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Home Publications Blogs Beat the Press The Music Industry Might Tell Us More About Inequality Than Alan Krueger Thinks It Does

The Music Industry Might Tell Us More About Inequality Than Alan Krueger Thinks It Does

Sunday, 16 June 2013 07:52

Neil Irwin wrote about a presentation that Alan Krueger gave at the Rock and Roll Hall of Fame that showed how the growing inequality of revenue in the music industry was characteristic of trends in inequality in the larger economy. Irwin quotes Krueger:

"We are increasingly becoming a ‘winner-take-all economy,’ a phenomenon that the music industry has long experienced. Over recent decades, technological change, globalization and an erosion of the institutions and practices that support shared prosperity in the U.S. have put the middle class under increasing stress. The lucky and the talented – and it is often hard to tell the difference – have been doing better and better, while the vast majority has struggled to keep up."

The piece includes a chart that Krueger presented showing that the share of concert revenue going to the top 1 percent of performers went from 26 percent in 1982 to 56 percent in 2003. The next 4 percent saw their share squeezed somewhat from around 36 percent to 29 percent. This led to a fall in the share for everyone else from 38 percent to 15 percent.

While the share of the 1 percent was rising in this period, it is interesting to look what was happening to total revenue, most importantly in pre-recorded music. This rose rapidly as a share of GDP from less than 0.12 percent in 1980 to a peak of just under 0.2 percent in 1998. The obvious explanation for this rise was the growth of CDs. This new format meant that people were not only buying new music, but also many people were purchasing music they already had on tape or records in this new format. After 1998 the share of GDP spent on recorded music plummeted, falling to 0.11 percent in 2012.

It's not clear what Krueger's data would show over this period (his chart ends in 2003), but we might see a growing share for the top 1 percent of a sharply declining revenue stream. The logic is that it costs a great deal of money for the music industry to promote a new artist. In a context of sharply dwindling revenue due to technological innovation (the Internet has made a vast amount of material available at zero cost), it is much less likely that this money will be recouped in sales. As a result it makes more sense for the industry to market music that might have been made 30 or 40 years ago because there is very little risk involved.

However there are two important items in this picture that have nothing to do with technology. The first is efforts to restrict unauthorized copies. The industry has repeatedly gone to Congress to push for beefed up protection for copyright and stronger enforcement measures. The Digital Millennium Copyright Act was one piece of fruit from this effort. Another agenda item was SOPA and PIPA, which would impose much greater burdens on Internet intermediaries.

The other major item here is the extension of the length of copyright protection. The duration is now 95 years. This gives companies an incentive to promote old music that would not otherwise exist.

Anyhow, the point is that the concentration of earnings of the top 1 percent is not just technology, but rather the ability of the rich and powerful to control technology to ensure that it makes them richer and more powerful.

Btw, for those wondering, there was a substantial increase in the share of GDP going to live performances also. It went from 0.05 percent of GDP in 1980 to 0.12 percent in 2005. It had remained pretty stable at that level for several years, but fell back to 0.11 percent in 2011. Presumably the division of revenue from live performances loosely corresponds to the revenue from recorded music since it will be closely related to the extent to which various performers are promoted. 

Comments (4)Add Comment
IP, Substitutes and Complements: How They Really Work Compared to Propaganda
written by Last Mover, June 16, 2013 10:20
Excellent breakdown by Dean Baker on the current state of the music industry and the influence of intellectual property rights manipulation and abuse.

It's also advisable to keep in mind a basic principle of economics on this subject about substitutes and complements.

From day one, those pushing property rights designed to severely restrict the consumption and (repeated) use of music through various ways it could be copied and distributed were also pushing the notion that the copies were serving as powerful "free or low cost" substitutes that undermined the market value of the original sources, i.e. beyond "authorized copies" it was outright theft and robbery of private property.

Inevitably in just about every case they ended up proven wrong, because the copies in question turned out to stimulate more overall sales and revenue as complements to the originals - not substitutes, somewhat similar to how copies can stimulate attendance and revenue for live appearances, themselves which have few or no substitutes.

A clear example was the now obsolete Video Cassette Recorder, when the affected industry proceeded to roll out reams of studies and predictions on how the VCR was literally going to destroy the ultimate original creators, producers and publishers of intellectual property.

They got it exactly backwards. The VCR turned out to be a powerful complement to the originals and actually increased total sales, revenue and income across the board.
Why worry: NYT says even pessimists now optimistic (or wrong)
written by JaaaaayCeeeee, June 16, 2013 1:19

Tyler Cowen sees surging domestic gas and oil starting a new era of cheap energy, online ed opening a door to millions previously priced out, and subtler improvements in GDP like slowing health care costs, that may subtract from GDP but, like music industry revenue making the experience for listeners better, the country's prospects are better. The country's?!?

Morgan Stanley, IHS Global Insight, and Baily at Brookings says we seem to be weathering tax increases and spending cuts, and NYT says Bernanke echoes Cowen's newfound optimism on innovation.

Besides, NYT tells us, economists were wrong fearing depression after WW2, missed 2008 and depth of recession after 2008 (green shoots), so don't worry. Bernanke says capacity and incentives to innovate are greater than ever, and Cowen's next book "Average is over" sees the great stagnation ending. NYT sees the New Normal getting old. Weak job and income gains, but healthier long lasting growth is coming, powering not only the stock market. Healthier!?!

NYT has unnamed analysts seeing our subpar expansion and lack of boom bust so far this cycle, as evidence of durable growth. Durable?!?

Headwinds, aging, austerity, inequality, long unemployed, yeah, but the party will continue - NYT readers needn't worry is what's news today, not pessimists.

NYT on economic prediction that as the impact of fiscal tightening eases, the growth rate will pick up: http://www.nytimes.com/2013/06...anted=1&hp
pretty depressing talk
written by Jennifer, June 16, 2013 6:18
I was struck by his comments where he put emphasis on the "private" sector to play a more significant role in the recovery, and that the government's role is "limited". One wonders how many years of record profits the private sector has to have before this will happen. Of course things like IP reform would help redistribute income but it's no surprise that a figure from the Obama administration would not suggest IP reform as playing an important role in income distribution-these are the same people pushing increased IP protections in trade deals.
Was the recording industry in bad shape in 1980?
written by Doug OKeefe, June 17, 2013 11:03
This may be a slight tangent, but I was surprised to see here that the recording industry accounted for "less than 0.12 percent [of GDP] in 1980" and now, after the digital boom and subsequent rise of online music sharing, has fallen to 0.11 percent in 2012. I don't recall anybody lamenting the state of the recording industry in 1980. Any thoughts?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.