Alan Krueger’s Economic Analysis of the Music Industry Contains Useful Tips for Future Stars | Canberra weather


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The rise of the digital economy has affected entire economies, causing profound changes, including in the pop music industry. Alan Krueger takes the reader on a tour of this industry using non-technical language and a lot of data to document these technological changes and show how they affect artists and consumers. Developments such as music streaming “have allowed performers to reach an increasingly large audience. And the increasing globalization and interconnection of the world have dramatically increased the reach and fame of the most popular artists.” . One consequence is that the industry has shifted to a “win-win superstar business”. Two conditions must be met for this superstar phenomenon to emerge. First, there must be economies of scale, whereby the performer can reach a large audience with little or no additional cost to the producer per listener. This is precisely what streaming offers. Second, performers must be imperfect substitutes; that is, performers are not the same – each must have a unique talent. Of course, there is also an element of luck, and a characteristic widely known as the “law of power”: the popularity of an artist – or a song – grows geometrically rather than linearly. It happens through cascades of information and musical preferences across fan networks. Krueger gives a number of examples, particularly from laboratory experiments. No reader will be surprised to find examples of price discrimination in the music industry. Price discrimination occurs when a business restricts the sale – or resale – of its product in order to maximize its income. Kreuger documents a number of them. For example, Taylor Swift waited 3 weeks after the release of her new album Reputation before allowing it to be made available on streaming services. The reason was that the royalties were higher for the sales of the full album than for the individual streaming services, and the more enthusiastic fans were willing to pay for the full album. It has benefited greatly from this strategy. What may surprise readers of this book the most is the fact that most pop musicians derive most of their income from live performances rather than sales of recorded music. And, of course, the biggest earnings go to superstars. Krueger, who has plenty of data to back up his claims, notes that over the past decades, “the share of concert revenue earned by the top 1% of top performers has more than doubled from 26% in 1982 to 60% today”. Despite the book’s focus on the globalization of the pop music industry, it focuses primarily on the United States. However, a chapter towards the end briefly discusses the global music market and highlights the enormous potential of China with its rapid technical development and huge population. Incidentally, he also notes that spectators in China were previously required to stay in their seats and not dance and sing during live performances. However, recently Chinese authorities have started allowing attendees to stand up and dance during a performance – but this must be done while standing in their chairs. This illustrates the kind of anecdote that Kreuger introduces into his text to bring it to life. This chapter also mentions Sweden, which has enjoyed tremendous success in the pop music industry, a success which is attributed to Sweden’s widespread music education, fluency in English and integration into the world. ‘Mondial economy. As a novelist and economist, I found myself thinking, while reading this book, of the many parallels – and differences – between the pop music industry and the book publishing industries. It would be wonderful to see them addressed in the future; but that would be another book. Rockonomics is data-driven and provides a lot of in-depth information that makes it essential reading for anyone studying or working in the pop music industry. It’s also a must read for anyone considering a career in the music industry (or parents of a child with such ambitions). Particularly relevant is information on intellectual property, contracts, royalties, etc., and the very low probability that a pop musician will make a lot of money. It is above all the love of music that makes people work in this industry. And, according to the last chapter, it’s listening to music that makes people happy. Rockonomics was released posthumously, as Alan Krueger sadly passed away earlier this year. It was a great loss to the economic profession and beyond, as this book clearly shows.




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