The one sentence summary
The music industry can teach us a lot about economics and our future.
WHAT THE BOOK SAYS
- The music industry is a laboratory for learning about economic development. The book suggests that there are seven main lessons we can learn from it.
1. Supply, demand and all that jazz. Limited supply can lead to greater demand and higher prices, but artists are usually fearful of being unfair to their fans, so emotion plays a part in the pricing of music and concerts too.
2. Scale and non-substitutability: the two ingredients that create superstars. Music is the quintessential example of a superstar market, with a small number of them attracting all the fanfare and earning most of the money. They reach the largest audiences and they must have unique, distinct features.
3. The power of luck. Talent and hard work are needed for success, but they are not sufficient on their own. The right artist might arrive at the wrong time, or at the right time with the wrong song, manager or label.
4. Bowie theory. David Bowie predicted that music would become like water or electricity, so touring constantly would be essential because that’s the only unique situation left. What economists call complementarities include, in the music industry, concerts, merchandise, books, videos, and branded products.
5. Price discrimination is profitable. If an artist can restrict the resale of its product, it can increase revenue by charging a higher price to customers willing to pay more, and less to those who aren’t. Front row tickets are an example. Time-released albums, to the fan base first, are another.
6. Costs can kill. Making a lot of money isn’t a guarantee of success. Bands are notorious for running up huge costs and not keeping tabs on expenditure.
7. Money isn’t everything. Too many people confuse the underlying motivation of economic life, and music artists, as the blind pursuit of money. But the majority of artists started, and still do it, for the love of it.
WHAT’S GOOD ABOUT IT
- Cumulative advantage is when an initial small edge over a rival snowballs into a much bigger advantage over time. That’s what happens with recommended songs on streaming services. Success breeds success.
- Hyperbolic discounting is when those with success overspend out of their current income, assume success will continue indefinitely, and fail to provide for their future.
- The discipline that successful artists should show are similar to those in any economy: articulate your challenges, gain basic financial literacy, think expansively about revenue streams, budget wisely, avoid debt, save now, and put money aside for taxes.
WHAT YOU HAVE TO WATCH
- Not much. The book has business application but also includes a fair amount of anecdotal material from the music industry, so attention levels may vary depending on your interest in the artists mentioned.