3

The Innovative Business

Model of Daft Punk

3.1. Introduction

Music, much like other activities in the creative industries, has undergone
profound changes since the late 1990s with the transformation of physical
media (such as compact discs or CDs) into digital media (in a specific format
such as MP3) and the massive adoption of peer-to-peer download software
such as Napster. Some actors have benefited from these developments, such
as computer and MP3 player manufacturers (Apple with iPod and iTunes) or
streaming services (such as Spotify or YouTube), while others have
experienced an inexorable decline (physical media distributors such as
Virgin Megastore in Europe or Tower Records in the USA) (Tellier 2017).
These technological innovations have made it possible to implement new
“ways of doing business” in the music industry by promoting new offers and
innovative services through young companies (Moyon 2011). In
management terms, what a company offers, the customers it targets and the
way it is organized and remunerated constitute its business model. While the
effects of these technological innovations on business models have been
widely studied in management science research at the level of companies in
the sector such as music labels, little work has focused on those who create
music: the artists.

The first electronic music group to win a Grammy Award in 2015 for best
album, the French duo Daft Punk, composed of Thomas Bangalter and Guy-

Chapter written by Alexandre PERRIN.

Innovation in the Cultural and Creative Industries,

First Edition. Edited by Estelle Pellegrin-Boucher Pierre Roy.
© ISTE Ltd 2019. Published by ISTE Ltd and John Wiley & Sons, Inc.
56 Innovation in the Cultural and Creative Industries

Manuel de Homem Christo, is an innovative business player in the music

industry. However, the general public does not know much about these
musicians. Cultivating secrecy and media scarcity, since 2000, Daft Punk have
effectively chosen to hide their faces and appear as robots, a decision that goes
against the promotion strategies in force in this sector. This idea, borrowed
from the main character of the film Phantom of the Paradise, is not new in the
electronic music scene, however, as Kraftwerk were pioneers in this field. The
group’s innovative character is therefore to be found elsewhere.

In this chapter, we show how since the beginning of their careers in 1993,
these creators have been in opposition to the dominant business model of the
music industry. In section 3.2, we define more precisely the components of a
business model and then describe the model used in music (section 3.3).
Subsequently, in section 3.4, we will describe the first attempts by artists to
break the dominant model. Finally, we will focus on the specific case of Daft
Punk and the electronic music segment to address the innovative nature of
the French group’s business model (section 3.6). The methodology, as well
as the main lessons to be learned from this dive into the “Daft Punk system”,
will be described in section 3.5.

3.2. The definition of a business model

A business model can be defined in different ways, which is why we have

included in this article the summary proposed by the authors of Strategor
(2016). They propose a business model composed of three elements:
– a relevant and attractive value proposition for customers (a);
– a valuable architecture (b);
– a business value equation (c).

The first component of the business model focuses on the value

proposition: what do I offer and for whom (a)? This offer may take the form of
a good, a service or both. It corresponds to a set of characteristics that will be
offered to customers in the hope that they will value them. This is why these
characteristics (price, features, related services, brand image) are called the
“value proposition”. Proposals are made according to the buyers interested in
the offer: it can be free on one hand (e.g. Google and its search engine can be
freely accessed by users) and profitable on the other hand (the massive number
of free users allows Google to sell advertising space on this free service).
 The Innovative Business Model of Daft Punk 57

The second component focuses on the ability of companies to mobilize

resources and skills (b). The value architecture corresponds to the
organizational framework necessary to achieve this proposal. Some activities
are carried out internally while others are carried out by service providers.
Designing such an architecture is like asking oneself the question “how”.

Of course, the choices made by the company about what it proposes and
how this is organized are only judicious if they allow it to be profitable (c).
The cost structure and revenues generated are determined by the value
architecture and the value proposition. Thus, a model is coherent if all the
elements that compose it create business value. Building this equation
requires answering the question “how much”.

Table 3.1 summarizes the various issues related to the definition of a

business model.

Proposal Architecture Business equation

Characteristics of the Resources and skills Revenues generated and costs
service or product offered mobilized generated
What do I offer? What do I need to do How much and how are my
Who do I offer it to? internally or to commission? profits generated?

Table 3.1. The dimensions of a business model

Major technological changes can lead to the development of new

business models and make old ones obsolete. Innovation can then focus on
the model itself. In order to understand the innovative nature of Daft Punk’s
model, it is therefore necessary to explain the predominant/principal/
dominant model in the music industry.

3.3. The business model of the music industry

The business model of the music industry constantly oscillates between

two main activities: recorded music and live music. The revenues generated
by one usually influence the other, since musicians usually produce a
recording to encourage listeners to come and see them in concert and vice
versa.

The size of the global music market has been estimated at €56 billion for
2016–2017 (Page 2018). The recorded music sector is estimated at around
58 Innovation in the Cultural and Creative Industries

€26 billion overall (section 3.3.1). The cost of live music (concerts, festivals)
is estimated at €30 billion (section 3.3.2). We will then detail the current
business models (section 3.3.3) and present some examples of innovations
(section 3.4).

3.3.1. Recorded music

To understand the business model of music, it is essential to describe the

different rights holders involved in the creation of a recorded work. This
includes two types of intellectual property: one about the composition (score
and lyrics) and one about the interpretation. Figure 3.1 provides a summary
of this complex operation.

Author
Collect rights
Publisher

Composer Funds Collective management

Help societies

Singer Producer
Funds
Disseminate
Promote
Reproduction on a medium

Recorded work

Public performance

Figure 3.1. How the music industry works

At the beginning, as with any artistic creation (a book, a painting, etc.),

music is an idea. The composer will transform this idea, this melody that
runs through his or her head, into a concrete, real creation, either by writing
notes on a score, or by composing directly on an instrument or on a
computer. The author is the person who will write lyrics for this musical
composition, provided that it is a song.

The composer and the author are creators: they give birth in a concrete
way to what was, before them, only an idea, they give it a precise and
personal form, and they must ensure its original character (under penalty of
 The Innovative Business Model of Daft Punk 59

being accused of plagiarism). From a legal point of view, they are the
“parents” of the musical work and that is why they have “rights” over their
creation: copyright. These authors also have a proprietary right to authorize
the exploitation of their works through their public performance (e.g. at a
public concert, in radio broadcasts, or when they are used in film music or
advertising) or their reproduction (on a medium such as CD, or on a
streaming platform). In return for the use of their work, authors receive
remuneration. The author may decide to entrust the management of their
business rights to a collective management society such as Sacem in France
or Ascap in the USA.

From a business point of view, music composition is therefore an activity

linked to music publishing and its economic impact is assessed nationally
by performance royalty organizations, as their data is aggregated at the
global level by CISAC (Confédération internationale des sociétés d’auteurs
et compositeurs). Composers or authors may receive payment of their
royalties directly from these organizations for an annual subscription. They
can also receive payments of their rights from their publisher. These
companies, such as Sony/ATV Music Publishing, Warner/Chappell Music or
Universal Music Publishing, finance (in advance) author/composer creation
projects and assist them in the administrative procedures for protecting their
rights. Very often, the contract with the creator stipulates a 50/50 sharing of
the income generated by the intellectual creation. In the long term, the
objective of these companies is to build a broad catalog of songs and lyrics
that can be used on as much media as possible or in public performances. In
France, the number of employees in a music publishing house is mainly
between one and ten (EY 2013).

To be broadcast, a musical work must be recorded. It is then said to be

“fixed on a medium”. Recording the work is an important step because then
the music can be played – on the Internet, on the radio, sold in stores, etc.
Performers are required to record a musical work. They are the individuals
who play music (musicians, orchestras) and sing it. It is of course possible
that a performer may also be a songwriter. Performing rights are additionally
managed by producers (commonly known as music labels). Labels finance,
distribute and promote recorded music. A work is usually recorded either in
a “personal” studio (or home studio) or in a professional studio. In the latter
case, specialists such as sound engineers are involved in the recording. Given
the costs and risks involved, record companies obtain a substantial share of
the revenue generated by the use of this recording. For a music label, this
60 Innovation in the Cultural and Creative Industries

involves signing an exclusive contract with artists. By financing the

production of the music album through a lump sum advance, the company in
turn ensures control over the payment of royalties and revenues generated
during concerts, the sale of merchandising products, etc. When this system
works, the biggest sales of a company finance more intimate or less popular
recordings, because the latter may become the cult records of the future.

Music labels are therefore responsible for promoting artists to radio

stations, streaming platforms and social networks. In return, they create a
catalog of recordings (called masters or master tapes) that trigger the
payment of reproduction rights for each use. In France, the three main labels
collect the rights to their recordings through the SCPP (Société civile des
producteurs phonographiques) while the independent labels collect them
through the SPPF (Société civile des producteurs de phonogrammes en
France). With the emergence of streaming, these labels have signed
agreements with streaming companies (such as Spotify) to monetize their
catalog. Platforms pay advances to record companies in order to use their
catalog. This process is revised upwards or downwards depending on the
titles the listeners of these platforms actually listen to.

In practice – and depending on the country–music publishing and sound

recording activities are grouped under the same legal entity. A simple search
of the NAF code of companies registered with the code “5920Z Sound
recording and music publishing” includes Universal Music Publishing
(publisher), Universal Music France (label) and Universal Production Music
France (producer). Although these activities are separate due to the reasons
previously mentioned, these different entities are often subsidiaries or have
cross-shareholdings in share capital.

In terms of economic weight in the sector, the activity of publishers and

creators represents 43% of recorded music, estimated at €26 billion
worldwide. Music producers and labels therefore represent the majority
(57%) of the revenues generated in the recorded music sector (see Table 3.2).

2016 2017
2 billion (publishers) 2 billion (publishers)
Publishing activity
€8.3 billion (rights) €8.9 billion (rights)
Production activity €14 billion €14.8 billion

Table 3.2. World market for recorded music (source: adapted from Page 2018)
 The Innovative Business Model of Daft Punk 61

3.3.2. Live music

Live music encompasses all activities that allow a musician to play music
in front of an audience in a specific location (a concert hall, bar/restaurant,
festival, etc.). This is called a public performance or show. For example,
six out of ten French people attend a concert or festival at least once a year.
Despite a growing concentration within global companies such as Live
Nation, this sector remains very fragmented and very local. The usual
process for a young musician is therefore to start by performing concerts in
their neighborhood, city, or region and finally to be recognized at a national
level. Each venue holding public concerts (or live music) must pay a license
fee to the collecting societies. These charge around 10% of a festival’s total
budget or an annual sum depending on the size of the venue. Recent audio
signature technologies allow these venues, if they wish, to identify in real
time the different tracks that are played by a group or a DJ. The
remuneration system here is quite similar to that of recorded music, since
festivals or concert halls often pay musicians an advance. The most
renowned artists can also negotiate a percentage of the income generated by
the tickets sold or on merchandising. Given the high structural costs and low
occupancy rate of some concert halls, it is in the interest of the business
actors involved in the organization of a concert or festival (the promoter or
owner of the concert hall) to build partnerships with other business actors
such as local authorities (city, region) or companies wishing to be associated
with the event in question (banks, textile companies, media, technology, etc.).

3.3.3. Current business models

We tend to forget that the original business model of music is indeed that
of public representation: a musician, whether a composer or not, will give a
“performance” in front of people who have gained entrance, for a fee, to live
this temporary experience. The first source of income for musicians,
therefore, is still the concert. Whether it is at a wedding, or a private or
public concert, musicians and performers derive most of their income from
the practice of music. Since songwriters are not necessarily performers,
recorded music allows them to receive income from the use of their music.
Therefore, for all the players in the sector, there is an essential link between
the revenues generated by concerts and those generated by listening to
recorded music. A group of musicians can use streaming platforms to
promote a national or international tour, etc., and conversely a listener can
discover a music group during a festival and listen to it on a private copy.
62 Innovation in the Cultural and Creative Industries

In detail, each player in the music industry (creator, publisher and

producer) is trying to build a business model that will allow them to solve
their own equation between their costs and revenues.
– Creators (composers and performers) produce music on scores or
music composition software based on their own musical knowledge. Their
main difficulty lies in the need to finance this creative and complex activity
because the income is, as the work is being created, to be received in the
future. They, therefore, need a financial advance that is most often paid by
publishers or producers.
– The publishers’ objective is to build a catalog of works that is broad
enough and rich enough to be of interest to users such as advertisers,
television or film studios, etc. Their equation is based on a type of risk taking
(investment in an artistic creation) whose future revenues will be generated
by repeated use on media as diverse as video games or television series.
– Producers develop content that requires distribution on a medium that
is adopted by the majority of the public. The latter can then use an MP3
player, mobile phone or CD player. Producers must therefore work with the
most widespread distributors in a specific area. The producer’s risk taking is
thus based on the investment, support and promotion of a performer. It is
then said that the producer “signs” an artist to receive future income. As
risk-taking is becoming increasingly unpredictable, producers have made it
mandatory to sign so-called “360 degree” contracts including recorded music
revenues and concert, merchandising or neighboring rights revenues. Table 3.3
summarizes the business models in use in the music industry.

Proposal Architecture Economic equation

– Ability to create
Artistic creation intellectually. Receives income but
Creator projects on a score or shares rights if there is
on software. – Lack of financial a financial advance.
resources.
Obtaining a catalog – Collects the income
from the catalog. Collects revenue if the
and disseminating an
Publisher catalog is used on any
artistic creation on any – Needs to have a medium.
medium. quality catalog.
– Invests in recorded Funds and promotes
Recording and media. recorded music by
Producer promoting an artistic
– Need to diversify collecting artists’
creation on a medium.
investments. rights.

Table 3.3. Business model of the music industry

 The Innovative Business Model of Daft Punk 63

3.4. First historical attempts to break the model

Noting the abuses and inadequacies of some actors in the sector to adapt
to technological changes or, more simply, responding to the evolution of
their own audience, musicians have been the first actors of innovations on
the business model.

3.4.1. Attempts concerning value propositions

The first attempt of an author to modify the offer most certainly dates
back to James Brown and his album Live at the Apollo (1963). As Albéric
Tellier (2017, p. 25) reminds us: “At that time, live records were still very
rare, but James Brown wanted to follow in the footsteps of Ray Charles, who
had become a huge star thanks to such a recording published in 1959.” Faced
with the reluctance of his record company, King Records, for which the
business model was based on the creation of singles recorded in the studio, a
live album was unlikely to be as successful as expected. Moreover, this type
of recording went against the classical model: if the public bought such a
record, why would they continue to come to concerts? Unlike Ray Charles,
who was supported by his record company, James Brown financed his
recording himself:

He personally invested $5,700 (about $70,000 today) to rent the

equipment and the concert hall he had chosen, the Apollo
Theatre in New York. Once the recording was finished, James
Brown tried to convince Syd Nathan, the boss of King Records,
to buy the tapes from him and publish the album. (Tellier 2017,
p. 25)

The success was colossal since the album remained 66 weeks in the
American charts. Live at the Apollo is now ranked 25th in the Rolling
Stone’s ranking of the “500 Best Albums of All Time” In this example, the
creator (James Brown) ran the risk of financing the recording project of his
concert. Usually, this risk is assumed by the producer, in return for a
majority share of the income in their favor.

Another interesting attempt in history concerns the group Radiohead. In

2007, the English group distributed its new album, In Rainbows, only for
download and offered Internet users the possibility of setting their own price.
The context here is different from the one experienced by James Brown,
64 Innovation in the Cultural and Creative Industries

since the innovative proposal here concerns the dissemination of the

recorded work (and not the cost of its recording). In 2007, recorded music
was still mainly consumed on a physical medium. Customers with personal
music players then mainly used illegal download sites (such as Napster or
Kazaa) or legal sites (such as iTunes). In the latter case, the industry price
was $0.99 for a title (or single) and $9.99 for an album. Therefore, offering
an album for free was revolutionary (Elberse 2008). In fact, downloading the
album was not totally free of charge since a price of $0.90 had to be paid as
a technical fee. But at the same time, the band distributed a deluxe $80 box
set including two CDs (with exclusive songs), a vinyl record, an art book and
a download code for the album. Like James Brown, it was Radiohead that
shouldered the risk by financing the creation of this deluxe box set. Having
ended their relationship with the label EMI in 2003, the group indeed
achieved total financial and creative independence. With this original
proposal, creators can therefore capture the total value produced by the sales
of their recorded music.

3.4.2. Attempts concerning value architectures

The decision to sign with a record company or to remain an independent

player is certainly the most strategic issue for a creator. To the rhetorical
question “what is in my best interest to do?”, many artists answered
“everything” since they prefer to focus on composition or interpretation. But
by receiving a financial advance or simply by outsourcing certain
investments, artists will reduce the share of their future revenues and, more
often than not, transfer the intellectual property of their works to the
producer of the container. As musician Moby sums it up: “It’s as if you go to
a bank, they give you a loan to buy a house and at the end of the loan that
you have repaid, with interest, the bank owns your house!”

The financial and legal independence of artists is therefore essential for

them to maintain control over their creation and income. This is why a
growing number of artists have chosen to create a legal entity such as a
single-person company or a limited liability company. Examples include
Madonna, Michael Jackson or more recently Jay-Z, who have respectively
become producers (Maverick Records for Madonna), investors in publishing
(the Beatles catalog in the case of Michael Jackson) or investors in music
distribution platforms (Tidal in the case of Jay-Z).
 The Innovative Business Model of Daft Punk 65

3.4.3. Attempts concerning business equations

Turning fans into subscribers is certainly the most interesting proposal for
an artist in search of financial resources. In 2000, the singer Prince offered
his fans exclusive information, concert tickets, invitations to sessions and
unpublished songs to download in exchange for a monthly subscription.
More recently, and shockingly, in the history of music, the band Vulfpeck
asked their fans to stream an album with no sound on Spotify to collect
rights to finance a tour. They therefore used their own music catalog to
finance their tour, without the financial support of a promoter.

Crowdfunding platforms (or participatory funding) have also been a

response to the problem of the artists’ financial independence. By allowing
fans to make monthly financial contributions (as is the case on the Patreon
platform) or investments in a catalog (MyMajorCompany), or simply to
receive a future signed album or a private concert (PledgeMusic), these
platforms allow artists to receive financial advances without sacrificing their
future revenues. They remain masters of their artistic creation.

This section aimed to define the business models in place in the music
industry and to identify the various issues and innovation attempts by artists
who have acted as entrepreneurs in the industry’s eyes. Let’s now look at the
specific case of the French group Daft Punk.

3.5. Methodology

The methodology used involved a case study. Data collection was based
on financial documents (balance sheets available on the Internet) and a
literature review on the group Daft Punk. Given the difficulty of assembling
primary data, we have opted for this method, which allowed us to access not
only financial information accessible from the beginning of their careers, but
also to “reconstruct” all the decisions taken by the group, bearing in mind
that these decisions are recorded in the accounting documents.

We have therefore downloaded the accounting documents of the business

entities attached to the Daft Punk group, namely:
– Daft Trax S.A.R.L. (France). Created on August 21, 1996 under the
French sectoral code “Enregistrement sonore et édition musicale (5920Z)”, it
66 Innovation in the Cultural and Creative Industries

aims to finance the group’s activities, collect their rights and carry out
financial transactions with the English entity described below. It is the music
label and publishing house of Daft Punk. Its shareholder base consists of two
representatives: Thomas Bangalter and Guy-Homem de Manuel Christo. The
financial documents of this company are available on the Infogreffe website
for a fee. However, the announcements published on the Bodacc (Official
Bulletin of Civil and Commercial Announcements) make it possible to
retrieve some partial data;
– Daft Life Ltd (England). Created on June 20, 1997 under the sector
code “Artistic creation (SIC 90030)”, this company aims to collect the
group’s revenues from recorded music. It was created on the same date on
which the license agreement for the group’s first album, Homework, was
signed with Virgin Music. The financial documents of this company can be
freely accessed on the website of the Companies House Financial Authority
in Great Britain from 1997 until the present day. Table 3.6 in the Appendices
(section 3.8), presents the result of this reconstruction;
– Daft Arts Inc. (United States). This audiovisual production company
was created on January 18, 2005 by Cédric Hervet and Paul Hahn. Hervet
has been editor and creative director of Daft Punk for 15 years and co-
producer of Interstella 5555 and Electroma. Hahn is a producer and manager
of the group in the United States. This entity made it possible to finance
video clips and the feature film, Daft Punk’s Electroma, a visual and musical
odyssey that follows the story of two robots in their quest to become human.
The company was dissolved on June 27, 2018. Daft Arts was based at the
Jim Henson Production Studios in Los Angeles, a company known for its
family audiovisual productions, and more specifically for the Muppet Show.

The reconstitution of the group’s financial situation between 1997 and

2017 therefore allows us to “follow” the financial flows between the
different entities. For the year 2017, the financial results of each entity have
been simplified in Table 3.4.

Year 2017 Daft Trax SARL Daft Life Ltd Daft Arts Inc

Revenues from operations €1, 918,342 £1,066,884 NC

Net income (loss) €383,147 £16,005 NC

Table 3.4. Daft Punk Group's financial results for 2017

 The Innovative Business Model of Daft Punk 67

3.6. Daft Punk: an innovative model in electronic music

In the following table you can view the impact the innovations made by
Daft Punk in the context of electronic music have influenced other artists.
Each of the dimensions will be detailed.

Business
Proposal Architecture
equation

Share revenues
Control of financial
Offer a finished under a temporary
resources and
product from a home license
intellectual property.
studio. agreement.
Description Tax optimization
Use record companies Reinvest the
between legal entities
only for promotion profits in
based in different
and distribution. spectacular
countries.
concerts.

Influenced
DJ Hip-hop artists EDM (Skrillex)
artists

Table 3.5. Innovations in the business model and influence on other artists

3.6.1. Innovation concerning the value proposition

Electronic music has offered a new opportunity for artists. For Violaine
Schütz, its birth in France (and more generally the French Touch) resulted
from importing English warehouse parties in the early 1990s:

The hits of the time were created at home, in the bedroom, in

the home studio, with brand new machines such as sequencers,
samplers, turntables... and were produced by small independent
labels like Solid, the record company launched by Étienne De
Crécy. The songs were then often tested in the evenings by the
artists themselves who were also DJs. The traditional pattern of
music production was then short-circuited. Many young people
sold their guitars and discovered the joys of electronic
equipment and the freedom it implied. (Schütz 2014, p. 34)

This is exactly what three young musicians, Thomas Bangalter, Guy-

Manuel de Homem-Christo, and Laurent Brancowitz (who left the group to
found Phoenix), did in 1992. They launched the rock band Darlin’ by
68 Innovation in the Cultural and Creative Industries

covering Beach Boys songs and some compositions. But they soon realized
that this style of music was no longer in fashion and they turned to techno at
an evening organized at the Beaubourg Museum in Paris: “During this
evening we discovered an underground music that made people dance...
when they didn't know the songs played by the DJ. We played rock and
nobody danced!” says Thomas Bangalter in the documentary Daft Punk
Unchained (2015).

But making electronic music is expensive, even if at the time it seemed

easier for trainee producers to write electronic music songs instead of pop or
jazz. In the early 1990s, it was necessary to spend about 500,000 F (about
€80,000, about €120,000, excluding inflation) to build a little French touch
studio, including all the necessary music software (like Cubase) (Schütz
2014). Thanks to their savings and the support of their families (Thomas
Bangalter’s father was a former disco music producer), Daft Punk equipped
themselves with the best computers and synthesizers of the time and set up
their home studio to start writing their first album, entitled Homework (in
reference to their home studio).

Innovation here involved integrating the production costs of music

recorded by artists. However, these costs were reduced by the absence of
rental fees for a professional recording studio. These two young musicians
then learned their trade from a sound engineer. They mixed, sampled, cut,
and modulated sounds. They started performing live as DJs at a very early
age and showed a certain talent in handling mixing boards. All the record
companies of the time then wanted to sign the band exclusively.

3.6.2. Innovation concerning value architecture

On October 16, 1997, Daft Punk signed a deal that is a landmark in the
history of music. In agreement with the English label Virgin Music, they
kept all the intellectual property rights of their catalog but granted the record
company an exclusive distribution of the Homework album for a period of
10 years. By offering record companies an (excellent) finished product, the
French duo reversed the balance of power. Without the need for a financial
advance, they used the record company to promote their record and not to
finance it. In fact, they signed with the company that gave them the most
artistic flexibility (Schütz 2014). This approach was later taken up by many
artists, DJs and rappers, as shown by the editor-in-chief of Les Inrockuptibles,
Jean-Daniel Beauvallet, in the documentary Daft Punk Unchained:
 The Innovative Business Model of Daft Punk 69

For me, this is the biggest hold-up in the history of the music
industry! Their business model has been very clear from the
beginning: Daft Punk want total control over their artistic
production but also over their brand and communication. They
managed to impose this on record companies because they didn’t
need an advance. Most of the American hip-hop stars of that time
referred to Daft Punk when they signed with the big labels.

The French duo had perfectly prepared this agreement by creating two
legal entities: one in France (Daft Trax SARL) and one in England (Daft
Life Limited). The two members of the group are equal shareholders. The
innovation operated by Daft Punk is found here in a global vision of the
management of their contracts and in an “optimized” use (in the legal and
tax sense) of these entities. For example, 2001 shows funding of £1,476,358
(see Table 3.6). It can be hypothesized (because we do not have access to the
details of each account line) that these are the costs charged for the recording
of the Discovery album. Figures 3.2 and 3.3 show the amount of cash
available for the English entity. We can quantify the success of their latest
album Random Access Memory here, since the level of available cash
increases from £700,209 to £7,152,272.

Cash flows in the form of inter-company loans (between Daft Trax SARL
and Daft Life Limited) can also be observed in the financial documents.
Figure 3.4 illustrates these movements: the French entity “lends” £197,606
to the English entity. The latter paid in the same year a salary of £1,200,229
to Guy and of £1,512,578 to Thomas. By creating their own label and
publishing house between France and England (the American entity being
dissolved to date), the group has been able to optimize their tax situation.
Indeed, interbank loans between subsidiaries are a technique well known to
tax practitioners to increase revenues (and conversely to lower expenses) in
countries where the tax on commercial profits is lower. This tax architecture
was relatively sophisticated in the music industry at that time.

3.6.3. Innovation concerning the business equation

Optimizing the group’s financial sustainability has been Daft Punk’s real
obsession. Without this financial autonomy, the duo knows that the music
industry does not allow for artistic autonomy. Labels or investors want to
have a right of control over creators in order to limit risks. On the contrary,
each Daft Punk project (see Box 3.1 for the complete list) – the documentary
70 Innovation in the Cultural and Creative Industries

D.A.F.T, the film Electroma or the cartoon Interstella 555 – is self-financed

by one of the three legal entities owned by the group. This risk-taking led
them to a critical financial situation in 2006 (see Figure 3.4) due to the
relative failure of their third album (Human After All) and the high cost of
Electroma and Interstella 555. That same year, they launched their major
world tour and played a poker game with the organizers of the biggest
American music festival: Coachella. The group asked for a $300,000 advance
to finance a pharaonic project: a giant LED pyramid that would surround the
two members of the group on stage. The result was extremely spectacular,
and this concert left a lasting impression, so much so that the American
magazine L.A. Weekly ranked it as the best concert of all time at the festival.

Unlike the general patterns on the electronic scene, Daft Punk chose to
reduce the number of concerts on their tour. The innovation here involved
building the group’s business equation by self-financing each project and
betting significant sums on a few key concerts. This strategy was later taken
up by the American DJ and composer Skrillex (he even admitted to having
been present in the audience at Coachella in 2006). By handling rare public
appearances and record releases produced with the greatest care, the Daft
Punk duo has built an innovative and sustainable business model. Each of
their public appearances makes the performance unique. Each of these
moments makes their collaboration with other artists (Pharell Williams,
Chilly Gonzales, etc.) even more precious. Daft Punk has become a French
luxury product.

3.7. Conclusion

Daft Punk’s success has been built around four key principles that break
the rules of the music industry: a) do things your own way; b) present
finished products; c) finance your own work; d) keep it under control.

Young singer-songwriters like Jacob Whitesides have scrupulously

followed these four aspects. Whitesides owns his own publishing and
recording house, Double U Records, retains all future rights to his music
revenues and uses the BMG label to disseminate his music on all possible
channels worldwide. Unlike Daft Punk, he built his success by involving his
fans on social networks such as Facebook, Snapchat or Instagram. The latter
now appears as an external validator of an artist’s talent in the eyes of record
companies. On the contrary, Daft Punk have cultivated media scarcity and
have no account on social networks.
 The Innov
vative Businesss Model of Daft Punk 71

We can concludde this chaptter with thiss observationn: creators ccan only
exercisee control oveer works if this is accom mpanied by a rigorous ffinancial
manageement of thhe process by which their workks are creaated and
disseminated. Comppanies suchh as Kobalt offer to acct only as a service
provider for songw writers, that is, to colllect neighbooring rights, that is
copyright outside thhe national territory
t and
d outside colllective mannagement
bodies. We considerr that this typpe of offer makes
m it possiible to mainttain both
the finaancial independence of crreators and a fair remuneeration of thee various
stakeholders. The neew Europeann copyright legislation,
l adopted in Seeptember
2018, iss in line withh this. Howevver, without technologicaal tools that simplify
the payyment of thee economic rights of creatorsc andd performerss, record
compannies will rem main in contrrol of the gaame. It is upp to the futuure Daft
Punk orr Jacob Whittesides to revverse the pro ocess and puut the creatorr back at
the hearrt of the music industry. Human,
H afterr all....

3.8. Ap
ppendices

Figure 3.2. An exampple of the acco ed: Daft Life Liimited’s balance sheet
ounts analyze
as at
a June 30, 20017 (source: Companies
C Ho
ouse)
 72

Year (account as 30th of June) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Turnover £ 897,952 £ 828,995 £ 514,662 £ 1,270,170 £ 2,898,413 £ 2,638,039 £ 1,637,235 £ 953,101 £ 899,953 £ 3,706,662
Cost of Sales -£ 704,335 -£ 471,544 -£ 143,066 -£ 1,476,358 -£ 43,435 -£ 12,153 -£ 66,040
Gross Profit £ 193,617 £ 357,451 £ 371,596 -£ 206,188 £ 909,666 £ 887,800 £ 3,640,622
Administrative Expense -£ 22,523 -£ 4,153 -£ 10,030 -£ 67,561 -£ 2,951,941 -£ 2,990,249 -£ 1,647,304 -£ 1,012,677 -£ 968,212 -£ 3,198,918
Operating Profit £ 171,094 £ 353,298 £ 361,566 -£ 273,749 -£ 53,528 -£ 352,210 -£ 10,069 -£ 103,011 -£ 80,412 £ 441,704
Interest Receivable £ 1,477 £ 15,959 £ 36,565 £ 15,598 £ 24,739 £ 53,015 £ 78,131 £ 108,575 £ 105,596 £ 51,568
Interest Payable £ - £ - £ - -£ 24 - -£ 104 -
Profit before Tax £ 172,571 £ 369,257 £ 398,131 -£ 258,151 -£ 28,789 -£ 299,195 £ 68,062 £ 5,564 £ 25,184 £ 493,272
Tax on Ordinary Activity -£ 51,318 -£ 113,096 -£ 118,731 £ 91,123 - £ - -£ 11,881 -£ 1,467 -£ 1,584 -£ 150,707
Retained Profit for the Period £ 121,253 £ 256,161 £ 279,400 -£ 167,028 -£ 28,789 -£ 299,195 £ 56,181 £ 4,097 £ 23,600 £ 342,565
Retained Profit Brought Forward £ 121,253 £ 377,414
Retained Profit Carried Forward £ 377,414 £ 656,814

ASSETS
Tangible £ 914 £ 10,239 £ 25,718 £ 195,857 £ 171,481 £ 144,030 £ 120,128 £ 106,168 £ 114,139 £ 136,997 £ 112,741 £ 93,426 £ 73,113 £ 85,904 £ 64,410 £ 57,837 £ 43,535 £ 91,008 £ 78,300 £ 58,881
CURRENT ASSETS
Stocks £ 81,724 £ 89,139 £ 89,144 £ 63,069 £ 50,591 £ 47,720 £ 47,720 £ -
Debtors £ 122,617 £ 137,558 £ 233,759 £ 525,299 £ 415,263 £ 542,259 £ 343,325 £ 290,022 £ 583,112 £ 469,275 £ 177,873 £ 302,287 £ 61,219 £ 217,640 £ 220,837 £ 543,831 £ 410,872 £ 820,623 £ 519,525 £ 1,383,230
Cash at bank and in-hand £ 151,388 £ 670,426 £ 506,325 £ 5,343 £ 634,287 £ 2,464,243 £ 3,243,450 £ 3,155,127 £ 1,968,875 £ 1,245,802 £ 2,327,510 £ 2,115,759 £ 1,639,887 £ 965,074 £ 905,599 £ 700,209 £ 7,152,272 £ 5,268,388 £ 4,053,753 £ 3,860,799
Total Current Assets £ 274,005 £ 807,984 £ 740,084 £ 530,642 £ 1,049,550 £ 3,006,502 £ 3,586,775 £ 3,526,873 £ 2,641,126 £ 1,804,221 £ 2,568,452 £ 2,468,637 £ 1,748,826 £ 1,230,434 £ 1,126,436 £ 1,244,040 £ 7,563,144 £ 6,089,011 £ 4,573,278 £ 5,244,029

CURRENT LIABILITIES
Bank loans and overdrafts £ 29,367 - £ 5,265
Taxation and social security £ 23,144 £ 111,240 £ 79,721 £ 9,089 £ 3,452 £ 14,678 £ 71,736 £ 107,868
Other Creditors £ 60,137 £ 5,935 £ 11,487 £ 737,539 £ 2,940,060 £ 523,445 £ 343,318 £ 1,366,561
Trade Creditors £ 70,285 £ 323,534 £ 17,680 £ 13,331 £ 45,247 £ 123,042 £ 135,124 £ 193,310
Provisions for liabilities and charges £ 1,959,438
Total Creditors -£ 153,566 -£ 440,709 -£ 108,888 -£ 236,637 -£ 759,959 -£ 2,988,759 -£ 204,068 -£ 690,532 -£ 2,509,616 -£ 1,673,004 -£ 2,342,198 -£ 2,202,156 -£ 1,418,797 -£ 880,968 -£ 756,724 -£ 833,539 -£ 6,681,946 -£ 5,152,363 -£ 3,600,699 -£ 4,236,026

Net Current Assets £ 120,439 £ 367,275 £ 631,196 £ 294,005 £ 289,591 £ 17,743 £ 3,382,707 £ 2,836,341 £ 131,510 £ 131,217 £ 226,254 £ 266,481 £ 330,029 £ 349,466 £ 369,712 £ 410,501 £ 881,198 £ 936,648 £ 972,579 £ 1,008,003
Innovation in the Cultural and Creative Industries

TOTAL NET ASSETS £ 121,353 £ 377,514 £ 656,914 £ 489,862 £ 461,072 £ 161,773 £ 3,502,835 £ 2,942,509 £ 245,649 £ 268,214 £ 338,995 £ 359,907 £ 403,142 £ 435,370 £ 434,122 £ 468,338 £ 924,733 £ 1,027,656 £ 1,050,879 £ 1,066,884
PROVISIONS FOR LIABILITES AND CHARGES -£ 3,284,882 -£ 2,720,460

FINANCED BY
Called-up share capital £ 100 £ 100 £ 100 £ 100 £ 100 £ 100 £ 100 £ 100 £ 100 £ 100 £ 100 £ 100 £ 100 £ 100 £ 100 £ 100 £ 100 £ 100 £ 100 £ 100
Profit and Loss Account £ 121,253 £ 377,414 £ 656,814 £ 489,762 £ 461,072 £ 161,673 £ 217,853 £ 221,949 £ 245,549 £ 268,114 £ 338,895 £ 359,807 £ 403,042 £ 435,270 £ 434,022 £ 468,238 £ 924,633 £ 1,027,556 £ 1,050,779 £ 1,066,784
Shareholder Funds £ 121,353 £ 377,514 £ 656,914 £ 489,862 £ 461,172 £ 161,773 £ 217,953 £ 222,049 £ 245,649 £ 268,214 £ 338,995 £ 359,907 £ 403,142 £ 435,370 £ 434,122 £ 468,338 £ 924,733 £ 1,027,656 £ 1,050,879 £ 1,066,884

Table 3.6. Reconstruction of Daft Life Limited’s balance sheets (1998–2017) in Excel (source: author)
 The Innovative Business Model of Daft Punk 73

£8,000,000

£7,000,000

£6,000,000

£5,000,000

£4,000,000

£3,000,000

£2,000,000

£1,000,000

£-
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Figure 3.3. Cash flow of Daft Life Limited (1998–2017) (source: author)

9. Transactions with directors

Included in other creditors is an amount of £1,200,229 (2002 £64,935) owed to Guy Manuel
de Homen Christo, a director of the company. The transactions during the year in the sum of
£1,135,294 are related to monies paid to the artist.

Included in other creditors is an amount of £1,512,678 (2002 £69,960) owed to Thomas

Bangalter, a director of the company. The transactions during the year in the sum of
£1,442,718 are related to monies paid to the artist.

10. Related party transactions

Included in other debtors is the sum of £197,606 (2002 £244,839) owed by Daft Trax
S.A.R.L., a company registered in France. This company is related by virtue of the fact that
the directors of Daft Trax S.A.R.L. are also directors of Daft Life Limited. The transactions
during the year in the sum of £47,233 are related to third party costs incurred by Daft Life
Limited, and funded by Daft Trax S.A.R.L.

Included in other debtors is the sum of £Nil (2002 £11,384) owed to Daft Inc, a company
incorporated in the United States of America. This company is related by virtue of the fact
that the directors of Daft Inc. are also directors of Daft Life Limited. The transactions during
the year in the sum of £1,347 are related to third party costs incurred by Daft Life Limited,
and funded by Daft Inc.

Figure 3.4. An example of the financial flows between Daft Trax SARL and Daft
Life Limited for the year 2003 (source: adapted from Companies House)
74 Innovation in the Cultural and Creative Industries

1992: creation of the rock band Darlin’ in Paris.

April 11, 1994: first single The New Wave under the name The Two Darlin.
1995: meeting with the manager, Pedro Winter.
May 25, 1996: first single Da Funk under the name Daft Punk band.
August 21, 1996: Daft Trax SARL is founded in Paris.
January 17, 1997: launch of the first album, Homework (Virgin Records).
June 20, 1997: Daft Life Limited is created in London.
1999: creation of Daft, Inc. in Los Angeles (later Daft Arts, Inc.).
November 1, 2000: launch of the documentary D.A.F.T.: A Story About
Dogs, Androids, Firemen and Tomatoes.
March 12, 2001: second album, Discovery (Virgin Records).
October 1, 2001: first live album, Alive 1997 (Virgin Records).
May 28, 2003: Interstella 5555: The 5tory of the 5ecret 5tar 5ystem.
2004: the duo moves to Los Angeles.
January 18, 2005: Daft Arts, Inc. is created in Los Angeles.
March 14, 2005: third album, Human After All (Virgin Records).
April 4, 2006: first compilation, Musique Vol. 1 1993–2005 (Virgin Records).
April 29, 2006: first concert at the Coachella Festival in California.
November 16, 2007: second live album, Alive 2007 (Virgin Records).
2008: Pedro Winter leaves his position as group manager.
February 8, 2009: Daft Punk wins a Grammy Award for Alive 2007 and for
its single Harder, Better...
December 7, 2010: soundtrack of the film Tron: Legacy (Walt Disney).
May 17, 2013: fourth album, Random Access Memory (Colombia Records).
January 26, 2014: Daft Punk wins five Grammy Awards including the
album of the year.
September 22, 2016: launch of the singles Starboy and I Feel It Coming
composed for rapper The Weekend.

Box 3.1. Chronology of the Daft Punk group (source: author)

 The Innovative Business Model of Daft Punk 75

3.9. References

EY (2013). Panorama des industries culturelles et créatives. Ernst & Young, Paris.
Martin-Delpierre, H. (2015). Daft Punk Unchained. BBC Worldwide.
Moyon, É. (2011). Le changement du business model de l’entreprise : une étude des
majors de l’industrie phonographique (1998–2008). PhD thesis, IAE Lille.
Page, W. (2018). How the global music copyright business grew by 1.5 Bn in 2016,
Music Business Worldwide [Online]. Available at: https://www.music business
worldwide.com/how-the-global-music-copyright-business-grew-by-1-5bn-in-2016/.
[Accessed September 2018].
Schütz, V. (2014). Daft Punk : Humains après tout. Camion Blanc, Rosières-en-
Haye.
Tellier, A. (2017). Bonnes Vibrations. Éditions EMS, Caen.