In recent years I’ve read with fascination various reports about the changing economics of recorded and live music. The story can be summarised thus:

In recent years, the economics of pop music have been upended. The market for CDs has collapsed, and not even the rise of legal downloading can offset the damage to record companies. Meanwhile, demand for live performances has rocketed.

This startling change in the music business, and particularly the disruption of the traditional value chain by digital distribution (legal and otherwise), should interest and concern all consumers.

In 2002 David Bowie drew attention to changes in the music business in an interview quoted in a New York Times article by Jon Pareles:

”Heathen” is the first album from Mr. Bowie’s own recording company, Iso, which has major-label distribution through Sony. In 1997, he sold $55 million of Bowie Bonds backed by his song royalties; the next year, he founded the technology company Ultrastar and his own Internet service provider-cum-fan club, Bowienet (davidbowie.com). In a nod to his art-school background, his bowieart.com sells promising students’ work without the high commissions of terrestrial galleries.

His deal with Sony is a short-term one while he gets his label started and watches the Internet’s effect on careers. ”I don’t even know why I would want to be on a label in a few years, because I don’t think it’s going to work by labels and by distribution systems in the same way,” he said. ”The absolute transformation of everything that we ever thought about music will take place within 10 years, and nothing is going to be able to stop it. I see absolutely no point in pretending that it’s not going to happen. I’m fully confident that copyright, for instance, will no longer exist in 10 years, and authorship and intellectual property is in for such a bashing.”

”Music itself is going to become like running water or electricity,” he added. ”So it’s like, just take advantage of these last few years because none of this is ever going to happen again. You’d better be prepared for doing a lot of touring because that’s really the only unique situation that’s going to be left. It’s terribly exciting. But on the other hand it doesn’t matter if you think it’s exciting or not; it’s what’s going to happen.”

The academic world got involved in 2005 with the publication of ‘Rockonomics: The Economics of Popular Music‘ by Princeton’s Marie Connolly and Alan Krueger. This paper was widely discussed and commented on, such as in a 2005 Slate article:

Between 1981 and 1996, Krueger and Connolly found, ticket prices generally kept pace with inflation. But since 1996, they’ve risen much faster. From 1996 to 2003?a period in which inflation was a muted 2.3 percent per year?concert prices rose by 8.9 percent annually. Ticket prices for concerts have also risen more rapidly than those for other forms of entertainment.

In some ways, the rockonomy resembles the increasingly winner-take-all American economy. The rich are getting richer, and it’s good to be the king or queen of pop. In 1982, the top 1 percent of artists banked 26 percent of ticket revenues; in 2003, they garnered 56 percent.

Several sources including the article itself and this 2006 BBC article indicate that Krueger believes this tendency was first spotted by Bowie. Consequently, Connolly and Krueger describe this idea as ‘Bowie theory’.

In a 2007 Prospect article Robert Sandall further explores rockonomics. He writes that the music value chain has been reversed:

Groups used to tour, often at a loss, to stimulate sales of their latest album. Now it’s the other way around. Hence the widely reported decision earlier this year by the Crimea, a band previously signed to Warner Bros, to release their new album as a free download. The band explained this not as an anarcho-hippie gesture in support of the principle that music ought to be free, but as a sensible promotional tactic. Their hope is that by disseminating their music online, they will expand their fan base and increase their returns from touring.

Sandall concludes that:

It is difficult to prove that the rising popularity and price of live music has been directly affected by the superfluity and cheapness of the recorded stuff. But it seems more than a coincidence that just as fans are spending less on the tunes they listen to at home, they will pay unprecedented sums to hear them in concert.

This reversal in the value chain may save us all from the next Milli Vanilli and instead give us musicians who can write, sing, record and perform their own music.

In particular, I’m excited by how it can release established artists from recording contracts with companies and free them to pursue their own distribution strategies. Radiohead are selling their new album In Rainbows online with a make it up yourself price. Trent Reznor from Nine Inch Nails recently encouraged fans to steal his music to punish his greedy record label.

Reznor recently said that:

If I could do what I want right now, I would put out my next album, you could download it from my site at as high a bit-rate as you want, pay $4 through PayPal.

Bring it on…

rockonomics

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