The Pop Music Industry and the Cost Disease

“[C]ost disease studies usually select opera, theater, and the symphony orchestra. Cost disease proponents display an unjustified bias towards ‘high culture.’ We also should consider today’s cultural winners, such as rock and roll, country music, and heavy metal.” (Cowen, 1996)

“In 1983 it took General Motors about 135 man hours to produce a car.  Twenty-five years later, that number had fallen to 32.29 hours per vehicle, marking fifteen consecutive years of improvement in productivity.  By contrast, it took the band Lynyrd Skynyrd 1.07 man hours to produce a performance of the song Freebird in 1977.  Today, a band duplicating the performance would still take 1.07 man hours.” (Schultz, 2009)

Lady Gaga performing “Speechless” on the UK arena of The Monster Ball Tour. This is what a $3 million dollar bankruptcy tour looks like.

Harvard trained economist, Tyler Cowen, takes exception to the cost disease especially as it applies in a biased manner towards ‘high culture.’  The quote above is from his piece, “Why I Do Not Believe in the Cost Disease: Comment on Baumol,” originally published the Journal of Cultural Economics (20: 207-214, 1996) and in my post, Arts revenue and the fallacy of the “savior demographic” (younger audiences), I took a look at how the Sports Industry which has an even smaller percentage of ticket revenue to total revenue than the classical music industry can actually be considered “profitable.”

The quote from Law professor, Mark Schultz so closely mirrors the title of one of my past blog posts (“It still takes the same number of musicians to play “Hey Jude” now as it did for the Beatles“) that I couldn’t resist using it!

With this post, I’ll briefly look at another industry more closely related to classical music and how it is just as prone to the Cost Disease while also being considered a “productive industry” –namely, the Pop Music Industry.

Larry DeBoer (1985) discusses the shift to Rock and Roll from the popular Big Bands of the 30s and 40s.

It was one factor accounting for the shift in the dominant form of US popular music from big band swing in the 1930s and 1940s to rock ‘n’ roll in the 1950s. Baumol’s disease made the smaller band a necessity, although cultural forces determined the music’s content. The recording industry responded to these cost pressures by concentrating on rock ‘n’ roll music.

A similar shift from Bands (usually comprised of four instrumentalists and/or singers to individual singers as Superstars (e.g. Michael Jackson, Madonna, Lionel Richie, Billy Joel, Whitney Houston) by the 80s and which is still primarily the model by which the industry tends to operate (e.g. Justin Beiber, Lady Gaga, Britney Spears).  By the mid 90s we see a pronounced increase in ticket prices which is partially described as due to the Baumol effect:

In some respects, popular music concerts are a slow productivity growth sector: it takes just as long and about as many people to perform a concert today as it did 20 years ago. As Baumol and Bowen (1966) point out, prices should rise faster than overall inflation in low-productivity growth sectors because of cost increases. Baumol and Bowen’s disease may well account for the mildly faster price growth in live entertainment events than overall price inflation in the pre-1996 period.  (Connolly & Krueger, 2005: 21)

It probably doesn’t need to be said that the onset of file sharing has helped create this sharp increase as that type of activity lowered the revenue that could be gotten from record sales.

During the period of single Superstars there’s also a skewing of revenue towards fewer and fewer top earners which makes sense since individual superstars number far fewer earners than four piece bands.

In 1982, the top 1% of artists took in 26% of concert revenue; in 2003 that figure was 56%.  By contrast, the top 1% of income tax filers in the U.S. garnered “just”14.6% of adjusted gross income in 1998 (see Piketty and Saez, 2003). The top 5% of revenue generators took in 62% of concert revenue in 1982 and 84% in 2003. Surely, this is a market where superstars receive the lion’s share of the income. (Connolly & Krueger, 2005: 19-20)

Connolly and Krueger also found that this ticket price inflation far surpassed  the rate of inflation and actually outpaced ticket inflation for other forms of entertainment such as Sports and Movies.  So maybe it shouldn’t be surprising, as I said in a previous post, “that U2 didn’t turn a profit during their 2009 360° tour [and] that Lady Gaga can bankrupt herself to the tune of $3 million during her 2011 Monster Ball tour.”

None of this is particularly surprising, and I’ve posted about how little money is actually made by most musicians in the Pop Music Industry.  The Superstar effect mimics the Blockbuster effect in movies: studios can lose tons of money off a movie as long as they recoup the costs via a big blockbuster.  The recording industry operated this way for decades and is now only becoming highlighted by the Emily White NPR debacle.

In the end, it seems like those who are really making the money are the Sports owners or media corporations as well as the Superstars but what is really the question is how sustainable is it–and is it a particularly good idea to mimic the business practices or lead an industry to using business practices which may not help the bottom line of individual musicians or a music industry (e.g. Classical Music) as a whole?

That seems to be what the Classical Music Crisis folks want but not surprisingly, there’s very little talk about the feasibility of these types of initiatives in lieu discussions about so-called “relevance” or adapting to popular culture or generally being hip-to-the-times which, as I mentioned in my previous post regarding Richard Florida’s ideas aren’t particularly profitable or sustainable either.

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REFERENCES:

Connolly, M., and A. Krueger (2005) “Rockonomics: The Economics of Popular Music,” Working Papers 878, Princeton University, Department of Economics, Industrial Relations Section.  ark:/88435/dsp01xs55mc05g

Cowen, T. (1996)  “Why I Do Not Believe in the Cost Disease: Comment on Baumol”  Journal of Cultural Economics20(3): 207-214.  doi: 10.1007/s10824-005-7214-1

Cowen, T., and R. Grier (1996)  “Do Artists Suffer from a Cost Disease?”  Rationality and Society8(1): 5-24.  doi: 10.1177/104346396008001001

DeBoer, L. (1985)  “Is rock ‘n’ roll a symptom of baumol’s disease?”  Journal of Cultural Economics9(2): 48-59.  doi: 10.1007/BF00187744

Porter, E. (2010)  “How Superstars’ Pay Stifles Everyone Else”  New York Times.  December 26: BU1.  <<http://www.nytimes.com/2010/12/26/business/26excerpt.html>>

Schultz, M.F. (2009)  “Live Performance, Copyright, and the Future of the Music Business”  University of Richmond Law Review.  43(2).  <<http://lawreview.richmond.edu/ive-performance-copyright-and-the-future-of-the-music-business/>>

Critiques of the Cost Disease by bloggers:

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9 thoughts on “The Pop Music Industry and the Cost Disease

  1. You have me curious now about industries where there is plainly applicability of this cost-disease thing (which strikes me as an idea that’s been inflated past its ability to tolerate inflation) but where it hasn’t for some reason taken root. Like, it takes as many or more government drones to do … government crap … than it ever did. It takes as many or more lawyers to argue things and do lawyer stuff, and yet on they go and get paid for it. (They all have supporting bureaucracies around them as well; in fact, they ARE the supporting bureaucracies. DOES the cost disease thing apply to those bureaucracies themselves?)

    It strikes me that the cost-disease thing comes into play most powerfully (maybe ONLY) when we’re talking not only about the production of stuff, but about the production of commoditized stuff.

    Pop music is predicated on the commoditization of music, as if it’s something like software. Write once, sell a million times. And each of those sold objects (mp3s, CDs, whatever) are indistinguishable from the other. The classical music delivery industry — of live concerts — seems to be the opposite of commoditized experience, or it tries to be. You have to go see this ONE concert that’s unlike any other, which is “artisanal” music that isn’t mass-produced. They sell themselves on the whole idea that listening to the Cleveland Orchestra do Brahms 4 is so unlike listening to the NY Phil do it that you should pay money to hear Cleveland.

    I’m just thinking out loud here, wondering at random how these considerations would impact this whole cost-disease thing.

    I’m also wondering about how it impacts pop, really. While it takes as many people to write “Hey Jude” as it originally did, the advent of computerized music means that it actually doesn’t take as many to play it.

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    1. The Cost Disease has been use to explain a “performance income gap” in practically every service industry as well as Educational Institutions, Government, Hospitals as well as the performing arts yet I don’t really see any of the former institutions ending any time soon. I think Tyler Cowen’s criticism of the idea to be spot on–there’s no industry that’s totally labor intensive (as opposed to capital intensive) in a way that would fit the requirements of how the Cost Disease should work. The idea is that any industry that is labor intensive won’t be able to increase efficiency in ways that manufacturing industries can through the usage of, say, better technologies.

      Every industry is some combination of labor and capital so there will always be some way to increase efficiency. It just seems like a convenient excuse for performing arts institutions to negotiate lower salaries in the name of “sustainability.” But you’re right–lawyers and politicians/government workers are also irreducible labor units in ways that could be analyzed from the standpoint of the Cost Disease. No one seems to care about analyzing anything other than the non-prof organizations from this standpoint!

      I think that if the livecasting takes off we’re going to see a change in how orchestras operate. We really do underestimate how broadcast (and recorded) media pretty much launched the Pop Music and Sports Industries into popularity–but at the same time how it also changed them. As a follow up to this post I’m going to talk about that a bit–mainly using professional Boxing and how Pay-Per-View shaped that Sport. Once it was turned into a commoditized event via broadcast media, the number of Boxing clubs around the country dropped from over 300 to less than 50. While the pay-per-view mass media gave Boxing a much bigger audience and turned it into a relatively profitable industry, there was also less need to have local events–I can easily see this happening with Classical Music–especially orchestras. How many people are going to want to watch a second tier orchestra play Beethoven’s 5th via livecast when they can just as easily see the Chicago Symphony Orchestra or New York Phil play it?

      Basically if the new broadcast media of live casts works for the field, I suspect we’ll see much more product differentiation–orchestras that begin to specialize in various styles since many can’t hope to compete with the same core repertoire. This can actually be a good thing especially if orchestras start developing relationships with composers (both local or international) so that they can actually have a product that other orchestras will not have!

      Computerized or pre-recorded music is already affecting the field in it’s own way. Most Ballet companies already use pre-recorded music since that’s far cheaper than hiring an orchestra to play. Broadway musicals are already including reduced forces with computer programs used to re-produced the rest of the “normal performing forces” you would otherwise find since computers give some measure of control over dynamics/tempi that works better when you do have other live musicians. I definitely see changes happening or that are going to happen, though not necessarily the changes most of the classical music doom-and-gloom folks tend to see.

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