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The Making of a Music Multinational: PolyGram's International Businesses, 1945–1998

Published online by Cambridge University Press:  13 December 2011

Gerben Bakker
Gerben Bakker
Affiliation:
GERBEN BAKKER is assistant professor in the Department of Accounting, Finance and Management at the University of Essex and a Ghoshal Research Fellow at the Advanced Institute of Management Research in London.
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Abstract

In half a century PolyGram expanded from two small Dutch and German companies to become the world's largest music multinational. It did so in the midst of a fast-changing business environment, in which relatively homogenous products and tastes gave way to differentiated outputs for segmented markets. Making use of strengths inherited from its owners Philips and Siemens, PolyGram integrated a continuous series of foreign acquisitions into one international organization while maintaining the creative identities and independence of the firms it acquired. To control and manage the resulting idiosyncratic configuration, it developed the federated form, a decentralized organizational structure that fit the shifting environment. PolyGram became what can be defined as a rightsbased multinational, and its structure showed similarities to multinationals in other rights-based industries.

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Articles
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Business History Review , Volume 80 , Issue 1 , Spring 2006 , pp. 81 - 123
Copyright
Copyright © The President and Fellows of Harvard College 2006

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References

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

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

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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

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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

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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.

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

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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

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39 Ibid.

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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.

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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.

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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

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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

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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