July 6, 2022


The Branch of knowledge dealing with engineering or applied sciences

Music, Economics and Beyond

“The whole point digital music is risk-free grazing.”

–Cory Doctorow

Cory Doctorow is a Canadian journalist who co-edits the offbeat blog Boing Boing. He is an advocate for liberalizing copyright laws. He also supports the Creative Commons non profit organization that aims to expand the creative work available to others legally. Doctorow and others continue writing prolifically about the apocalyptic changes in Intellectual Property and the music industry specifically.

This article will examine the crisis facing the U.S. economy through the portal example music industry. It is a relatively simple industry compared to energy or automotive. Nevertheless, this simple example may reveal some lessons that can be applied to other industries.

Michael Arrington, in his web-article “The InevitableMarch of Recorded Music Towards Free”, explains that music CD sales are continuing to fall alarmingly. “Artists such as Nine Inch Nails and Prince are flouting labels and either giving away music or telling their fans how to steal it… Radiohead, which no longer has control over Capitol Records, sold their digital album online for whatever price people wanted. Arrington, like many others, reminds us that music prices cannot fall to zero if there are no effective legal, technical or other impediments to production.

There are virtually no legal or economic barriers that will prevent recorded music prices from falling to zero unless sovereign governments who subscribe to the Universal Copyright Convention take extreme measures such as the mandatory music tax. Artists and labels will likely focus on other revenue streams that they can and will exploit in response. These include merchandise, live music and limited edition physical copies.

Stephen J. Dubner says that the Rolling Stones’ under Jagger’s leadership are the most intelligent because of their corporate-like approach to touring. Two main revenue streams are key to the economics of pop music: record sales and tour profits. Record sales can be unpredictable and split up among multiple parties. You can make huge profits by learning how to tour effectively, including corporate sponsorship and ticket sales. It’s easy to control how much money you make by adding more dates. However, it’s difficult to control how many records are sold. (“Mick Jagger Profit Maximizer,” Freakonomics Blog 26 July 2007

We turn to the most trusted data source for the music industry to help us understand the issues caused by digital media. Neilsen SoundScan, which is a system that tracks sales and collects information, provides this data. SoundScan is the official way to track sales of music and video products in the United States and Canada. It collects data weekly and makes it available to subscribers every Wednesday from all aspects of the music industry. This includes executives from record companies, publishing companies, music retailers and independent promoters. SoundScan is the official source for sales records in the music business, as it provides Billboard with sales data.

Quo vadis? Neilsen Soundscan says that music is still the soundtrack to our lives, despite fragmentation in the media landscape where technology is changing consumer habits. Music 360 2014, Nielsen’s third annual study on the habits, tastes and preferences of U.S. listeners to music, shows that 93% of Americans listen to music at least 25 hours per week.

Music is the most popular form of entertainment for Americans. A 2014 survey found that 75% of respondents said they would listen to music more than other media entertainment. Music is a part of our daily lives at all hours of the day. A quarter of all music listening is done while driving or riding in vehicles. Another 15% of our weekly music listening time is spent at work or doing chores around the house.

It’s not surprising that over the past five year CD sales have declined while download listening and sales increased. Bob Runett from Poynter Online says, “Start waving your cigarette lighters and swinging side to side. The love affair between music lovers and their cell phones keeps getting more intense. According to Strategy Analytics Inc., phones with music capabilities will account worldwide for 54 percent of handset sales in five years. According to the report, we should continue to monitor the growth of cellular musical decks (CMDs), devices with excellent sound quality that focus more on music than images. “A Few Notes about Music and Convergence,” 25 Nov 2014

Stephen J. Dubner summarized the situation quite well nearly a decade ago. It strikes me ironic that digital music, a new technology, may have forced record labels to abandon the status-quo (releasing albums) in favor of returning to the past (selling singles). Sometimes I think the greatest mistake that the record industry made was to abandon the pop single. Customers were made to purchase albums in order to hear the singles they liked. How many albums can you name that you love or even half of? 20? The people are now saying that they only want one song at once, digitally, and maybe even for free. “What is the Future of the Music Industry?” “A Freakonomics Quorum,” 20 Sept 2007,

Like many of us, I (Dr. Sase) also have worked as a musician/producer/engineer/indie label owner releasing esoterica since the 1960s. Although I made a living occasionally from my music, my skills as an economist helped me earn a doctorate. So I view the world as both an economist and musician.

As music pundits like to call it, the post-future is not that different from the past. At least three decision drivers are involved in how and why people obtain their music. The three most important are 1) Content, 2) Durability and 3) Time-Cost. Let’s continue.

1 Content

In the 1960s, there were many “one-hit wonders” in the music market. This was the age AM (amplitude modulation) and DJ radio. It was also the age 45 RPM records with the hit on one side and a filler cut on another. Anyone with a 2-track reel to reel could “download” any single hit they wanted from their favorite radio station. Few groups offered 12-inch LPs that contained great songs. Meet the Beatles, by the four Liverpool lads, was the first such LP I bought.

The late 1960s saw the industry shift more towards “Greatest Hit” albums by groups that had previously produced a string AM hits, and “concept” albums. The Beatles, Yes, King Crimson and many other artists released albums with solid content during this golden age of LP sales. Consumers will pay for products if they feel they are getting value.

2) Durability

Why would anyone buy a 12-inch LP when they can borrow one and tape record the songs onto a reel to reel or later to a compact cassette? At that time, the answers were easy. It was fashionable to have an extensive album collection. This was especially true if one could keep it in the dorm. Simply put, an album collection can reveal a lot about one’s taste and sub-culture. A beautiful collection could be considered social currency. This could explain the resurgence in popularity of
Vinyl in recent years

The second aspect of the equation was product durability. Self-recorded reel to reel and cassette tapes experienced some loss in fidelity during the transition, just like current downloads. Moreover, the media’s integrity and durability were also questioned. Tape would break, flake, and get caught around the capston from thirty-to forty years ago. Many of your favorite songs could be lost if you don’t back up to a second-generation cassette.

Today, computer hard drives crash. The same issues can occur without the need for an extra hard drive or the additional time required to transfer it. What about CDs? CD-Rs are used for many purposes. However, CDs that burn images instantly can be more fragile and susceptible to damage than CDs that are commercially manufactured, stamped from metal masters. The Internet clouds will offer music producers and listeners the same level of comfort. We’ll just have to watch and wait.

3) Time-Cost

This third element basically reflects the old “tape is running/time-is-money” economic argument and may explain why younger music-listeners prefer to download songs either legally or illegally. This economic argument is the same one that prompted listeners to record their favourite hits on the radio in the 1960s. The argument’s substance is based on how an individual values their time. Music-lovers who are paid a low hourly salary (or no income) will be more interested in the time they spend downloading, backing up and transferring music than what they could earn.

Consider the following example. A babysitter who earns $6 an hour would be able to afford to listen to as many as two hours worth of music. Twelve downloads, or a CD comparable to it, costs $12.00. Someone with a college degree or skilled trade may earn $24.00 an hour. The value gained would be less if you spent more than half an hour ripping. Contrary to popular belief, the time-cost of traveling to a brick and mortar music store is offset by the ability to log-on to Amazon.com or anywhere else in less than a minute to receive free shipping. As the primary market population ages, the market will change. This was the case with the Baby Boomers in the 1960s and 1970s, and it will continue with Generation X, Y, and Z in this century.

All of this debate boils down to the fact that consumers will choose the delivery method that maximizes their bundle of value. This bundle includes content quality, quantity, durability, time-cost effectiveness, and quality. These are the essential lessons music producers and musicians must learn to survive. Things change but remain the same.

“When I’m driving in my car, and that man comes on my radio, He’s telling me more and more, about some useless information, Supposedly to fire my imagination. I can’t get any, oh no no, no. -Michael Philip Jagger (British Economist, London School of Economics)

We recognize that consumers and businesses alike are motivated by certain values. These values include quality, durability, cost, and time. It doesn’t matter if the service or good under consideration is real, personal, intellectual, or intangible property. This principle applies to making music, teaching economics and providing legal services.

This phenomenon was described by Adam Smith, a British economist. He put it succinctly in his concept of the invisible hand working in the market. Markets work because market participants are motivated to maximize their own interests. If both parties to a transaction believe they will be better off after the transaction is completed, they will continue to participate. If either party does not believe this, there will be no music, car, education, or legal services that are transferred. The market does not produce a satisfactory result.