While the public perception exists that Canada is a hot spot for music and musicians, a comparison with the global leader in music production – the United States – helps us to separate perception from reality. We find that Canada has considerably greater per capita musical activity than the United States in terms of record labels, recording studios, and licensing houses. But the United States has much higher-earning businesses that are more heavily clustered in fewer places – especially Nashville, Los Angeles, and to a lesser extent, New York.
Scholars who analyze popular music (for example, how it is affected by industry concentration or other social and historical events) have often relied on the Billboard music charts as their data source. The data informing Billboard song rankings include a combination of album sales (both physical and digital) and terrestrial radio airplay. But musical consumption patterns over the past ten years have changed dramatically. Those individuals who listen to satellite radio, download music illegally and stream music online are not included in Billboard’s measures of song popularity. The question becomes, is Billboard still capturing the most popular songs in its chart rankings? While no solid alternative exists yet, one website has emerged that may be a promising adjunct to Billboard’s rankings: http://www.nextbigsound.com/
The website was invented by four students at Northwestern, and it allows you to measure the social network metrics of musical acts. It takes the following into account:
Next Big Sound thus measures artist popularity in many ways not captured by the Billboard rankings. Billboard is, to be sure, an industry magazine, and since record labels do not yet profit directly from digital streaming, the incentive to incorporate such measures into its rankings is not yet there.
Having just launched in August, the website has room for improvement. For example, artist information is not broken down at the regional or even the national level. But as it progresses and accumulates more data to measure musical popularity over longer periods of time, it looks to be a promising analytical tool.
Has file-sharing diminished music industry profits and musical innovation?
These are the central questions of a new working paper by Felix Oberholzer-Gee and Koleman Strumpf. Their answers: no and no.
Here are two of their key charts concerning the first question.
This one shows a marked increase in concert prices since file-sharing took off.
And this one shows that including concert revenues and iPod sales more than makes up for declines in record sales.
Their explanation: iPods, concerts, and recordings are “complementary” goods.
Even if file sharing displaces sales, the weaker copyright regime need not undermine the incentives to produce new works if artists and entertainment companies can shift their earnings from selling music, games and movies to selling complements to these products. An interesting example is concerts…concerts and merchandising have become an important source of income for major artists (Connolly and Krueger, 2006). Concerts and new recordings are complements. A recording becomes more enjoyable if one can reminisce about the time at the concert, and knowing the songs in advance might make the concert more enjoyable. In the presence of complementary goods, file sharing will have two opposing effects (for a formal model, see Mortimer and Sorenson, 2005). As the effective price of music falls close to zero, a larger number of consumers will be familiar with an album, driving up the demand for concerts. At the same time, artists have weaker incentives to tour because concerts are a less effective way to increase revenues from a new recording if a large fraction of the audience shares files. Which of these effects is more important? Figure 6 shows that concert prices rose much more quickly than the CPI, and the difference appears to have widened since the advent of file sharing (Krueger, 2005). More detailed evidence on the link between file sharing and concerts comes from Mortimer and Sorenson (2005). Studying 2,135 artists over a ten-year period, they also conclude that the demand for concerts increased due to file sharing. One way to see this is to ask how many CDs an artist needs to sell to produce $20 of concert revenue. This number fell from 8.47 in the pre-Napster era to 6.36 in the 1999 to 2002 period. Not surprisingly, artists responded to these incentives by touring more frequently. Overall, the shift in relative prices and activities led to a sharp increase in income for the typical artist included in the authors’ dataset. As these results show, income from the sale of complements can more than compensate artists for any harm that file sharing might do to their primary activity.
Has file-sharing reduced the incentives for musicians to create new works? The numbers say no:
“Overall production figures for the creative industries appear to be consistent with this view that file sharing has not discouraged artists and publishers. While album sales have generally fallen since 2000, the number of albums being created has exploded. In 2000, 35,516 albums were released. Seven years later, 79,695 albums (including 25,159 digital albums) were published (Nielsen SoundScan, 2008).”
Their explanation: most musicians have for a long time thought that “making it” (becoming a star) is like winning the lottery. They become musicians anyway. File-sharing doesn’t change that, or the need to have a second job.
And, for everybody else, it might leave us more room in our wallets to go to concerts and a wider selection of interesting new musics from which to select.
The broader lesson: understanding the structural transformations occurring in the music world requires looking beyond record sales, a theme in this NYT article on the release of The Beatles: Rock Band, and this one on the increasing importance of music publishing.
A great NYT infographic illustrates the shift over time in music format sales. In the accompanying opinion piece Charles Blow suggests a deathwatch for the industry is in order.
But Australian digital entrepreneur Nick Crocker paints a much brighter picture, one that he backs up with his own data. While the conventional business of collecting revenue from selling CDs is shrinking, he points out that unit sales (including single tracks) were up 10% last year. Vinyl sales, admittedly a small percentage of the total market, shot up a staggering 89%. And perhaps most importantly, recent polling points to young consumers consuming more music and giving it a higher importance in their lives.
Whatever your take on the numbers, it’s becoming clear that while some parts of the music industry are hurting dramatically, other areas promise greater possibilities than ever. We’re fascinated by the transformation-in-progess, and we’ll continue to float ideas and post preliminary research here on the blog in the months to come.
A 2008 report from the UN Development Program explores the economic dimension of the creative economy’s contribution to the development process. Here are some highlights.
World exports of recorded music tripled between 1996 and 2005, despite the dramatic drop in music sales in the developed world:
On the basis of available figures, world exports of recorded music tripled from $5 billion in 1996 to $14.8 billion in 2005, accounting for 4.4 per cent of total exports of creative goods. This spectacular increase – 13.5 per cent annual growth during the period 1996-2005 – represents the highest rise in growth rates among the exports of all the creative industries. (p. 120)
The report finds that the economic benefits of Latin American and Caribbean music fail to accrue to their home countries, despite the widespread popularity of their Latin American and Caribbean genres across the globe. The observation brings to mind a recent finding from the MPI’s sister Institute for Competitiveness & Prosperity – that when it comes to reaping the economic rewards of creativity, management skills matter almost as much as raw talent and creative innovation:
Surprisingly, Latin America and the Caribbean are practically absent from world markets for recorded music despite the great appeal of their music worldwide. . . Brazil is an important music producer, with a large domestic market but with a very timid presence in the world market in terms of exports despite the fact that its famous music is played worldwide. This is a typical case of structural problems of marketing and distribution, as explained earlier and below. A similar situation hampers foreign exchange earnings from reggae and calypso music in the Caribbean in addition to the fact that their music industry is highly fragmented and lacks a strong institutional framework. (p. 121)
The section on the use of new business models and technology in creative industries is also interesting (p. 163-169). Music shows up at the forefront of a lot of these challenges and innovations – it’s both culturally ubiquitous and uniquely suited to a digital world.
