BOOK REVIEW: Looking at music through the lens of economics
Deft sketches in Alan Krueger’s ‘Rockonomics’ teach some broader lessons
My review copy of Rockonomics arrived the same day I heard that its author, Alan Krueger, had killed himself at the age of 58. At first glance, it looked an incongruous final statement from a former chair of President Barack Obama’s Council of Economic Advisers, whose academic work on the effect of minimum wages has been hugely influential. He did not seem an obvious writer for one of the “-nomics” titles piling up on bookshop shelves.
But Krueger was also a brilliant communicator, and the book offers an engaging way to learn some important lessons about how modern economies work. In that sense, it is a fitting reminder of the open-minded and generous teacher that the world has lost.
The book is is essentially a series of thematically linked articles — a greatest hits collection rather than a rock opera — that uses the music business to explain a variety of economic ideas, including contract theory, price discrimination, the importance of luck, and the forces creating a “winner takes all” marketplace. As the opening “Prelude” puts it: “Music fans, by reflecting on the economics of music, can learn how economic factors impact their own lives.”
Krueger approaches his subject with the enthusiasm of a true rock buff. When he had to choose his walk-on music for a speech at the Rock and Roll Hall of Fame in Cleveland, his choices were mostly deep cuts for the connoisseur, including John Mellencamp’s Hand to Hold On To, a lesser-known single from the same album as the international smash hit Jack and Diane.
His credentials as a fan are evident in some star-struck interviews with musicians, including Gloria Estefan and Steve Ferrone, the former drummer for Tom Petty’s Heartbreakers. Bono makes a cameo appearance, bumping into Krueger at the White House and apologising to him for the poor quality of a U2 show a decade earlier.
The core of the book, though, is Krueger’s deft sketches of the key features of today’s music business and the broader principles that they demonstrate.
Overshadowing everything is the plunge in CD sales since 2000. Revenues from streaming services have been rising fast — they were up 34% in 2018. But for most stars touring is still a far more important source of income.
The top 48 musicians touring in 2017 on average earned 80% of their income from their concerts, 15% from recorded music sales, and 5% from publishing fees. For U2, 96% of their income came from touring.
One of the most interesting chapters explains an enduring puzzle in the music business: the fact that performers regularly set prices for concert tickets at below market-clearing levels, allowing touts to make a profit on the difference between the face value and the amount that fans are willing to pay. Krueger argues that it is because a rock show is about building a community, not just delivering a performance, and many fans resist the idea of selling tickets at “unfair” prices that would match demand with supply.
One of the book’s unexpected heroes is Garth Brooks, the country music megastar who developed an elegant solution to this problem in 2014: setting ticket prices at a very reasonable $70 or so, and then expanding supply by adding more tour dates until demand is fully met. Anyone making a career in the music business will find Rockonomics full of ideas for similarly astute strategies.
The one thing the book is not particularly good on is the value of music itself. As Krueger points out, commercial imperatives have always shaped music. Paul McCartney told Rolling Stone magazine in 1990: “John and I literally used to sit down and say, ‘Now, let’s write a swimming pool’.”
The magic of music has nothing to do with its revenues or pricing structures, though, and Krueger’s final chapter on “music and wellbeing” does not go very far in exploring that mystery. The economics of rock, in his hands, is a fascinating subject. But looking at music through the lens of economics can only ever show a partial picture of what he calls “one of the best bargains ever created”.
© The Financial Times Limited 2019
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