“Effective methods for valuing a bank: an empirical analysis”
Valuing Networks for Emerging Musicians
Transcript of Valuing Networks for Emerging Musicians
1
Working Paper: Not for Quotation or Attribution without Consent of the Authors
Valuing Networks for Emerging Musicians
Phillip A. Cartwright Professor of Economics, ESG Management School and CEO, HorizonVU Music Alex Gillett Lecturer in Marketing The York Management School, University of York Gareth Dylan Smith Senior Lecturer, Institute of Contemporary Music Performance and Facilitator, Boston University
Introduction
In their recent work, Cartwright and Smith, consider issues of emerging musicians innovating in networks as
it pertains to marketing, promoting and selling independent music.1 Their focus is on networks, networking
and the concept of orchestration which refers to using multiple platforms and channels to focus attention
toward the object being consistent and persistent in the message. In this paper the focus is related to the
work of Cartwright and Smith, but extends the discussion by addressing the issue of value in general and
intangible value in particular. As with Cartwright and Smith’s work, the emerging musicians on whom we
focus in this chapter are primarily popular and commercial musicians – that is those in, aspiring to, or on the
periphery of the mainstream commercial music market where music is commoditized for mass consumption
under such labels as “rock”, “country”, “pop”, “R’n’B” etc.2 The paper sets out a practical framework for
understanding where in a network intangible value can be found and captured.
1 P. A. Cartwright and Gareth Dylan Smith (forthcoming, 2013), G. D. “Innovation and Value in Networks for Emerging Musicians”, in Strategies and Communications for Innovations, 2nd Edition, Eds. Pfefferman, N., Marshall, T. and Mortara, L. Berlin: Springer‐Verlaag. 2 P. Tagg, (1982) “Analysing Popular Music: Theory, method and practice”, Popular Music (2), P. 41.
2
This paper focuses upon value generation. The key point to be made about understanding value for this
paper is the considerable importance that intangible assets play in understanding valuation for artists.
Specifically, it is argued that the neglect of factoring in the value of intangible assets results in assessing
project value which can be significantly overstated. It is recognized that there are many approaches and
models used for understanding value generation. This paper does not suggest that there is only one
framework and the authors acknowledge the fact that no business decision is likely to be taken based only
on numbers. The theoretical viewpoint taken in this paper relies heavily on the literature from business
strategy, marketing and finance. The authors acknowledge the anomalous character of the entertainment
and music markets. Specifically, the anomalous character of these markets derives from the fact that
entertainment it is almost entirely experiential – or aesthetic – in consumption. Indeed, artists “create
objects, emotional reactions, expressions, and thoughts through books, paintings, recordings, music, film,
performances and programs”.3
Following the Introduction, Section II of the paper summarizes key concepts and a seven‐point business
process is suggested in Cartwright and Smith and Besson and Cartwright.4The primary focus on
“orchestration” is defined in terms of efforts to achieve success by finding and managing creative
combinations for value. The remainder of the section presents a framework for understanding value and
the sources of value creation. Section III of the paper builds on the importance of networks and elaborates
on the artist’s touch points or the points connecting either artist with fan or artist with platform and fan
with platform in the case of digital contacts. Section IV sets forth and develops the concept of a value tree
for emerging musicians. The paper concludes with a summary, conclusions and implications.
Concepts and Process
Networks and Business Process
3 H.L. Vogel, (2008), Capital, Commerce and the Creative Industries. In Cherbo, J. M., Stewart, R. A., Wyszomirski, M. J., (eds), Understanding the Arts and the Creative Sector in the United States, New Brunswick, NJ: Rutgers University Press, p. 143. 4 P. A. Cartwright, and Gareth Dylan Smith (forthcoming, 2013), Ibid and E. Besson, and P. A. Cartwright (2013) “Managing Online Relationships: Emerging Musicians at Work”, presentation at Digital Research Conference, ESG Management School, 21 June 2013, unpublished manscript.
3
Clearly, over the past several years, there have been many changes in the structure of the music business
with the increasing presence of independent labels and the increasing number of platforms as tools for
promotion of music. On the one hand, performers are offered the opportunity to promote their music
online and offline at little or no cost, excepting for time, of course. On the other hand, it is entirely
understandable that some performers feel overwhelmed by the ever‐growing number of opportunities to
promote, without necessarily realizing growing recognition beyond their peers or achieving financial
returns.
The music world has become much more complicated and this means finding ways to adapt and respond in
a changing environment. Amongst the implications of complexity is the need to confront and manage a
highly networked and non‐linear world where outcomes are less predictable than ever and plotting a
meaningful course for success means learning to “predict the unpredictable”.5 It is widely recognized that
networks play important roles in success, and the information or knowledge that is both input into a
network and that which is gained as a consequence of reading network output has a lot to do with the
extent to which value is created and captured. In simplest terms, networks including the players (musicians,
intermediaries and fans), the relationships (links) and the value generated by each, lies at the heart of the
argument.
Networks are composed of links that connect nodes. It is inherent in the structure of a network that many
components of a network are required for the provision of a typical service.6 . Following Rauch and
Hamilton, we define a network as a “…a group of agents who pursue repeated, enduring exchange relations
with one another and, at the same time, lack a legitimate organizational authority to arbitrate and resolve
disputes that may arise during the exchange.”7 The reference to lack of organizational authority is included
5 E. Bonabeau (2002), “Predicting the Unpredictable”, Harvard Business Review, Cambridge: Harvard Business School Publishing, pp. 5‐10. 6 N. Economides (1996), “The Economics of Networks”, International journal of Industrial Organization, 14, pp. 673‐699. 7 J. E. Rauch, J.E. and G.G. Hamilton (2001), “Networks and Markets”: Concepts for Bridging Disciplines”, in Networks and Markets, Ed. J. E. Rauch and A. Casella, New York: Russell Sage Foundation, pp. 1‐29.
4
in this definition to avoid issues arising as a consequence of hierarchy. This seems reasonable in our context,
and is identified as typical of modern collaborative networks by Gloor,8 and of this type of network in a
specifically contemporary musical context by Smith.9
Not all networks are the same. For example to use Negroponte’s examples, television networks and
computer networks are very different.10 A television network is hierarchical in the sense that there is a
source and many receptors. On the other hand, computer networks are a lattice of heterogeneous
processors capable of acting as both source and receptor. What is required is an understanding that
networks are characterized by patterns and that patterns change over time. Following Sawhney and Parikh
if one can understand the patterns and changes in the pattern, it is possible to identify value opportunities
and how those value opportunities change.11
Although Sawhey and Parikh focus on network technologies, their model has a correspondence for
purposes of this article. Information, inputs and outputs, are disconnected. That is, where once inputs and
outputs were highly centralized, today inputs (videos, for example) become embedded in a shared
infrastructure (a network server).12 It is not necessarily the case that each song or video resides on every
computing device owing to connectivity. It is in this spirit that hand‐held devices are personalized; much
less needed for processing functions and far more used for performing tasks in a customized way for
individuals. At the front‐end the information fragments or splits off in many different directions reaching
users at different end‐user locations.
Once one understands the network concepts of 1) the front‐end and inputs, 2) the back end or outputs and
3) the idea that value resides is the exchange associated with relationships, the importance of what
8 P. Gloor (2006), Swarm Creativity: Competitive advantage through collaborative innovation networks. New York: Oxford University Press, p. 5. 9 Gareth Dylan Smith (in press) “Constructing and construing popular music education: preparing for the future, in Randles, C. (ed.) Music Education: Navigating the Future. 10 Negroponte, N. (1995), Being Digital, New York: Vintage Books, p. 180. 11 M. Sawhney and D. Parikh (2001), “Where Value Lives in a Networked World, Harvard Business Review, 79, 1, Boston: Harvard Business Publishing. 12 Ibid.
5
happens between the front‐end and the back‐end is essentially irrelevant and the value is to be realized by
managing relationships. The highest value is to be found by focusing on and managing the most important
relationships. In the case of artists, much of the value is generated in the networking associated with
“orchestration” as described below.
In order to organize and direct effort businesses need a framework for guiding the mobilization of an
organization in alignment with its strategic plan. The roadmap is an integrated process enabling everyone in
the business to clearly understand each action and what decisions need to be made, who needs to make
them and when. Borrowing from the information technology and management literatures (for example,
Hagel et al.)13 the road map proposed by Cartwright and Smith is as follows.
1. Create– create the “art object” in as a consequence of a creative initiative and
perceived demand. Create refers to the process of creativity. Following Hagoort, the creative process
involves four phases: preparation which in the period in which one seeks solutions for problems
given known methods; incubation is identified with the subconscious and is associated with the
correlation between irrational ideas and solutions; illumination is the perhaps unexpected, but
intended, conscious moment in which the problem is solved; and verification occurring when the
solution has been confirmed.14 The artistic process in contrast, is thought of in terms of accident,
chaos, or unpredictability.
2. Distribute – release the information from the back‐end and move it to an accessible
environment. Distribute refers to the act of making the object available or accessible to the end user.
13 J. Hagel, S. Durchslag, and J.S. Brown (2002), “Orchestrating Loosely Coupled Business Process: The Secret to Successful Collaboration”, Paper, Copyright Hagel, Brown, Durchslag. 14 G. Hagoort (2003), Art Management Entrepreneurial Style, Delft : Eburon Publishers . p. 33
6
3. Store – placing the object in a place where it can be accessed easily. Store refers to the
storage of an art object on a server for easy accessibility. More technically, store refers to the
assignment of an object to a functional unit for retention and retrieval.
4. Promote – letting users and potential users know where they can find the object (and why
they should take the time to access it). Broadly speaking, promotion refers to the use of a wide
variety of tactical marketing tools executed over the short‐term and designed to stimulate a market
response. For example, promotion can involve pricing, refunds contests and tie‐ins.
5. Orchestrate –using multiple platforms and channels to focus attention toward the art
object being consistent and persistent in the message for value. This amounts to efforts to succeed
by finding and managing creative combinations for value. Like promotion, the objective of
orchestration is to stimulate market response, but the focus of orchestration is on process and
connectivity, whereas promotion is focused on tactical content. In the orchestration stage, the
objective is to use channels, platform and network interconnectivities between groups of individuals
(actors, associations or groups) or individuals (customers or fans). The power of creative
combination, the compatible and consistent combining of different channels to market creative
objects is that the outputs can satisfy current end users, and possibly open up new markets while
leveraging existing skill sets utilizing already available technology.
6. Adapt – paying attention to user response and adapt to improve the response. Adapt or
adaptation is associated with change in response to the ways in which the environment moves.
When artists engage in the artistic and creative processes presumably there is some adaptation
taking place. Following Axelrod and Cohen adaptation refers to a process of adjustment and
selection that is successful.15
15 R. Axelrod, R. and M. Cohen, (1999), Harnessing Complexity, New York: The Free Press.
7
7. Monitor – staying up the environment and act rapidly when signals indicate change.
Monitoring refers to taking an active role in maintaining awareness of end‐user response as specified
by Buisson et al.( 2006).
For the emerging musician, much of the value generated will be the result of actions and re‐actions that
take place in the orchestration phase. Going a step further, orchestration involves the concept of the
“groundswell” introduced by Li and Bernoff in which individuals using technologies “to get things that they
need from each other, rather than from traditional institutions.” 16
The power of creative combination, the compatible and consistent combining of different channels to
market creative objects is that the outputs can satisfy current end users, and possibly, open up new markets
while leveraging existing skill sets utilizing already available technology. Well‐ executed orchestration is also
cost‐effective as large investments can be avoided.
Value
Recognizing the importance of networks and orchestration leads to the understanding of the orchestrated
network within which value is created as the value “engine”. The value engine takes as its inputs both
tangible and intangible assets. These assets are sourced externally and from within. The engine drives value
creation and captures the artist’s competitive advantage, the decision‐making process and the asset base in
the market. In order to create competitive advantage, the musician relies upon the execution of strategic
initiatives, which are determined after consideration of the possibilities. The process is dynamic, requiring
both adoption and adaptation from existing examples and response to changing circumstances. The
musician responds to immediate circumstances and needs as well as the larger, external environment.
16 C. Li, and J. Bernoff, J. (2008), Groundswell: Winning in a World Transformed by Social Technologies, Cambridge: Harvard Business School Press. The Groundswell according to Li and Bernoff is “a social trend in which people use technologies to get the things they need from each other, rather than from traditional institutions”.
8
Grasping the possibilities is the source of future competitive advantage. These are the decisions that the
artist takes to enhance flexibility and strength.
Understanding value and its creation requires connecting with the idea of value recognized or the value that
the market considers as its valuation. How and when an artist’s project and the relevant assets are revealed
or communicated will impact realized value. Like any business there are two levels of issues that must be
addressed. First, the traditional issues involve how the artist’s brand and profile grow relative to the
market. Second, are the issues of gaining sufficient financial support for viability and sustainability of the
artist’s project. These issues are related to how and to whom the artist connects. These two facets of
getting to the market, traditional and financial, require an excellent understanding of what the artist can
deliver and setting fan expectations accordingly.
One useful approach for addressing the complexities of understanding value generation is the resource‐
based approach. Barney has argued that sustained competitive advantage derives from the resources and
capabilities a firm (i.e., artist) controls that are valuable, rare, imperfectly imitable, and not substitutable.17
These resources and capabilities can be viewed as bundles of tangible and intangible assets, including a
firm’s management skills, its organizational processes and routines, and the information and knowledge it
controls. In the context of this paper, the resource‐based approach suggests that differences in the relative
success of artists are caused primarily by differences in resources and capabilities. The artist's resources and
capabilities are the property or tangible assets as well as the intangible assets associated with intellectual
property related to creative activities, in addition to branding and associated marketing activities an artist
uses to choose and implement strategies. There is some debate in the literature regarding the definition of
capabilities. Some argue that capabilities are a firm’s capacity to dynamically deploy resources and
distinguish between resources and capabilities on the basis of this “dynamic capabilities” view.18 While
17 J. Barney, (1991), “Firm resources and sustained competitive advantage,” Journal of Management, 17, pp. 99–120. 18 C. Helfatand and M. Peteraf (2003), “The dynamic resource‐based view”, Strategic Management Journal, 24, pp. 997‐1010; Teece, D., G. Pisano, and A. Shuen, (1997), “ Dynamic capabilities and strategic management”, Strategic Management Journal, 18, pp. 509‐533.
9
scholars may debate the fine distinctions between resources and capabilities, these distinctions are likely to
“become badly blurred” in practice19.
The Touchpoints
Touchpoints are the points at which Actors interact with one another, where brands are experienced, and
where value is experienced, perceived, and co‐created. Touchpoints are mentioned frequently within the
services marketing and management literature, within which they are referred to as being where service
recipients experience “moments of truth” (e.g. Grönroos).20 In the context of emerging artists, touchpoints
for their fans might include websites and social network profiles, email, concerts, playback of recordings,
face‐to‐face interaction at the merchandise stall before or after a gig, and so on.
Marketing theory is apt here because artists establish touch‐points to connect with and grow their fanbase.
Electronic methods such as websites and mobile phone apps offer even newer and less established artists
the opportunity to reach and ‘touch’ an internationally dispersed audience and have a presence in
geographic territories previously accessible for many acts only through touring, radio airplay and print
media, and/or the distribution of physical products (i.e. CD, vinyl, t‐shirts etc.). In recent times marketing
thought has developed with an increasing recognition of the market as a network of interaction, rather than
a one‐way transmission or a ‘push’/’pull’ transaction. Two constructs helpful in conceptualising markets as
networks are Relationship Marketing (RM) and the associated Service‐Dominant (S‐D) Logic.
RM theory has emerged internationally to address perceived limitations of “traditional” marketing
approaches, although debate remains as to what exactly RM is, due to there being no single agreed
19 J. Barney (2002), Gaining and Sustaining Competitive Advantage, 2nd Ed., Upper Saddle River, NJ: Prentice Hall, p. 157. 20 C. Grönroos, (2007), Service Management and Marketing. 3rd ed. Chichester, UK: Wiley and Sons.
10
definition. A useful summary is provided by Gummesson who states that “RM is a marketing perspective on
the network organization and the network society”.21 Most recent definitions encompass relationships with
any stakeholders including not‐for‐profit, government, and voluntary organisations:
[The purpose of] marketing is to identify and establish, maintain and enhance, and when necessary
terminate relationships with customers (and other parties) so that the objectives regarding
economic and other variables of all parties are met. This is achieved through a mutual exchange
and fulfilment of promises.22
Gummesson summarises that “relationship marketing is interaction in networks of relationships”.23 Such
explanations indicate the fuzzy nature and breadth of scope that characterise RM theory. Various models
exist to conceptualise the scope of RM but again no general framework has been agreed, although a
tentative attempt was made by Clarkson et al. based upon literature published in the mid‐1990s; this
synthesis has been supported and updated by Gillett.24 This framework identifies four broad stakeholder
groups or ‘markets’: Customers, Suppliers, Internal, and External. Gillett raises the important point that the
four categories are not mutually exclusive and that there are areas of overlap where multiple types of
relationship exist between the organisation and stakeholder (in Gillett’s analysis of local government
procurement the example is given of residents as being ‘customers’ as well as internal [e.g.] employees
and/or suppliers to local authorities).
21 E. Gummesson (2008) Total Relationship Marketing. 3rd Ed. Oxford, UK: Butterworth‐Heinemann. 22 C. Grönroos, Ibid.,p. 29. 23 E. Gummesson, Ibid., p. 5. 24 R.M. Clarkson, C. Clarke‐Hill, and T. Robinson, T. (1997), Towards A General Framework For Relationship Marketing: A Literature Review. Unpublished paper presented at the Academy of Marketing Conference, Manchester Metropolitan University. Manchester, UK, July 1997; A.G. Gillett (2012), Local Government Procurement in England – A Relationship Marketing Approach, PhD thesis, Teesside University Business School.
11
The more recent concept of Service‐Dominant (S‐D) logic for marketing (Vargo and Lusch) is consistent with
both RM and the resource based theory of the firm.25 With the former, S‐D has a shared emphasis on
service and on markets as networks of interaction and mutual exchange (e.g., Grönroos; Gummesson).26
With the latter there is according to Arnould a shared interest in the strategic value of firms’ skills,
knowledge and cultural competencies (e.g., Day and Wensley; Wernerfelt).27 In S‐D Actors create value
through service experiences and relationships, co‐creating and sharing tangible and intangible resources
with one another. From a marketing perspective this is usually applied to co‐creation between customers
and suppliers, although, as the S‐D Logic explains that every organisation is in the “service business”, and so
the terms “customers” and “suppliers” may be used very loosely to mean any one (or any organisation)
which exchanges value with others. Differentiation is made between operant resources, which are often
invisible and intangible and produce effects such as core competences or organisational processes, and
operand resources – those upon which an operation or act is performed to produce an effect, such as land,
minerals and other natural resources. Because operand resources are often finite, groups that possess them
have traditionally been considered wealthy, and a goods‐centred logic has dominated where operand
resources are considered primary (Vargo and Lusch, 2004).28 In contrast, S‐D logic places greater
significance on operant resources, which lead to excellent service where value is co‐created between
supplier and buyer. A supplier offers value propositions and brings resources together for customers.
Organisations and customers interact to co‐create value in use, rather than organisations marketing to
customers.
25 S.L. Vargo, and R. Lusch, (2004) ‘Evolving to a new dominant logic for marketing’, The Journal of Marketing, 68 (1), pp. 1‐17; S.L. Vargo, S.L. and R. Lusch, (2008), Service‐Dominant Logic: Continuing the Evolution. Journal of the Academy of Marketing Science, 36, pp. 1‐10; S.L. Vargo and R. Lusch, (2011), Service‐dominant logic: a necessary step. European Journal of Marketing, 45 (7/8), pp. 1298 – 1309. 26 E. Gummesson, Ibid.; C. Grönroos, Ibid. 27 E.J. Arnould, (2008), “Service‐dominant logic and resource theory”, Journal of the Academy of Marketing Science, 36, pp.21‐24; G.S. Day, and R. Wensley (1988), Assessing advantage: A framework for diagnosing competitive superiority. Journal of Marketing, 52 , pp. 1 – 20; B. Wernerfelt, (1995), The resource‐based view of the firm: Ten years after”, Strategic Management Journal, 16 , (March), pp. 171 – 174. 28 L. Vargo, and R. Lusch, (2004), Ibid.
12
These ideas shall be applied here using The Eruptörs as an illustrative example (The Eruptörs, 2013 online).
For example, it is possible to view the three band members as suppliers of operant resources (e.g. expertise
and creativity in their respective areas of instrumentation, access to one another’s networks of contacts) as
well as operand resources (e.g. drum kits, guitars, recording studio, money to finance certain activities such
as rehearsals, and so on). S‐D logic also positions the band collectively as a supplier and co‐creator of value
with its network of relationships, perhaps most evidently when performing live where co‐creation may take
the form of song requests or the rapport constructed through iterative responses between musicians and
the audience. Thus we see the realization of the Eruptörs’ entrepreneurial creativities.29
The scope of the Eruptörs network is illustrated with reference to the aforementioned RM framework
comprising four types of relationship: Customer, Supplier, Internal, External. This is summarised by Table 1,
which provides an overview of the most significant parties with which the band interacts. Note that there
is some overlap, for example the PRS are ‘external’ in the sense that they represent the band’s performance
copyright interests and inform European and UK policy on behalf of all of their members, as well as
supplying royalty collection and distribution to the band.
29 P. Burnard (2012), Musical Creativities in Practice. Oxford: Oxford University Press, P. 43.
13
Table 1. The Scope of the Eruptörs’ Network of Relationships
Customers Suppliers Internal External
Those who the band supplies to (directly or indirectly):
Promoters of live music
Venues
Record ‘companies’/labels we license our music to
Followers/Fans/Consumers of music • Pre‐recorded • Live
Media/production companies/TV and radio who we supply with music
Those who supply to us (directly or indirectly):
CD manufacturers
Social media websites
‘guest’ musicians
Music services i.e. ‘mastering’ of audio
Art/graphic design
Merchandise
Instruments, equipment, repairs, endorsements
Within the band
Locations
Communication
Availability
Complimentary experience and skills set, fairly defined roles.
Outside of the band/broader stakeholders including political legal and regulatory
• Performance royalty societies (PRS and PPL)
• Press/Media/cultural influences
– Production companies – Magazines, radio,
websites – Other musicians
• ‘Day jobs’ and education: – All university educated – Two of the band have
PhDs – Alex and Gareth work
in academia (some contrast with our identities as musicians)
• Legal contexts (copyright etc.)
14
Value and the Value Tree
Often, artists, especially emerging artists, have difficulties linking their activities with value creation. In part
this is due to the reluctance on the part of many musicians to consider themselves as a business and they
resist practices associated with commercialization of music.30 There are also complexities of valuing tangible
and intangible artist assets. In this respect there may be a lack of training and experience in the “business
of doing business”. It is also in part attributable to the considerable level of expertise that is required for a
formal intangible valuation. There is an absence of a practical framework by which these artists can at least
begin to link intangible assets with value.
The complexity of identifying and bridging tangible and intangible assets to value can be quite challenging.
In part the confusion arises as the difference is not one of purpose or life‐cycle, but of substance.31 More
specifically, tangible assets are 1) considered as instrumental to the course of doing business and not
purchased with the intention of re‐sale, 2) long‐lived in nature, and therefore, subject to depreciation,
amortization, depletion or impairment, and 3) regarded as having physical substance. The most obvious
examples of tangible assets for the emerging musician include transportation vehicles, musical equipment
and peripherals.
Intangible assets are much more difficult to capture in terms of value. Generally, these assets are 1)
considered as instrumental to the course of doing business and not purchased with the intention of re‐sale,
2) long‐lived in nature , and therefore subject to depreciation, amortization, depletion or impairment, and
3) regarded as lacking physical substance. As discussed by Thomas Stewart intangible assets are defined in
the context of “intellectual capital”.32 In Stewart’s framework, intangible assets are human, structural and
customer capital. Human capital should be considered as capabilities that the artists or musicians
30 K. Kibacki and R. Croft (2005), “Paying the piper: a study of musicians and the music business”, International Journal of Nonprofit Voluntary Sector Marketing, 10, pp.225‐237. 31 See H. Solowy and M.J. Lebas (2006), Financial Accounting and Reporting, A Global Perspective, 2nd ed.,London: Cengage Learning Business Press, p. 231. 32 T. Stewart (1998), Intellectual Capital, The New Wealth of Organization, New York: Crown Publishers.
15
themselves bring to their project. These are the skills necessary to deliver entertainment to a customer or
fan base. Structural capital is knowledge‐based. It pertains to knowledge self‐ developed, or when multiple
persons are involved it is as a consequence of joint experience. Finally, customer capital refers to the
consumers or the fans. In concrete terms, the Financial Standards Accounting Board defines intangibles as
belonging to one of five categories; marketing, customer, technology, contract and artistic.33
One way to structure and understand profitability of a project, its actions, and underlying asset value is by
using a value tree.34 A value tree may be focused on a project in a single period or over multiple periods. For
simplicity, this paper considers a single‐period structure which incorporates the value engine. A basic value
tree is presented in Figure 1. A complete delineation of the tree is a topic for future research. Value Drivers
are the variable influencing the value of a project. These variables support actions taken in the value
generation process and these actions result in the generation of revenue or the imposition of costs.
Examples of value drivers associated with revenues are ticket sales, sales of recorded music and other
merchandise. Operating costs result from expenses such as purchases of equipment and supplies,
transportation, studio time, union dues, and management fees.
Figure 1. Value Tree. The Tangible and Intangible Assets Underlying Value Drivers.
33 See Financial Standards Accounting Board (2007), Statement of Financial Accounting Standards No. 141, Norwalk, CT.: Financial Accounting Standards Board. 34 P. A. Cartwright, (1999), “VBMarketing: Understanding Marketing Efectiveness through Value Generation”, Marketing and Research Today, 28, 4, Amsterdam: ESOMAR, pp. 145‐151.
Project Value
Net Operating Profit
Revenues
Operating Costs
Intangible Asset Valuation
Relationships
Knowledge
Internal
External
CustomersSuppliers External
Training and Skills Industry Knowledge Intellectual Property
16
It is clear from Figure 1. That neglect of intangible assets valuation will tend to inflate the value of a given
project. That is, as long as intangible asset value is greater than zero, simply deducting operating costs from
revenues ignores the intangible value captured in the networks.
Figure 1 is theoretical and raises all of the complex issues of intangible valuation and accounting. A more
practical approach is to view the problem as a brand valuation issue. In this regard, a suggested procedure
is to, first, estimate the cost of re‐creating the market position as it stands today. That is, consider carefully
the investments that have been made in achieving the current market position. This involves the physical
investments made to‐date and the time cost of money. Often, a comparative approach is useful in
calculating the value of time. If a musician is found to have a primary source of employment, the hourly rate
earned in that employment might serve as a guide. Of course judgment is required, but multiplying a
realistic earnings rate by the units of time invested yields a starting figure. Consider, too, the amount of
expense associated with developing an artist signature, advertising and promotion, and fan mailing lists.
If the band is somewhat established, the next step is to estimate the difference between the artist’s rate
and the rate paid by bands that are considered as competitors. Ideally, “next best” competitors should be
used in order to calculate a premium for the band. For emerging artists, rates are likely to be quite
homogeneous, so the premium is zero. That is, ceteris paribus, there is likely to be very little rate between
emerging artists Even though the premium might be small, it is a calculation worth considering. Multiply
that estimated rate difference by the number of hours estimated to be scheduled in a year. Adjust the
resulting figure upward or downward taking into account expectations for the market. These expectations
should include growth trends in the market and other market realities that are likely to impact the market.
Finally, multiply the result by the number of years the band or artist is expected to perform.
17
While this procedure may be empirically sound, it may well be that the calculations are too complex, or in
fact, impractical for the emerging musician in the absence of relevant financial assets such as education or
published and registered works subject to appropriate discounting. If this is the case, then rational
economics argues for accepting the market price as fundamentally correct reflecting the relevant
fundamentals. If it is the case argued that markets for emerging musicians are flawed or incomplete,
perhaps owing to failure to account for intangible assets, then the issue of how emerging musicians are
paid is a legitimate topic for future research.
Summary and Conclusions
The fact that some value is intangible does not mean that it is also in‐valuable (i.e. that it cannot be valued).
The intangible value is, moreover, often what sets one musical artist apart from another – at least from the
point of view of listeners and fans. It is, therefore, crucial to value generation and perception in the case of
any band or artist that intangible value is identified, acknowledged, and exploited. For the musicians,
locating, identifying, refining and/or preserving, and marketing precisely these intangibly – but not
indefinably – valuable facets of one’s product or brand are central and vital aspects of what sets one apart
in a crowded marketplace, where much music necessarily sounds very similar, especially in a market so
dependent on the prevailing model of grouping musical sounds by style and genre. This is to say that, in
order, for instance, for an artist to sound like an R’n’B artist, there are fairly narrow (sonic and visual)
parameters within which that artist can operate in terms of the product and brand without appearing to be
something other than a) what they are trying to sell, and b) what the target market expects from the artist.
Value defined in this chapter as “intangible” is, thus, capture‐able. It is, or rather its effects are, also
quantifiable, in terms of the monetary value and attendant potential career of product longevity that they
purvey.
It is important to consider and understand to whom, within an artist or band’s network, value is perceived
as tangible or intangible. Aspects of a musician and his or her work, brand, product and marketability might
18
be invisible to or unnoticed by some in the network and yet glaringly obvious to others. This emphasizes
the need to be part of a network of competent actors or agents working cooperatively, as explained in
Gloor’s Swarm Creativity model,35 in which individuals are found to perform to the greatest and best effect
as components of innovative and collaborative creative swarms in which participants are invested to mutual
benefit (as well as to respective individual benefits). Sennett highlights the positive outcomes of the
dialogical character of interactions in the types of networks where RM and swarm creativity are observed
and thrive. In dialogical interactions such as inevitably occur and recur in networked “orchestration”
situations as we have described above, agents performing different roles often hold opposing views, and
the resulting friction is instrumental in achieving the combined and thus superior results of stakeholders’
collaborative efforts.36 Orchestration is essential to the success of musicians in the contemporary
environment of increasingly convergent media, where publishers arrange for synchronizations (‘syncs’) of
music by established and emerging artists to appear on multiple platforms such as computer games and
multi‐media advertising.
Implications
A key implication of this chapter is that artists seeking to derive value, and specifically financial value, from
their music, could benefit significantly from a) working deliberately in creative collaborative networks with
others, and b) conceptualizing this collective creativity37 in terms of orchestration as defined and explained
in this chapter. There are also implications arising from this chapter for higher music education, especially in
light of the recent and current trend towards institutionalizing music learning in commercial styles that has
taken place particularly in the UK, across other countries in northern Europe (Italy, France, the Netherlands,
Scandinavia) and, to a lesser extent, in the USA. Researchers in music education have begun to recognize
the need for a “pedagogy for employability”38 suited to the entertainment marketplace of the new
35 Gloor, P. (2006), Swarm Creativity: Competitive advantage through collaborative innovation networks. New York: Oxford University Press, P. 5. 36 Smith, G.D and Gillett, A. (2013) “Swarm Creativity and Relationship Marketing in Punk and Post‐Punk: A case study of the Eruptörs”, CEGBI/CSWL Summer Conference, York Management School, University of York, York, UK. 37 Burnard, P. (2012) Musical Creativities in Practice. Oxford: Oxford University Press, P. 43 38 Smith, G.D. (2013) “Pedagogy for Employability in a Foundation Degree (FdA) in Creative Musicianship: Introducing peer collaboration” in H. Gaunt and H. Westerlund (eds.) Collaboration in Higher Music Education. Farnham: Ashgate.
19
millennium, emphasizing music graduates as collaborative artistic entrepreneurs.39 However, this research
is largely under‐theorized in terms of its reference to and awareness of marketing and business literature.
As music business degrees also proliferate in performance‐focused institutions of higher music education
that have little tradition of business education and none of scholarship in the field, there is an imperative
for institutions and scholars to work in concert to ensure that emerging musicians and entrepreneurs are as
business‐ready as they are performance ready.
A further implication of this study lies in the potential problematization of the tacit, ill‐articulated paradigm
underlying a lot of scholarship in the broad, interdisciplinary area of popular music studies. Popular music
scholars are prone to fetishize en masse the famous – the (literally) very popular musicians and bands –
with minimal critique of the mechanisms underlying the commercial market success of those whose work
they study in this (arguably falsely) canonized vision of popular music’s historical and contemporary
landscape.40 Re‐viewing commercial musical artists’ market success in a framework of value generation,
using orchestration as one potential component of this approach, could generate new understandings of
commercial musics and musicians that could benefit artists, consumers and all members of (orchestrated
and orchestrating) collaborative innovation networks.
39 Hallam, S. and Gaunt, H. (2012) Preparing for Success: A practical guide for young musicians. London, Institute of Education. 40 Smith, G.D. (in press) “Constructing and construing popular music education: preparing for the future, in Randles, C. (ed.) Music Education: Navigating the Future.
20
References
Arnould, E.J. (2008), “Service‐dominant logic and resource theory”, Journal of the Academy of Marketing
Science, 36, pp.21‐24.
Axelrod, R. and Cohen, M. (1999), Harnessing Complexity, New York: The Free Press. Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17, pp. 99–120. Barney, J. (2002), Gaining and Sustaining Competitive Advantage, 2nd Ed., Upper Saddle River, NJ: Prentice Hall. Cartwright, P. A. and Besson, Ekaterina. (2013) “Managing Online Relationships: Emerging Musicians at Work”, presentation at Digital Research Conference, ESG Management School, 21 June 2013, unpublished manscript.
Bonabeau, E. (2002), “Predicting the Unpredictable”, Harvard Business Review, Cambridge: Harvard Business School Publishing, pp. 5‐10. Buisson, B., Cartwright, P. A. and Silberzhan, S. (2006), “Early Warning Systems and Firm Survival, the Role of Market Research in the Face of Major Market Disruptions,’ Excellence 2006, ed. D.S. Fellows, pp. 145‐158. ESOMAR World Research Papers, 2006, Amsterdam: ESOMAR. Burnard, P. (2012), Musical Creativities in Practice, Oxford: Oxford University Press. Cartwright, P. A. (1999), “VBMarketing: Understanding Marketing Efectiveness through Value Generation”, Marketing and Research Today, 28, 4, Amsterdam: ESOMAR, pp. 145‐151. Cartwright, P. A. and Smith, Gareth Dylan, (2013, forthcoming), “Innovation and Value in Networks for Emerging Musicians, Strategies and Communications for Innovations, 2nd Edition, Eds. Pfefferman, N., Marshall, T. and Mortara, L. Berlin: Springer‐Verlaag. Clarkson, R.M., Clarke‐Hill, C. And Robinson, T. (1997), Towards A General Framework For Relationship
Marketing: A Literature Review. Unpublished paper presented at the Academy of Marketing Conference,
Manchester Metropolitan University. Manchester, UK, July 1997.
Day, G. S., and Wensley, R. (1988), Assessing advantage: A framework for diagnosing competitive superiority. Journal of Marketing, 52, pp. 1 – 20. Economides, N. (1996), “The Economics of Networks”, International journal of Industrial Organization, 14, pp. 673‐699. Eruptörs (2013), Eruptors.com, accessible at http://www.eruptors.com. Accessed 20 June 2013.
Financial Standards Accounting Board (2007), Statement of Financial Accounting Standards No. 141,
Norwalk, CT.: Financial Accounting Standards Board.
21
Gillett, A.G. (2012), Local Government Procurement in England – A Relationship Marketing Approach. PhD
thesis, Teesside University Business School.
Gillett, A. & Smith, G.D. (2013), “Swarm Creativity and Relationship Marketing in Punk and Post‐Punk: A
case study of the Eruptörs”, CEGBI/CSWL Summer Conference, York Management School, University of York,
York, UK.
Gloor, P. (2006), Swarm Creativity: Competitive advantage through collaborative innovation networks. New York: Oxford University Press.
Greco, M., Cricelli, L. and Grimaldi, M. (2013), “A strategic management framework of tangible and intangible assets”, European Management Journal, 31, 1, pp. 55‐66. Grönroos, C. (2007), Service Management and Marketing. 3rd Ed. Chichester, UK: Wiley and Sons.
Gummesson, E. (2008) Total Relationship Marketing. 3rd Ed. Oxford, UK: Butterworth‐Heinemann.
Hagel, J., Durchslag, S. and Brown, J.S. (2002), “Orchestrating Loosely Coupled Business Process: The Secret to Successful Collaboration”, Paper, Copyright Hagel, Brown, Durchslag. Hagoort, G. (2003), Art Management Entrepreneurial Style, Delft : Eburon Publishers. Hallam, S. and Gaunt, H. (2012), Preparing for Success: A practical guide for young musicians, London: Institute of Education. Helfat, C. and Peteraf, M. (2003), “The dynamic resource‐based view”, SMJ, 24, pp. 997‐1010. Knight, J.A. (1998), Value Based Management, Developing a Systematic Approach to Creating Shareholder Value, New York: McGraw‐Hill. Kibacki, K. and Croft, R. (2005), “Paying the piper: a study of musicians and the music business”, International Journal of Nonprofit Voluntary Sector Marketing, 10, pp. 225‐237 Li, C. and Bernoff, J. (2008). Groundswell: Winning in a World Transformed by Social Technologies, Cambridge: Harvard Business School Press. Low, J. and Kalafut, P. (2002), Invisible Advantage, How Intangibles Are Driving Business Performance, Cambridge, MA: Perseus Publishing . Mitchell, w.J. (1996), City of Bits: Space, Place and the Infobahn, Cambridge: MIT Press. Mitchell,W.J. (1999), e‐topia, Cambridge: MIT Press. Mitchell, W.J. (2003), Me++: The Cyborg Self and the Networked City, Cambridge: MIT Press. Negroponte, N. (1995), Being Digital, New York: Vintage Books. Rauch, J.E. and Hamilton, G.G. (2001), “Networks and Markets”: Concepts for Bridging Disciplines”, in Networks and Markets, Ed. J.E. Rauch and A. Casella, New York: Russell Sage Foundation, pp. 1‐29. Sawhney, M. and Parikh, D. (2001), “Where Value Lives in a Networked World, Harvard Business Review, 79, 1, Boston: Harvard Business Publishing, pp. 79‐86.
22
Smith, G.D. (in press), Constructing and Construing Popular Music Education: Preparing for the future, in Randles, C., Ed., Music Education Navigating the Future. New York: Routledge. Smith, G.D. (2013), Pedagogy for Employability in a Foundation Degree (FdA) in Creative Musicianship:
Introducing peer collaboration, in Gaunt, H. and Westerlund, H., Eds., Collaboration in Higher Music
Education. Farnham: Ashgate, pp. 193‐198.
Solowy, H. and Lebas, M.J. (2006), Financial Accounting and Reporting, A Global Perspective, 2nd ed., London: Cengage Learning Business Press. Stewart, Thomas (1998), Intellectual Capital, The New Wealth of Organization, New York: Crown Publishers. Tagg, P. (1982), “Analysing Popular Music: Theory, Method and Practice”, Popular Music (2), 37‐67. Throsby, D. and Zednick, A. (2010), “Do You Really Expect to Get Paid”, a report commissioned by the Austraila Council. Available at www.australiacouncil.gov.au/artistcareers. Teece, D., Pisano, G. and Shuen, A. (1997), “ Dynamic capabilities and strategic management”, Strategic Management Journal, 18, pp. 509‐533. Vargo, S.L. and Lusch, R. (2004) ‘Evolving to a new dominant logic for marketing’, The Journal of Marketing,
68 (1), pp. 1‐17.
Vargo, S.L. and Lusch, R. (2008), Service‐Dominant Logic: Continuing the Evolution. Journal of the Academy
of Marketing Science, 36, pp. 1‐10.
Vargo, S.L. and Lusch, R. (2011), Service‐dominant logic: a necessary step. European Journal of Marketing,
45 (7/8), pp. 1298 – 1309.
Vogel, H. L. (2008), Capital, Commerce and the Creative Industries. In Cherbo, J. M., Stewart, R. A., Wyszomirski, M. J., Eds., Understanding the Arts and the Creative Sector in the United States, New Brunswick, NJ: Rutgers University Press, pp. 143‐154 Watts, D.J. (2003), Six Degrees, the Science of a Connected Age, New York: W.W. Norton and Company.
Wernerfelt, B. (1995), “The resource‐based view of the firm: Ten years after”, Strategic Management Journal, 16, (March), pp. 171 – 174. Yoffie, D.A. (1997), “ Introduction : CHESS and Competing in the Age of Digital Convergence “ in Competing in the Age of Digirtal Convergence, Ed. D. Yoffie, Cambridge, MA: Harvard University Press, pp. 14 – 17.
23
Biographical Information Phillip A. Cartwright is Professor of Economics at ESG Management School in Paris and CEO, Horizonvu Group LLC (HorizonVU Music). He holds B.A. and M.A. degrees in economics from Texas Christian University and M.S. and Ph.D. Degrees in economics from the University of Illinois, Urbana‐Champaign. He has held posts at the University of Georgia, INSEAD, Imperial College and The American University of Paris and he has published extensively in economics and business journals. He has twenty years of successful commercial experience with leading companies A.C. Nielsen, Ernst & Young, and Arthur Andersen. As CEO of Horizonvu Group LLC, Phillip provides marketing, promotion, publishing and management services to emerging musicians around the world. He is a member of the Recording Academy, Audio Engineering Society, the Independent Filmmaker Project and ASCAP.
Alex Gillett is Lecturer in Marketing at The York Management School, University of York, United Kingdom. He holds B.A. and MSc degrees from Teesside University, where he was also awarded a PhD in Marketing. As well as marketing, Alex’s interests span the music and soccer industries, social enterprise, and public management. He is a member of The Association of Business Historians and the Performing Rights Society (PRS). Outside of academia Alex plays guitar for The Eruptörs.
Gareth Dylan Smith is a drummer, music educator and scholar based in London, England. He plays drums in
alt. rock, punk and musical theatre bands, recording and performing around Europe and the US. He works
as online facilitator for Boston University in the US and Senior Lecturer at the Institute of Contemporary
Music Performance in the UK, where he supervises undergraduate dissertations and teaches classes in
Research Skills, Music and Society, Directed Instrumental Skills, and History & Philosophy of Music
Education. Gareth’s research interests include drummers, embodied performance in drumming,
intersections of music, education and entrepreneurship, curriculum, pedagogy and gender in popular music
education, musicians’ learning profiles, identity and learning realization, and (auto)ethnographic
methodologies. He has presented research on five continents and published widely in peer‐reviewed
journals and books. In 2013 Ashgate published Gareth’s book I Drum Therefore I Am: Being and becoming a
drummer. Gareth writes for DrDrumsBlog.com, and is Editor at SUS Music.