Value chain envy: explaining new entry and vertical integration in popular music

The desirability of establishing a value chain at a particular stage in a value system can be
considered to depend on the relation between the value that can be created and the value that
can be captured at that particular stage. Value chain envy motivates firms to invade the more
desirable stages of the value system, either through new entry or vertical integration. The
feasibility of establishing a value chain, however, can be considered to depend on the efficacy
of the means to value protection at that particular stage. The concepts of value creation,
capture, and protection within value systems are employed to analyze recent developments in
the recorded music industries, particularly those affecting the stage of music publishing. Over
the course of the 20th century the value created at the stage of music publishing diminished
steadily, while the value captured remained high, thereby giving rise to value chain envy. On
the basis of the proposed theoretical framework one could expect these developments to
trigger strategic responses to remedy this value chain envy. However, most actors, except the
major record companies, were unable to do so until new information communication
technologies were introduced. Industry level data do indeed corroborate that vertical
integration by major record companies was followed, from the mid-1990’s onwards, by a
significant increase in the prevalence rate of newly founded SMEs in the music publishing
industry in the Netherlands. These newly founded firms are testimony to new entry or vertical
integration by musician-entrepreneurs, thereby providing support for the advanced arguments.

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