Economics for the Modern Musician

First things first: I am a big Arcade Fire fan, but I had nothing to do with Will Butler’s new song about the Greek debt crisis. I will, however, be on a panel on the “celebrity economy in music” at this year’s South by Southwest Music and Media Conference in Texas with the Butler brothers (Will and Win), among others. And I’m having an economist’s version of fun by looking at some not entirely random aspects of the economics of music.

I’m approaching the subject from the vantage point of “superstar theory,” and asking whether the scrappy data we have seem to support it. And yes, there is something called superstar theory, after a classic paper by the economist Sherwin Rosen.

More than 30 years ago, Mr. Rosen argued that technology was leading to sharp increases in inequality among performers because mass media vastly increased the reach of talented individuals. Once upon a time, he said, all comedians had to entertain live audiences in the borscht belt. Some drew bigger, better-paying crowds than others, but there were limits to the number of people one comic could reach, and hence limits on the disparity in comedian incomes. In modern times, however, an especially funny guy can reach millions on TV, and an especially talented band can sell records around the world – hence the emergence of a skewed income distribution with huge rewards for a few.

What makes this an interesting story for the music industry is that what technology gave, it is now taking away: Since streamed music is hard to monetize, artists are being forced to rely on live performances. So you might expect to see some equalizing of incomes.

But the more I look into this, the less I think this story works, at least for music. First of all, a big lesson I learned from a 2006 paper by the economists Marie Connolly and Alan Krueger is that musicians, as opposed to the industry as a whole, never made much money from recordings. For example, in 2002, which was close to the peak of the golden age of CDs, the biggest bands made more than seven times as much from touring as they did from royalties. Basically, for musicians it has always been about live performances.

Now, this income from performances is highly concentrated. But does this reflect something special about modern communication technology? Maybe not. Let me offer two comparisons, one more fun than the other.

First, the not-fun comparison: How does the concentration of income among financially successful musicians compare with the distribution of income among financially successful Americans in general? We know that top incomes tend to roughly fit a Pareto distribution, in which, say, the 99th percentile is to the 99.9th as the 99.9th is to the 99.99th. Research from the economists Thomas Piketty and Emmanuel Saez tells us that in 2013, income at the 99.99th percentile was 4.38 times as high as income at the 99.9th, which in turn was 3.88 times as high as income at the 99th.

Meanwhile, Billboard’s 2014 Rich List has the fourth highest-paid band, Bon Jovi, making 3.65 times as much as the 40th artist, Carrie Underwood. Given the fuzziness of these numbers, I’d say that income inequality among financially successful bands looks about the same as inequality among financially successful Americans in general.

But are the big incomes of music superstars something new? Well, let’s look at someone for whom we have pretty good numbers: Jenny Lind, the famous Swedish-born soprano, who toured America from 1850 to 1852.

Tickets at Lind’s first concert sold for an average of about $6, which seems to have been more or less typical during the tour. Adjusting for inflation, that’s the equivalent of around $180 today, which isn’t too shabby. But you also want to bear in mind that real incomes and wages were much lower, so that these were actually huge ticket prices relative to typical incomes.

Overall, Lind was paid about $350,000 for 93 concerts, or a bit less than $4,000 a concert. This was the equivalent of around $2 million a concert today. In other words, to a first approximation, Jenny Lind equals Taylor Swift. And this was in an era not only without recordings, but without amplification, so that the size of audiences was limited by the acoustics of the halls and the projection of the performer’s voice.

What all this suggests to me, at least, is that the economics of being a financially successful musician aren’t that different from success in other walks of life, and haven’t changed that much over the long run, despite huge changes in technology and tastes.

Basically, musicians are just like bankers, except for the business about saving our souls versus destroying them.