goods for indie music prove largely statistically insignificant throughout the study that has been discussed in my blog Indie Music – Entertainment Products. A lot of barriers within the production, promotion and distribution system were broken for the indie artists with the introduction of digital formats in recording instead of analog formats in the 1980s. When advancement in technology began to break down the previously rigid infrastructure of the recording industry, the strongly held oligopoly of the industry was shaken and almost eliminated after being predominant for over half a century.
Although generally confirming the importance of the broadband and time trend variables, the study presents some interesting results regarding the relationship between record sales of indie music and the audio price indices. The price of audio is noted to be statistically significant at the 1% level and economically important in the period following 1997. As expected, price of audio, appears less meaningful from 1977-1997, years when prices could be kept high and static. From 1998-2011, a 1% rise noted in the price of audio products could be associated with a near 2% drop in the value of record sales. As discussed in my blog Record Labels and Indie Music, in 2011, an industry expert described the evolution of the role of record labels as follows –
Record labels are unrecognizable compared to the 90s. They are smaller, more efficient and they have diversified and taken on many more functions.
The most notable difference is the difference in how record labels treat their artists’ career today. Labels have been noted to have started taking increasingly more interest in all aspects of the career of their artists. While in the 90s record labels only cared about selling records and keeping the major earnings to themselves, not paying much attention to personal growth of the artists, today labels play an active role in merchandising, touring and sponsorships. This transformation has brought the indie music industry to a point where today, instead of six majors, the US market is dominated only by three major record labels. All of this brought about the unprecedented growth in live and indie music revenues during the early 2000s.
Further, in regression, the coefficient becomes an even larger negative value while the added internet penetration variable proves statistically insignificant at the 1% level. This suggests that the price of audio may actually be capturing some of the explanatory power of internet penetration as it follows a similarly linear path from 1998-2011. Continuing, though, the price of audio loses its statistical significance with the introduction of the broadband and time trend variables. If the time trend does indeed capture the general trajectory of the internet age, the price of audio, which has certainly transformed due to technological changes, could potentially be included in its explanatory realm. The statistical insignificance of the price of audio from 1977-1997 once again points to the unique market structure that limited changes during this period.
Regarding the price of video, the study gives a slightly more detailed understanding of its possible relationship with record sales of indie music. Initially, only the price of video from 1998-2011 proves statistically significant showing the expected sign for a coefficient on the price of a substitute product. Once the broadband and time trend variables are included, the video price indices of the first period become significant with the latter becoming insignificant. The steady downward trend in price of video during the 2000s may cause multicollinearity with the Internet variables, which display oppositional linear growth.
Testing for correlation between the log of the chained price index of video, restricted to 2000-2011, and the time trend, scholars find a nearly perfectly negative relationship between the two variables. This helps explain why the price indices from 1998-2011 prove insignificant in these results, and additionally may point to the internet’s all-encompassing impact. On the other hand, the fact that the price of video during the first portion of the data proves more statistically significant than that of audio in a similar timeframe emphasizes the weak relationship between indie music’s price and its demand schedule before 2000.
In my next blog, I am going to write more about some major changes that the indie music industry saw in its functioning, with the transforming music industry. Please share your experiences and I will add them to my future blogs.
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