¹ The strategy and structure of rights-based multinationals will be assessed in detail in the final section.

² Jones, Geoffrey, “The Gramophone Company: An Anglo-American Multinational, 1898– 1931,” Business History Review 59 (Spring 1985): 76–100.CrossRefGoogle Scholar

³ Examples of the former are: Gelatt, Roland, The Fabulous Phonograph, 1877–1977 (New York, 1954, 2nd ed., 1977)Google Scholar; Read, Oliver and Welch, Walter L., From Tin Foil to Stereo: Evolution of the Phonograph (Indianapolis, 1959, 2nd ed. 1976)Google Scholar; Gronow, Pekka and Saunio, Ilpo, An International History of the Recording Industry (London, 1998)Google Scholar; Chanan, Michael, Repeated Takes: A Short History of Recording and its Effects on Music (London, 1994)Google Scholar. Examples of the latter are: Martland, Peter, Since Records Began: EMI (London, 1997)Google Scholar; Collins, John, The Story of Chess Records (London, 1998)Google Scholar; Kelly, Michael Brian, Liberty Records: A History of the Recording Company and its Stars (Jefferson, N.C., 1992).Google Scholar

⁴ The work done so far is Jones, “The Gramophone Company”; Mabry, Donald J., “The Rise and Fall of Ace Records: A Case Study in the Independent Record Business,” Business History Review 63 (Fall 1990): 411–50CrossRefGoogle Scholar; Martland, Peter, “A Business History of the Gramophone Company, 1890–1918” (PhD. diss., Cambridge University, 1992).Google Scholar

⁵ In the form of R&D and tacit knowledge about production processes. See, for example, Buckley, Peter J. and Casson, Mark, The Future of the Multinational Enterprise (Basingstoke, 2nd ed., 1991)CrossRefGoogle Scholar; Rugman, Alan M., Inside the Multinationals: The Economics of Internal Markets (London, 1981)Google Scholar; Teece, D. J., “Towards an Economic Theory of the Multi-product Firm,” Journal of Economic Behavior and Organization 3 (March 1982): 39–63CrossRefGoogle Scholar; and “Transaction Cost Economics and the Multinational Enterprise,” Journal of Economic Behavior and Organization 7 (Mar. 1986): 21–45.CrossRefGoogle Scholar

⁶ Sutton, John, Technology and Market Structure: Theory and History (Cambridge, Mass., 1998)Google Scholar. The role of knowledge in the expansion of music multinationals is somewhat similar to that observed by Lopes for the internationalization of the alcoholic beverages industry after 1945, where knowledge took the form of specific marketing knowledge and the possession and trading of unique brands. See Lopes, Teresa da Silva, “Brands and the Evolution of Multinationals in Alcoholic Beverages,” Business History 44 (July 2002): 1–30.CrossRefGoogle Scholar

⁷ The prominence of non-U.S. corporations is a feature that, again, shows similarities to the evolution of the alcoholic drinks industry after 1945. Lopes, “Brands.”

⁸ Throughout its history, PolyGram had various names (see Table 1).

⁹ Blanken, I. J., De Ontwikkeling van de N.V. Philips Gloeilampenfabrieken tot Elektrotechnisch Concern, 1922–1934: Geschiedenis van Philips Electronics N.V. Ill (Leiden, 1992).Google Scholar

¹⁰ “General Meeting PPI 1955,” 21–24 Apr. 1955, PolyGram Archives (hereafter PA) /D/ DsG4 AS156, p. 20.

¹¹ This may be somewhat related to dynamic capabilities, which Teece and Pisano characterize as the “ability to integrate, build and reconfigure internal and external competences to address rapidly changing environments.” Teece, David J. and Pisano, Gary, “Dynamic Capabilities and Strategic Management,” Strategic Management Journal 18 (August 1997):5163.0.CO;2-Z>CrossRefGoogle Scholar. See also “Introduction,” in Dosi, Giovanni, Nelson, Richard R., and Winter, Sidney G., eds., The Nature and Dynamics of Organizational Capabilities (Oxford, 2000),1–24Google Scholar, esp.6; and Nelson, Richard R. and Winter, Sidney G., An Evolutionary Theory of Economic Change (Cambridge, Mass., 1982)Google Scholar. On the relation between resources/capabilities and transaction costs see Jones, S. R. H., “Transaction Costs and the Theory of the Firm: The Scope and Limitations of the New Institutional Approach,” Business History 39 (Jan. 1997): 9–25.CrossRefGoogle Scholar

¹² Harker, Dave, One for the Money: Politics and Popular Song (London, 1980), 223–27Google Scholar. Nominal market size, in current dollars and pounds, has been deflated using the consumer price index for both countries. The percentages mentioned have been rounded from 5.9,10.1, and 8.8 percent, respectively.

¹³ Peterson, Richard A. and Berger, David G., “Cycles in Symbol Production: The Case of Popular Music,” American Sociological Review 40 (Apr. 1975): 158–73CrossRefGoogle Scholar, esp. 164–65.

¹⁴ Ibid.

¹⁵ U.S. Bureau of the Census, US. Census of Manufacturers (Washington, D.C., 1947,1972).Google Scholar

¹⁶ Undoubtedly, political factors also played a role. In the interwar years, sharp ideological differences and declining artistic freedom inhibited music's international transferability, while after the war the Western countries had become more aligned politically and ideologically.

¹⁷ The idea of rents is important for understanding the evolution and structure of music multinationals; it will be discussed briefly below.

¹⁸ In economic terms, the distribution system became more asset-specific, i.e., it became so specialized toward the music distributed through it that it could hardly be used for any other pur-poses, and would fetch a low price if sold to a nonindustry buyer. Even so, the value of the music-copyright assets was increased because of the specialized knowledge within the distribution orga-nization, and these music/copyright assets would have substantially lower value to a firm that did not own a distribution system. On asset specificity, see Williamson, Oliver E., The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting (New York, 1985).Google Scholar

¹⁹ Chappie, Steve and Garofalo, Reebee, Rock ‘n‘Roll is Here to Pay: The History and Politics of the Music Industry (Chicago, 1977), 191.Google Scholar

²⁰ For a case study on A&R, music publishing, and the capture of rents by smaller Dutch companies, see also Carroll, Charles, Mol, Joeri M., and Wijnberg, Nachoem M., “Value Chain Envy: Explaining New Entry and Vertical Integration in Popular Music,” Journal of Management Studies 42 (Mar. 2005): 251–76.Google Scholar

²¹ A general overview of record marketing/distribution is Hull, Geoffrey P., The Recording Industry (New York, 2nd ed., 2004), 169–205.Google Scholar

²² Transfer pricing involves locating activities in tax-efficient production countries and setting internal international prices in such a way as to incur most taxable income in t he countries with the lowest corporate taxes. PolyGram, for example, would take into account the locations of its record and CD manufacturers and music-publishing vehicles in Germany, France, and the United States. The prices charged in the various destination countries would take into account their tax and tariff rates.

²³ Similarities exist with alcoholic-beverage firms. Teresa Lopez, “Brands,” has shown that as marketing knowledge of these companies accumulated over time, the acquisition of brands gained increasing strategic relevance. A major difference was that brands needed national registration, advertising, and maintenance. Unlike music, they did not have a preexisting inherent value for markets where they were not yet established.

²⁴ General industry sales data can be obtained externally, but this is no substitute for detailed, disaggregated internal sales data and qualitative judgment about consumer tastes, which were important because the industry was constantly launching new products. Given the short product life cycle of music, obtaining information through the market could take too long and make the data obsolete. Gerben Bakker makes this point for the film industry in “Building Knowledge about the Consumer: The Emergence of Market Research in the Motion Picture Industry,” Business History 45 (Jan. 2003): 101–27CrossRefGoogle Scholar; and “Stars and Stories: How Films Became Branded Products,” Enterprise and Society 2 (Sept. 2001):461–502.CrossRefGoogle Scholar

²⁵ Caves, Richard E., Multinational Enterprise and Economic Analysis (Cambridge, 1996).Google Scholar

²⁶ See also Caves, Richard E., Creative Industries: Contracts between Art and Commerce (Cambridge, Mass., 2000)Google Scholar. Assuming in-company compensation systems brought part of the marginal revenues generated by the label's extra effort back to the label.

²⁷ See the introduction to this article.

²⁸ It ranged from a minimum of 20.4 to a maximum of 25.1 percent, with an average of 22.2 percent. Calculated from Monopolies and Mergers Commission, The Supply of Recorded Music (London, Her Majesty's Stationery Office, Cm 2599, 1994), 167–73Google Scholar. Cf. the R&D/sales ratios in Sutton, Technology and Market Structure.

²⁹ Overviews of A&R management are Hull, Recording, 123–48; and Hennion, Antoine, Les Professionnels du Disque: Une Sociologie des Variétés (Paris, 1981).Google Scholar

³⁰ Trautwein, Friedrich, “Merger Motives and Merger Prescriptives,” Strategic Management Journal 11 (May–June 1990): 283–95CrossRefGoogle Scholar, underlines the crucial importance of private information in acquisitions. See also Penrose, Edith, The Theory of the Growth of the Firm (Oxford, 1959), 153–96.Google Scholar

³¹ See also the remarks above about the label's ability to capture rents and the alignment of incentives.

³² An overview of music publishing is found in Hull, Recording, 69–96.

³³ On international flows of royalty payments, see Kretschmer, Martin, Baden-Fuller, Charles, Klimis, George Michael, and Wallis, Roger, “Enforcement and Appropriation of Music Intellectual Property Rights in Global Markets,” in Globalization of Services: Some Implications For Theory and Practice, eds. Aharoni, Yair and Nachum, Lilach (London, 2000), 163–96.Google Scholar

³⁴ Hull, Recording, 75.

³⁵ Since, in the music industry, copyright owners always are in a strong position (because they have the monopoly on the particular copyright), this situation does not apply to the modern music industry.

³⁶ On asset specificity, see Williamson, Economic Institutions.

³⁷ See, for example,McGahan, Anita M., “The Incentive not to Invest: Capacity Commitments in the Compact Disc Introduction,” Research on Technological Innovation, Management and Policy 5 (1993): 177–97.Google Scholar

³⁸ Ibid.

³⁹ Ibid.

⁴⁰ Jones, Geoffrey, The Evolution of International Business: An Introduction (London, 1996), 68–99Google Scholar, who introduces the term “resource multinationals.”

⁴¹ Even the “local assets” were important because they helped PolyGram's distribution network reach minimum efficient scale, and the labels linked to these creative assets gave it valuable local marketing information.

⁴² Sedgwick, John and Pokorny, Mike, “The Risk Environment of Film Making: Warner Brothers in the Inter-War Years,” Explorations in Economic History 35 (Apr. 1998): 196–220CrossRefGoogle Scholar, argue that within the film industry production costs are most meaningful when considered as portfolios rather than as individual films.

⁴³ This point is further elaborated in Bakker, Gerben, “The Decline and Fall of the European Film Industry: Sunk Costs, Market Size, and Market Structure, 1890–1927,” Economic History Review 58 (May 2005): 311–52CrossRefGoogle Scholar. Sunk costs are costs that must be incurred to enter an industry, are incurred once, and cannot be recovered when one exits an industry. Examples of sunk costs are outlays on advertising and R&D.

⁴⁴ Jones, “Gramophone,” 93–97; Gelatt, Phonograph, 257.

⁴⁵ Martland,EMI.

⁴⁶ In 1917, the German assets of the Gramophone Company were seized by the German government and sold to local interests. See Martland, EMI.

⁴⁷ Fetthauer, Sophie, Deutsche Grammophon: Geschichte eines Schallplattenunternehmens im “dritten Reich”(Hamburg, 2000).Google Scholar

⁴⁸ Ibid.

⁴⁹ From 1938 onward; see Table 2. In 1931 American Columbia had been sold by its British owners to Grigsby-Grunow, a U.S. manufacturer of radios and refrigerators. In 1933 the latter went bankrupt and Columbia was bought by the American Record Corporation, an industry consolidator. Gelatt, Phonograph, 255; Chanan, Repeated Takes, 66.

⁵⁰ Davenport, Jenny, “Lewis, Sir Edward Roberts (1900–1980),” in Dictionary of Business Biography: A Biographical Dictionary of Business Leaders Active in Britain in the Period 1860–1980, eds. Jeremy, David J. and Shaw, Christine (London, 1985),757–60.Google Scholar

⁵¹ Transcript interview (hereafter TI) K. K. Daan with H. W. van Zoelen, 29 Dec. 1965, PA/D/DSZ1.3/AS145; A. Goudeket, “Rapport naar aanleiding van een investigation, uitgevoerd bij de Hollandsche Decca Distributie [Decca Dutch Supplies] N.V. te Amsterdam,” 13 Dec. 1941, PA/D/DSZ1.4AS34.

⁵² Details of this transaction, carried out in secret in the German-occupied Netherlands, can be found in Gerben Bakker, “The Making of a Music Multinational: The International Strategy of PolyGram, 1945–1999,” AFM Working Papers 12 (Department of Accounting, Finance and Management, University of Essex, 2003): 38–39.Google Scholar

⁵³ What follows strongly draws on Blanken, Philips, 199–202, 265–69, 330, 337–48; and Kroniek K.K. Daan, PA/D, 2.

⁵⁴ Blanken, Philips. Philips' concerns originated from asset specificity: the value of hardware depended on availability of attractive software. Software makers could appropriate most of the value, because they were more concentrated than hardware manufacturers and could protect their assets by copyright. Williamson, Institutions.

⁵⁵ “Uittreksel uit notulen van de vergadering van de Concern Oreo d.d. 23–9–1947,” PA/D/ DSC1AS32.

⁵⁶ ”Heads of agreement. N.V. Philips' Gloeilampenfabrieken of Willemstad, Curaçao and Decca Record Company Ltd. of London, 6–12–1945,” PA/D/DsBa11As106b; ”Bespreking met Mr Lewis, Decca Company London, 19–12–1945,” PA/D/DsBa11As108a; “Reisbericht J.M. Ledeboer van bezoek aan Decca London, 26, 27, 28–2–1947, 12–2 verslagdatum 14–3–1947,” PA/D/DSZ1.3AS17; “Verslag van de directie-bespreking op 13 december 1961 te Baarn,” PA/Ds11320.

⁵⁷ On “stepping stones,” see Wernerfelt, Birger, “A Resource-Based View of the Firm,” Strategic Management Journal 5 (Apr.–June 1984): 171–80.CrossRefGoogle Scholar On combining complementary activities/capabilities, see Richardson, G. B., “The Organisation of Industry,”Economic Journal 82 (Sept. 1972): 883–96.CrossRefGoogle Scholar

⁵⁸ TI K. K. Daan with Th. W. Kreek, undated, PA/D/DSZ1.3AS147; Daan, T I K. K. with Binsma, J., 20 Feb. 1968, PA/D/DSG.3AS639; TI K. K. Daan with Th. K. P. Van Dongen, undated, PA/D/DSZ1.3AS150.Google Scholar

⁵⁹ Philips had adopted a multidivisional model in 1946, organizing its businesses in product divisions. Blanken, I. J., Een Industriële Wereldfederatie: Geschiedenis van Philips Electronics N.V. Deel 5 (Zaltbommel, 2003), 15.Google Scholar

⁶⁰ TI K. K. Daan with J. M. Ledeboer, undated, PA/D/DSZ1.3AS148.

⁶¹ For a detailed account see Bakker, “International Strategy,” 16–17.

⁶² Because of large initial losses, the average profit margin between 1950 and 1962 was only 0.6 percent, with a low of −1 3. 3 percent in 1951 and a high of 6.4 percent in 1957. Annex to “H.I.G. Muziek. 10 jaar ontwikkeling,” 1963, PA/D/DsG2As63iAnnex. On Philips and PPI between 1950 and 1962 see also: Blanken, Wereldfederatie, 68–79.

⁶³ Ibid., 446.

⁶⁴ Ibid., 67–68.

⁶⁵ Ibid., 67–117.

⁶⁶ The articles in Jones, Geoffrey, ed., Coalitions and Collaboration in International Business (Aldershot, 1993), give a good overview of international alliances.Google Scholar

⁶⁷ Blanken, Wereldfederatie, 168–69.

⁶⁸ Deutsche Grammophon's share of the German market was 23.4 percent in 1933, and the output of its Hannover plant was 5.8 million discs in 1939. Wilfried Feldenkirchen, Siemens, 1918–1945 (Columbus, Ohio, 1999), 632.Google Scholar

⁶⁹ This view emerges from the Daan interview transcripts; see also “Visit to German grammophone record factories between June I2th-25th 1947,” PA/D/DSZ1.8AS142. Fetthauer's book, however, which runs up to late 1945, does not mention Philips or Hollandsche Decca, so any contacts were probably after late 1945. Fetthauer, Deutsche, 174–202.

⁷⁰ Unlike Telefunken, Siemens had little interests in consumer electronics. Therefore, the alliance left Philips free to operate in the area of consumer products. Blanken, Wereldfederatie, 169.

⁷¹ “Heads of Agreement zwischen N.V. Philips’ Phonografische Industrie, Baarn, Alldelphi Verwaltung GmbH., Hamburg, einerseits, und Deutsche Grammophon GmbH. Hannover, andererseits,” PA/D/DsBaii.2Ass6,1954.

⁷² Philips’ managers noted that even when classical recordings did not result in an immediate profit, they still increased Philips’ prestige and reputation, because the Philips trademark was prominently printed on the records. “Brief minutes of the ‘Manager's Meeting’ held in Baarn on Saturday, April 23rd 1955, during the General Meeting 1955,” PA/DSI5730.

⁷³ Wilfried FeldenMrchen, Siemens: Von der Werkstatt zum Weltunternehmen (Munich, 2nd ed., 2003), 376–77.Google Scholar

⁷⁴ Ibid., 320.

⁷⁵ Ibid., 399.

⁷⁶ “Uittreksel uit het supplement Algemeen Resultaten Overzicht Hoofdindustriegroep Muziek mei 1953 t/m april 1954,” PA/Ds10355; letter from Kuijpers, J. H. M., Secretariaat NV Philips’ Gloeilampenfabrieken, Eindhoven to K. K. Daan, 13 May 1966Google Scholar, PA/D/Ba11.2As65. See also CBS, Annual Reports: 1956Google Scholar, 39–47; 1959, 43–49 PA/D/Ds10355, pp. 43–49.

⁷⁷ lanken, Industriële Wereldfederatie, 305–29.

⁷⁸ Letter from Smit, C. J. to Spoel, J. A. C. and Kranenberg, A. W., 12 Mar. 1956, PA/ DS15724.Google Scholar

⁷⁹ “Uittreksel uit de notulen van de vergadering van de Concern Oreo, d.d. 23–9–1947,” PA/D/DSC1AS32; PA Kroniek Daan, entry 3 Apr. 1946; Philips is filing patents on long-playing technology.

⁸⁰ , Gelatt, Phonograph; Erik Gruijthuijsen and Peter Junge, De Revolutie van Jan Timmer (Naarden, 1992), 26ndash;27.Google Scholar

⁸¹ Information kindly provided by Peter Martland, who is writing a history of the company; see also Baudet, Henri, Een Vertrouwde Wereld: 100 Jaar Innovatie in Nederland (Amsterdam, 1986).Google Scholar

⁸² Teece and Pisano, “Dynamic Capabilities.”

⁸³ Ghoshal, Cf. Sumantra and Bartlett, Christopher A., Managing across Borders: The Transnational Solution (London, 2nd ed., 1998).Google Scholar

⁸⁴ The Philips subsidiaries also formed an intelligence network. Local Philips managers often wrote detailed reports to PolyGram about local market conditions, many of which have been preserved in the PolyGram Archives. Bakker, “International Strategy,” 15–18.

⁸⁵ Dijksterhuis, P. R. and Schuitema, E. B. W., “Opzet H.I.G. Muziek. Aan de leden van de Raad van Bestuur,” 5 Apr. 1950Google Scholar, PA/D/DSG.2AS99. See also Metze, Marcel, Kortsluiting: Hoe Philipszijn Talenten Verspilde (Nijmegen, 1991). Teece argues that foreign governance costs decline sharply with the number of subsidiaries of a multinational in a country, suggesting that Poly-Gram benefited from Philips already having international subsidiaries. Teece, “Multinational.”Google Scholar

⁸⁶ Burnett, Robert, The Global Juke Box (London, 1996).Google Scholar

⁸⁷ Daan, T I K. K. with Dhr. Van der Wai, 22 Feb. 1968, PA/D.Google Scholar

⁸⁸ Blanken, Wereldfederatie, 116–17.

⁸⁹ Ibid., 343.

⁹⁰ Feldenkirchen, Siemen, 376–77.

⁹¹ On European entry attempts, see the essays in Jones, Geoffrey and Galvez-Munoz, Lina, eds., Foreign Multinationals in the U.S.: Management and Performance (London, 2002), esp.Mira Wilkins, “An Overview of Foreign Companies in the United States, 1945–2000,” 18–49.Google Scholar

⁹² This was related not only to market size, but possibly also to the immigrant cultures and the strength of its largely unstratified popular culture: less of a class system and cultural elite existed to control entry into the cultural avenues and to divert talent away from popular culture. Bourdieu, Pierre, La Distinction: Critique Sociale du Jugement (Paris, 1979).Google Scholar

⁹³ Philips’ overall policy towards the United States changed in the early 1960s. Since the war, the North American Philips Corporation had carried out a large number of acquisitions, using savvy financial engineering that made great use of fiscal loss-compensation laws and losses from several targets. From the early 1960s onward, Philips wanted to have more control over NAPC policy and increase the cohesion with the rest of Philips. Frits Philips only allowed new takeovers when they strengthened Philips’ existing market position. Blanken, Wereldfederatie, 331–32.

⁹⁴ This was $9.3 million in 2000 dollars. Before the Mercury takeover, PPI also explored a potential link-up with DOT Records and its owner, the Hollywood studio Paramount (which had bought DOT for two million dollars [10 million in 2000 dollars] in 1957), but nothing came of it. “Gegevens over DOT Records,” 12 Apr. i960, PA/DSH320.

⁹⁵ The system consisted of eleven branches across the United States owned by Mercury and seventeen independent distributors for areas Mercury's branches did not cover. King, Algin Braddy, “The Marketing of Phonograph Records in the United States” (Ph.D. diss., Department of Business Organization, Ohio State University, 1966), 157.Google Scholar Peterson and Berger, “Symbol Production,” 162, note that Mercury, formed in 1947, was the only independent producer-distributor that managed to garner a significant market share between 1948 and 1955 and was “reputed to have used the channels of organized crime to market its product and force its records on juke box operators.”

⁹⁶ This came to $171 million in 2000 dollars. Earlier, Cameo Parkway/MGM, owner of Verve and MGM Records, had made a bid of $60 million, but this was not in cash (TI K. K. Daan with Dhr. Van der Haar, 27 Aug. 1968, PA/D/D1/AS752). At that time, GPG/PolyGram was already distributing the MGM and Verve repertoire in Europe, and later, in 1972, Poly-Gram would acquire MGM Records, including Verve (TI K. K. Daan with Pirn Zalsman, 20 May 1968, PA/D/DSG3/AS638).

⁹⁷ PolyGram Krant 2 (June 1976), PA.Google Scholar

⁹⁸ Blanken, Wereldfederatie, 116–17.

⁹⁹ Ibid.

¹⁰⁰ Eisses, Dr. W. J., “Punten voor toespraak hr. Solleveld tot genootschap van jonge academici in Eindhoven op 21 mei, 16.00 uur,” 27 Apr. 1970, PA/DS641.Google Scholar

¹⁰¹ An advantage of national repertoire was also that it could not suffer from parallel imports. Jean-Paul Grollé, “Stilte na de CD,” FEM (20 Mar. 1993): 19–21.

¹⁰² ”0prichting Polytel Film NV,” press release, 22 Oct.1969, PA/DS8712AS18; Jaarrapporten 1976 (PA/DS7780), 1978/1979 (PA/DS8701); “Polytel International. A Group of Companies to Serve the Needs of Film and Television,” brochure, PA/DS8701; “Film-TV legt accent op co-produkties,” PolyGram Krant 6 (Jan. 1980): 12.

¹⁰³ Burnett, Juke. Warner Music was owned by the film studio. Columbia, paradoxically, was spun off by Columbia Pictures in t h e 1970s.

¹⁰⁴ For a somewhat resource-based overview of theory on mergers, see Kay, John, Foundations of Corporate Success: How Business Strategies Add Value (Oxford, 1993), 144–59.Google Scholar

¹⁰⁵ Denisoff, R. Serge and Romanowski, William D., Risky Business: Rock in Film (New Brunswick, 1991), 208, 224, 254.Google Scholar

¹⁰⁶ “Teruggang Wereldmuziekmarkt treft ook Polygram,” Polygram Krant 6 (Sept. 1980): 1–4Google Scholar; , Gruijthuijsen, Timmer; Fredric Dannen, Hitmen: Power Brokers and Fast Money inside the Music Business (New York, 1990, 2nd ed. 1991), 172–76Google Scholar; PolyGram Jaarrapport 1978/1979, PA/DS8701.

¹⁰⁷ As reported in Rolling Stone, 13 Nov. 1980, p. 23, and quoted in Denisoff: Risky Business, 249.Google Scholar

¹⁰⁸ Denisoff: Risky Business, 249.

¹⁰⁹ Dannen, Hitmen, 161–81, esp. 170, 177; PolyGram Jaarrapport 1978/1979, annex Casablanca, PA/DS8701; Denisoff, Risky Business, 250–51.

¹¹⁰ Furthermore, the success of a label could invite lawsuits by artists and other joint label owners to renegotiate and get a larger slice of the pie. On ownership versus control, see also Geoffrey Jones, “Control, Performance and Knowledge Transfers in Large Multinationals: Unilever in the United States, 1945–1980,” Business History Review 76 (Fall 2002): 435–78. For a long period Unilever owned U.S. subsidiaries, but hardly controlled them.CrossRefGoogle Scholar

¹¹¹ This was $2.9 million in 2000 dollars. It was a controlling interest of 80 percent; owner-manager-entrepreneur Eddie Barclay retained the rest.

¹¹² The U.S. music multinationals have apparently solved their relatively weak capabilities in developing national repertoire through mergers with their European counterparts, bringing them closer to a rights-based model with a federated structure of A&R. In 1999 MCA merged with PolyGram, in 2003, BMG with Columbia/Sony Music. A merger of EMI with Warner Music in 2000 was blocked by antitrust authorities, though renewed attempts could surface in the future.

¹¹³ Peterson and Berger, “Symbol Production,” 169–70, discuss the increasing product differentiation and emergence of subsidiary labels during the 1960s and early 1970s. Chandler, Alfred D. Jr., in The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass., 1977)Google Scholar, discusses the role of product differentiation in General Motor's strategy to unseat Ford as market leader, yielding insight into the role of product differentiation in industry dynamics.

¹¹⁴ Lopes, Paul D., “Innovation and Diversity in the Popular Music Industry, 1969 to 1990,”American Sociological Review 57 (Feb. 1992): 56–71Google Scholar; Dowd, T. J., “Diversificazione Musicale e Mercato Discografico negli Stati Uniti, 1955–1990,”Rassegna Italiana di Sociologia 41 (Apr.-June 2000): 223–63Google Scholar. Some older, nonquantitative sociological works include Richard Peterson, A. and Berger, David G.“Entrepreneurship in Organizations: Evidence from the Popular Music Industry,” Administrative Science Quarterly 16 (Mar. 1971): 97–106;CrossRefGoogle ScholarHirsch, Paul M.“Organizational Effectiveness and the Institutional Environment,” Administrative Science Quarterly 20 (Sept. 1975): 327–44CrossRefGoogle Scholar For a cultural studies perspective, see Negus, Keith, Music Genres and Corporate Cultures (New York, 1999).CrossRefGoogle Scholar

¹¹⁵ It increased from 1.7 to 3.7 labels per record company. See Lopes, “Innovation.”

¹¹⁶ The term “federal” or “federation” has been used before to characterize the emerging structure of record distribution. See, for example, Huygens, Marc, Coevolution of Capabilities and Competition: A Study of the Music Industry (Rotterdam, 1999):Google Scholar 126–29; Baden-Fuller, C.Huygens, M., van den Bosch, F. and Volberda, H., “Co-evolution of Firm Capabilities and Industry Competition: Investigating the Music Industry, 1877–1997,” Organization Studies 22 (July 2001): 971–1011.Google Scholar The term also has interesting parallels in Philips’ selfimage as that of “a democratic, industrial world federation” (see below).

¹¹⁷ See the section on the structure of the postwar music industry above. Likewise, the advent of television had increased audiovisual distribution capacity, thus further differentiating motion pictures and radio to target specific and narrower (especially younger) audience segments, while the television networks focused on the lowest common denominator.

¹¹⁸ Hull, Recording, 90.

¹¹⁹ On the M-form, see, for example, Chandler, Visible Hand. For a detailed case study, see Arnold, David J. “PolyGram Classics,” Harvard Business School Case 9–598–074 (19 Nov. 1997).Google Scholar On PolyGram's corporate culture, see also Negus, Music Genres, 67–68.

¹²⁰ See also the examples of Motown and Go!Discs, below.

¹²¹ Unlike patents, copyrights had a long life span, could not be circumvented, and could not be made obsolete by competitors. The value varied substantially over time, but unlike patents, many copyrights retained an important residual value.

¹²² On the role of self-organization, see Dosi, Nelson, and Winter, “Introduction.”

¹²³ This connects to Herbert Simon's ideas on the importance of R“ “Strategy and Organizational Evolution,” Strategic Management Journal 14 (Feb. 1993): 131–42.

¹²⁴ Again, this connects to Trautwein's point about private information (“Mergers”).

¹²⁵ On location-specific advantages and t he multinational enterprise, see Rugman, Alan M. and Verbeke, Alain, “Location, Competitiveness, and the Multinational Enterprise,” in Oxford Handbook of International Business, eds. Rugman, Alan M. and Brewer, Thomas L. (Oxford, 2001), 150–80CrossRefGoogle Scholar. On location as part of brand image, see, for example, David Merrett and Greg Whitwell, “The Empire Strikes Back: Marketing Australian Beer and Wine in the United Kingdom”; and Mira Wilkins, “When and Why Brand Names in Food and Drink?,” both in Adding Value: Brands and Marketing in Food and Drink, eds. Jones, Geoffrey and Morgan, Nicholas (London, 1994), 162–90Google Scholar and 15–40. See also Lopes, “Brands.”

¹²⁶ Chandler, Alfred D. Jr., Strategy and Structure: Chapters in the History of the American Industrial Enterprise (Cambridge, Mass., 1962).Google Scholar

¹²⁷ See, for example, the Island case, discussed below.

¹²⁸ Trautwein, “Mergers,” underlined the importance of private information.

¹²⁹ Penrose, Theory, and Chandler, Strategy, observe that the growth of firms is often driven by a desire to put slack resources to productive use. PolyGram's U.S. distribution organization could be considered such a slack resource.

¹³⁰ The phenomenon that marginal revenues largely equal marginal profits in industries with high sunk costs, such as advertising- and R“The Decline and Fall of the European Film Industry.” On sunk costs, see note 43.

¹³¹ Galambos, Louis and Sturchio, Jeffrey L.“Pharmaceutical Firms and the Transition to Biotechnology: A Study in Strategic Innovation,” Business History Review 72 (Summer 1998): 250–78, esp. 252. Their analysis of the pharmaceutical industry's transformation by biotech companies suggests interesting similarities to the evolution of the music industry. The authors note the initial failure of large pharmaceutical companies to invest in biotechnology. This led to the emergence of many small firms. Soon the large multinationals corrected their mistake by teaming up with the biotech companies. The authors even estimate the lost revenue to the large corporations. The current article's findings for the music industry suggest otherwise: the extra biotech revenue would probably not have been realized by Big Pharma on its own. The pharmaceutical multinationals needed the new federated R“labels,” i.e., the biotech companies. The federated structure was able to make space for creative-entrepreneurial decision makers at relatively low levels, while preserving the advantage of being part of a larger company. Drawing organizational parallels between the music and pharmaceutical industry is not new. See, for example, Hirsch, “Effectiveness.”CrossRefGoogle Scholar

¹³² Cockburn, Iain and Henderson, Rebecca “The Economics of Drug Discovery” in Pharmaceutical Innovation: Revolutionizing Human Health, eds. Landau, RalphAchilladelis, Basil and Scriabine, Alexander (Philadelphia, 1999), 308–30Google Scholar, esp. 320–24.

¹³³ Ibid.

¹³⁴ Blanken, Wereldfederatie, 316.

¹³⁵ Ibid., 15–22.

¹³⁶ Ibid., 300–303, 441. Another Dutch (Dutch-English) multinational, Unilever, seems to have undergone somewhat similar problems with responding to European integration. Jones, Geoffrey and Miskell, Peter“European Integration and Corporate Restructuring: The Strategy of Unilever, C.1957-C.1990,” Economic History Review 58 (Feb. 2005): 113–39CrossRefGoogle Scholar

¹³⁷ On PolyGram's self-image as a federation of distinct, diverse entities, see also Negus, Music Genres, 67–68.

¹³⁸ Huygens, Coevolution, 124.

¹³⁹ Davenport, “Lewis.”

¹⁴⁰ Ibid. The initial £5.5 million could rise to £15.5 million, depending on Decca's performance after takeover. The Decca acquisition was not unlike the takeover of the Columbia Graphophone Company of the United States by its former British subsidiary half a century earlier, in 1925.

¹⁴¹ Ibid.

¹⁴² Focus on Siemens (Sept.-Oct. 1979): 26–29.

¹⁴³ It also paid 180 million German marks in dividends to Philips and Siemens between 1962 and 1980. Only in 1980 and 1981 did PolyGram get substantial capital injections from its parents, 110 million and 75 million German marks, respectively. Feldenkirchen, Weltunternehmen, 426.

¹⁴⁴ “Disco Dutchman,” Forbes, 5 Feb. 1979,100; “PolyGram Tops Charts in Year of ‘Disco Fever',” Greenwich Time, 9 Aug. 1979; Kathryn Harris, “PolyGram: That's Entertainment—Conglomeratized,” and “U.S. Business Practices Baffle Dutch Trader: PolyGram's Chief Enjoys Country, not Custom Regulations,” New York Times, 30 Sept. 1979. In the Netherlands Solleveld also attracted media attention, as for example, in “Peetvader van de Platenindustrie: Platenbons Coen Solleveld: ‘Publiek bepaalt succes “ Elseviers Magazine 8 (Dec. 1979): 153–55.Google Scholar

¹⁴⁵ Gruijthuijsen, Timmer, 17.

¹⁴⁶ Dannen, Hitmen, 161–81; Jaarrapport 1978/1979, annex RSO, PA/DS8701.

¹⁴⁷ Dannen, Hitmen, 176.

¹⁴⁸ Ibid., 175.

¹⁴⁹ The music market was also destabilized by high inflation, copyright infringements by criminal organizations, and possibly by home taping of recorded music, although the effect of the latter on music sales—whether positive or negative—is unclear and is still being debated.

¹⁵⁰ Feldenkirchen, Weltunternehmen, 361, 399.

¹⁵¹ Gruijthuijsen, Timmer, 17–28. Later, Timmer would head the Consumer Electronics Division and then Philips as a whole. As CEO he radically restructured Philips, as he had done at PolyGram.

¹⁵² Ibid., 22; Dannen, Hitmen, 252–57, 262. The merger attempt was fascinating, given that both companies pioneered the decentralized multidivisional A&R model and Warner was traditionally also enthusiastic about new formats.

¹⁵³ Gruijthuijsen, Timmer, 17–28.

¹⁵⁴ PolyGram was jokingly called “CBS East.” Ironically, PolyGram was returning the favor to CBS, which bought away several key people from PPI when it set up its own European distribution network in the early 1960s. TI K. K. Daan with Van der Wai [sic], 22 Feb. 1968, PA/D/DSZ1.3AS637.

¹⁵⁵ The share of national repertoire in individual markets was considerable and could sometimes be between 40 percent and 60 percent (in Europe it was 40 percent, on average); Hull, Recording, 10. Increased distribution capacity and decreasing recording costs contributed to a higher supply of national repertoire.

¹⁵⁶ As a member of national music industry associations, PolyGram threatened prosecution for violation of antitrust laws if any boycott of the CD was discussed or even mentioned during industry meetings. Gruijthuijsen, Timmer, 26.

¹⁵⁷ Arnold, “PolyGram Classics.”

¹⁵⁸ PolyGram Annual Reports.

¹⁵⁹ Or an 18.5 percent annual increase in real market value between 1987 and 1998, if PolyGram's valuation for the aborted 1987 IPO is taken into account (see Table 4).

¹⁶⁰ Arnold, “PolyGram Classics,” 2.

¹⁶¹ Gander, Jon and Rieple, Alison “Bertelsmann Music Group Entertainment (BMGE) and Bertelsmann AG,” in The Strategic Management of Organisations, ed. Haberberg, Adrian and Rieple, Alison (New York, 2001), 721–36.Google Scholar

¹⁶² Burnett, Juke; Gander, Jon and Rieple, Alison, “The World-Wide Recorded Music Industry,” in The Strategic Management of Organisations, eds. Haberberg, Adrian and Rieple, Alison (New York, 2001), 692–720. For a long time PolyGram had done MCAs international distribution.Google Scholar

¹⁶³ Gander and Rieple, “World-Wide.” On the business history of consumer electronics see Chandler, Alfred D. Jr., Inventing the Electronic Century: The Epic Story of the Consumer Electronics and Computer Industries (New York, 2001).Google Scholar

¹⁶⁴ PolyGram, nnual Report, 1990,15.

¹⁶⁵ Negus, Keith, Producing Pop: Culture and Conflict in the Popular Music Industry (London, 1992), 18.Google Scholar

¹⁶⁶ This international repertoire network is discussed as an example of international knowledge management in Yves L. Doz, Jose Santos, and Peter J. Williamson, From Global to Metanational: How Companies Win in the Knowledge Economy (Boston, 2001).

¹⁶⁷ Huygens, Coevolution.

¹⁶⁸ Ibid., 162.

¹⁶⁹ Burnett, Juke, 53.

¹⁷⁰ Huygens, Coevolution, 214–15, 218.

¹⁷¹ Entries “Motown Record Company L. P.” and “PolyGram” in International Directory of Company Histories, ed. Derdak, Thomas (Chicago, 1988).Google Scholar

¹⁷² Ibid.

¹⁷³ An important factor in both attempts was Philips1 and Siemens’ desire to facilitate the introduction of new audiovisual standards.

¹⁷⁴ This shows some similarities to the situation in the interwar European film industry, when often smaller, partially independent, flexibly specialized production companies fed differentiated films crafted to local and regional tastes to large distributors. See, for example, Bakker, Gerben, “Selling French Films on Foreign Markets: The International Strategy of a Medium-Sized Film Company,” Enterprise and Society 5 (Mar. 2004): 45–76.CrossRefGoogle Scholar

¹⁷⁵ The exact amount was $10.4 billion, in 1998 dollars.

¹⁷⁶ ‘Distinctive strengths’ here refers to the phrase ’ that was introduced by Kay, in Foundations of Corporate Success, to refer to the unique strengths and characteristics of organizations compared to their competitors. Kay argues that a firm's history is an essential factor that shapes its distinctive capabilities.

¹⁷⁷ Wernerfelt, ‘Resource-Based’

¹⁷⁸ One does not contradict the other, of course, as many small local companies could have been overtaken by more multinationals. Soon after there were six rights-based multinationals, they were reduced to four again, when PolyGram merged with MCA and Sony Music with BMG.

¹⁷⁹ The rights-based multinational shows some connections to Buckley and Casson's Future of the Multinational Enterprise, p. 35, which characterizes the multinational as “an international intelligence system for the acquisition and collation of basic knowledge relevant for R&D, and for the exploitation of the commercially applicable knowledge generated by R&D.” As quoted in Rugman, Alan M. and Verbeke, Alain, “Extending the Theory of the Multinational Enterprise: Internalization and Strategic Management Perspectives,” Journal of International Business Studies 34 (March 2003): 125–37CrossRefGoogle Scholar; 126. See also Simon, “Strategy and Organizational Evolution.” Four major factors differentiating rights-based multinationals from multinationals in other R&D-intensive industries are the temporary monopoly that the right gives on the final product; the constant launch of portfolios of risky innovations within a specific format (with a strongly leftward skewed distribution of revenues over the product life cycle); the high fixed and sunk costs, making marginal revenues largely equal marginal profits; and, finally, the necessity to have distribution subsidiaries in all major markets, rather than exports or licensing.

¹⁸⁰ On sunk costs and the nature of R&D outlays, see Sutton, Technology and Market Structure. On sunk costs, see also note 43, above.

¹⁸¹ See Caves, Creative Industries. The supply of each individual right was fixed and monopolized, after creation, by way of intellectual property-right law and the nature of information.

¹⁸² See Buckley and Casson, Multinational Enterprise, which notes the effect of the increase in demand for technology-intensive products in general on the evolution of multinationals.

¹⁸³ One could not indefinitely add new researchers and technological trajectories (acts, A&R managers, and genres or styles, in the case of music) to a unit without encountering sharply decreasing returns. Henderson and Cockburn, “Economics of Drug Discovery.”

¹⁸⁴ See also Simon, “Strategy and Organizational Evolution.”

¹⁸⁵ Lees, Stan, Global Acquisitions: Strategic Integration and the Human Factor (Basingstoke, 2003), 40. See also the discussion by Galambos and Sturchio in “Pharmaceutical Firms,” n131.CrossRefGoogle Scholar