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

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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.