Majors and independents

83

development which forms the side of the industry that fits more comfortably under the creative and cultural labels. Does maturity in hardware induce maturity in software? Or does hardware standardisation allow growth in diversity in software?

84

PlayStation and Nintendo 64. The search for economies of scale led developers and publishers to merge with or acquire competitors and the number of independents decreased.

In addition, tough measures were taken by console manufacturers to regulate software production.

Nintendo especially retained complete control over cartridge production in order to be able to decide ―whether, when, and how many copies of game software would be produced‖ (Aoyama and Izushi 2003, p. 428). Game developers were willing to submit to these terms because the installed base of Nintendo devices was superior. Grantham and Kaplinsky (2005) state that in the 2000s the publishers define ―who produces what, under what terms, and for what returns‖. Johns (2006) highlights the role of console manufacturers as they are the final jurors on which games will enter the consumer market. From the viewpoint of the game developer, both the publisher and the console manufacturer function as gatekeepers for their product. The majors keep the gates and the independents are kept by them.

Majors and independents have different resources and tasks in the cultural and creative industries.

Gander and Rieple‘s (2004) study on the music business concludes that, even though on the basis of transaction cost economics the acquisition of all the independents by the majors would be the optimal solution, this has still not taken place. This is because crucial resources of the independents, such as credibility in the eyes of artists and consumers, the ability to access knowledge and use it to predict future trends and the ability to spot and develop new artists, would be destroyed in such acquisitions. Furthermore, the two-stage approach of independents and majors provides necessary quality and time incentives to artists and producers that would be dampened in a large bureaucratic organisation. These incentives are more valuable than the potential savings in transaction costs. The independents are more endowed with the creative resources of artist development, whereas the majors excel in the humdrum resources of finance, distribution and promotion. This means that in partnerships the firms do not just protect their own resources from capture, but they shield their resources from institutionally hostile practices, policies and cultures of partner firms. The creative resources need to be shielded from the contamination of humdrum ways of working and vice versa.

This way the partnerships between majors and independents remain valuable. (Gander et al. 2007) Similar findings have also been reported of other cultural industries. Hesmondhalgh (2002, p. 22) states that the creative production often takes place in separate independent companies because the artists and the audiences are suspicious of the bureaucratic control of creativity. However, the

―independents‖ are often tied to the majors through financing, licensing and distribution deals, which makes them dependent of the majors‘ views on the creative direction. In the film industry the independents have historically served the role of filling the capacity of the majors. During the 1940s and 1950s the diffusion of television increased the demand for films which was served by the growing independent production. The Paramount decision⁵ also induced growth in the demand for creative content in the motion picture industry. Because of these developments the percentage of films produced in-house by the majors decreased. (Gil and Spiller 2007) Zuckerman and

5 The Paramount decision by the US Supreme Court in 1948 outlawed the ownership and control of cinemas by the major film companies and this opened the theatre doors for independent films.

85

Kim (2003, p. 35) argue that independent film took on a new significance in the late 1980s and early 1990s as videotape recorders diffused and created a market for specialty films.

The relationship between the majors and independents has both competitive and complementary characteristics. Burnett (1996, p. 62) argues that in the music business independents and majors are not competitors but that they have a clear division of labour. Independents handle specialised styles and new performers through scouting and test marketing. The majors then grab proven contenders.

For Burke (2003, p. 325) the task of the independents is to sign artists that have been turned down by the majors. These artists can be close substitutes for a major‘s existing line-up and be rejected because of low potential for additional sales and the associated cannibalisation effect. Thus the independents‘ sales come from new innovative styles and from cannibalising the majors‘ sales.

According to Hesmondhalgh (2002, p. 150) the games industry is a key example of an independent- friendly cultural industry. On the one hand, the independent developers have inside knowledge of the fan sub-cultures that the majors want to access and pay a premium for (p. 212). On the other hand, such small companies are often heavily reliant on the developments of the hardware sector governed by the majors (p. 210).

The viability of the independents is a key concern in many studies on the majors and independents.

Mezias and Mezias‘ (2000) concerns include the conditions under which the independents can get their products to the audiences when the majors control the market. Hesmondhalgh (2002, p. 157) states that even though there are some superficial signs of a loosening of the majors‘ control in some cultural industries the main trend is still towards more careful control of creative work. In the games industry the independent developers usually have a very weak position in the negotiations with the majors. They are often unable to capture much value and the publisher retains the intellectual property rights to the games even though the initial concept and the creative input came from the independent developer (Johns 2006, p, 169). Grantham and Kaplinsky (2005) find that independent developers should take certain actions to improve their position. These actions include, for example, ―new and improved products, available for a number of platforms‖ and value chain repositioning by becoming publishers themselves. Such actions, however, are out of reach for many independent developers as console manufacturers can decide who develops games for their hardware and becoming a publisher requires substantial capital investments.

However, there are also more positive views on the viability of the independents. Robins‘ (1993) study on the disaggregation of the motion picture industry found that independent films have outperformed studio films on average. Furthermore, the increased concentration of the generalists has had a positive effect on the founding of specialist firms. Also, specialists have been more active in the creation of new genres. (Mezias and Mezias 2000) In the games industry the independent developers can have a much stronger negotiating position if the firm has a reputation for having finished successful products or if there are particularly reputable individuals employed by the firm (Johns 2006, p. 169). In general, the subcontracting to small and medium-sized firms has increased in the cultural industries (Hesmondhalgh 2002, p. 151). This takes us to the topic of the next section on flexible specialisation.

86

The division of labour among majors and independents indicates different roles for them in the innovative activity of the industry. It appears that the majors are more prone to incremental innovation, whereas the independents are more prone to radical innovation. Majors seem to function more based on information internal to the industry whereas the independents bring in innovations based on information external to the industry. This would suggest that both routinised and entrepreneurial regimes remain in effect simultaneously in different parts of the industry instead of consecutively industry-wide.