Economic explanations
Scholars and analysts have also lent support to the explanation that relates to the (lack of) incentives to evolve toward digital technologies on the part of the incumbent music players. It can be declined in two main questions, that is, whether and how the incumbents (major labels) would have benefited (or lost) from the adoption vs. non-adoption of digital technology; and who specifically would have been interested/incentivized to embrace a change that—as was shown above—was quite huge and disrupting within the bureaucratic structures of the same organizations.
As to the first point, Elberse (2010) makes a very good point in proving that the de-bundling (i.e., switching from the “bundled” business model of CD from the “discrete-choice” model of digital music downloading, which rendered possible to select single songs from albums) was rationally not a good choice for the music industry executives. The possibility of cherry-picking only the “best songs” of an album by digital music consumers, coupled with the lower marginality on (digital) singles compared to that on (both physical and digital) albums, would normally have led to a decrease in sales (econometrically demonstrated by Elberse’s model), which major music executives of course did not want. Of course, the flaw in this line of reasoning is represented by the “cognitive trap” the managers incurred in, highlighted by industry observers such as Leonhard (2008) and Knopper (2009). The managers, in effect, framed the transition to digital as a loss compared with the previous (CD-based) situation, failing to acknowledge that things would have gotten worse because of exacerbated piracy, the migration to other forms of accessing music (e.g., web-radios) in the absence of a satisfying legal offer, and the (bad) agreement they would have been forced to strike with the new distributors when a legal offer was eventually devised through Apple’s iTunes in 2003.
On the second point, an interesting question to reflect on is: who did not benefit (or believed would have not benefited) from the transition to the digital shift? Referring to the movie studio executives, but again paralleling what happened in music, Currah (2006, p. 459) stated that “they operate in large publicly traded companies, where they are expected to minimize risk and secure incremental revenue growth from mature markets, such as theatrical exhibition..., DVD sales and pay-television.” As a studio president interviewed declared,
As executives working for large public companies, we have a fiduciary responsibility to our shareholders to ... protect our assets from piracy..., maximize the value of our products in existing markets and minimize our exposure to risk, like investing in an unproven market such as the Internet, which could easily cannibalize our growth if mismanaged.
This reflects the point made above on the lack of incentives by incumbents to develop new, unproven markets to the detriment of current, profitable ones; but also introduces an element related to the interests of major executives within their companies. In fact, as upper echelons are normally older and highly tenured, and rewarded on the achievement of short-term results, they tend to exhibit a short-term attitude that favors conservative, rather than innovative, behaviors/decisions.4
