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In this case study an attempt was made to identify the characteristics of the music industry, in order better to understand its nature. The economic development of the Icelandic music industry will be addressed from the viewpoint of technological impact, institutional support, innovation and knowledge creation. In order to do so a systems approach will be used.

Systems approach

Blanchard and Fabycky (1998) use three fundamental elements to define a system:

a) Components are the operating parts, b) Attributes are the properties of the components, c) Relationships connect the components and attributes.

A system can be described as a set of interrelated components working together. Each component’s behaviour or condition has an effect on the others, but not necessarily on all of them. The components can neither be separated from the set nor act independently, since that would affect the function of the system. If a component is removed from the system, the system may collapse if it is non-robust, but a robust system will change. Relationships involve links between components via markets as well as via

non-markets. In an innovation system, one of the most important relationships involves technology transfer and technology acquisition, whether intentional or unintentional transfer of technology. In both cases competence in receiving the technology is needed. The components of systems interact. In these interactions lie the characteristics (or attributes) of the system including the capabilities (competence) of the system to perform its function. The sole function of an innovation system is to generate, diffuse and utilize technology. Thus the main features of the system are the capabilities of the actors to generate, diffuse and utilize technologies that have economic value (Carlsson et al. 1999). Technological system

The defining character of the technological system is that it defines technology or technological possibilities as the core of the system, thus viewing the innovation process from the supply side. In the music industry this would mean, for example, focussing on the development of digital technology and its impact on the industry. However, when looking at the industry’s competence to exploit this technological development and create business opportunities, the approach is from the demand side. Carlsson et al. (2001) speak of three dimensions of technological systems:

1) The cognitive dimension, which refers to the structuring of technological development leading to innovation.

2) The organizational and institutional dimension, which refers to the network of actors who embody the system. It consists of all individuals such as inventors, researchers, engineers, managers and bureaucrats, who support the formation of problem-solving networks and therefore innovation.

3) The economic dimension refers to the actors who convert technical possibilities into business opportunities. Each set of business opportunities can be exploited in different markets, For example digital technology provided business opportunities in the music industry and the film industry and more. These economic actors form a competence bloc. Here that the technological system and competence bloc overlap; they have the economic actors in common.

The competence bloc theory

The competence bloc theory (Eliasson & Eliasson, 1996) states that a competence bloc defines the minimum set of actors needed to develop an industry. The competence bloc consists of six actors:

a) The competent and active customer

b) Innovators who integrate technologies in new ways c) Entrepreneurs who identify profitable innovations

d) Competent venture capitalists who recognize and finance the entrepreneurs e) Exit markets that facilitate ownership change

f) Industrialists who take successful innovations to industrial scale production.

The main purpose of the competence bloc is to identify the winners and find external financing and move them on to the industrial scale production and distribution. All actors in the competence bloc are important. If the competence bloc is not vertically complete there is a great risk that winners may be lost.

The development of the industry will mainly be viewed through the technological system theory. Carlsson and Eliasson (1999) state that the primary function of a technological system is to organize technical knowledge within a system. Also to organize the actors who possess this knowledge, and the organizations and institutions supporting the creation and diffusion of knowledge, in a way that promotes the conversion of technical possibilities into business opportunities. The efficiency and effectiveness of this conversion process depends on the economic actors in a particular arena as a competence bloc.

Data collection

Data collection of case studies can rely on many sources of evidence. In this case study, the sources of evidence were twofold: documentation, which includes letters, minutes of meetings, unpublished and published reports, statistical reports and articles appearing in the mass media; and interviews with people from the record companies, from industry organizations, artists organizations, collecting societies, journalists, and others that could provide useful information.

The importance of the case study

The case study is rather vast, and less detailed than it would be if a more specific topic had been chosen. Due to the unstable environment within the music industry in Iceland, as well as uncertainty in the technological environment, it was decided to approach the music industry from a broad perspective in order to provide policy makers and decision makers within the industry as well as within the government with extensive knowledge of the characteristics of the industry.

Key findings

The Icelandic music industry can be said to be standing at a crossroads. The long-term consequences of the impact of digital technology on the music industry are unpredictable at this moment. Furthermore the music industry has been undergoing some changes over the last few months. Actors within the industry are increasing their cooperation, in order for the industry to be taken seriously. Icelandic artists are becoming more professional than ever, the industrialists are improving their performance and expanding their view on the industry. Still the industry is not performing as well as it could, because of a lack of institutional support, strategic thinking, access to capital, and innovative behaviour. The future of the industry may very well rest on how quickly the industry can increase its economic and technological competence. However, it is important to keep in mind that the music industry’s core competence is its musical competence. This case study has not addressed the issue of musical competence within the industry. It is assumed that the industry is musically skilled and competent, based on the growing interest taken in Icelandic music around the world.

Björk has become famous for her creative and innovative music and can without a doubt be termed an innovator in a musical sense. The bands Sigurrós and Múm are further examples of artists who are innovative in their music, and have been able to make impact and their music around the world. These bands are not afraid of experimenting in their music, and they make music that is unlike any other. At the same time Icelandic artists that are characterized as more mainstream have not been as successful. In spite of big international agreements with Majors, artists like Selma (Eurovision runner up), Svala and Streamer have not come through to international audience. That has partly to do with changes

within the music industry where labels have merged or have become non-operational. Another explanation could be that they are entering a very difficult market going up against major names such as Britney Spears, Madonna, Destiny’s Child and more. It is also possible that because Icelandic music has become known for being creative and unique mainstream music, however good it may be does not receive the attention it deserves. Whether referring to innovative or mainstream music it is the music that is the core of the music industry; thus it is important to ensure that all artists, regardless of whether they are said to be avant-garde or mainstream, are able to work on their music and develop it.