Monday, May 22, 2006

The economics of Rock Concerts

Thanks to Tyler Cowen

What struck me was this bit

In a paper he wrote with Princeton graduate student Marie Connolly, he says concerts are now a much bigger source of income for major-league stars than CD sales.

"Only four of the top 35 income-earners made more money from recordings than live concerts," the paper says. "For the top 35 artists as a whole, income from touring exceeded income from record sales by a ratio of 7.5 to one in 2002."

Before the advent of illegal downloads, artists had an incentive to underprice their concerts, because bigger audiences translated into higher record sales, Professor Krueger argues.

But now, he says, the link between the two products has been severed, meaning that artists and their managers need to make more money from concerts and feel less constrained in setting ticket prices.

Professor Krueger says this tendency was spotted by David Bowie, who told the New York Times in 2002 that "music itself is going to become like running water or electricity".

Bowie has advised his fellow performers: "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."

That reminded me of this remarkable essay (from 1996!) by Paul Krugman.

The royalties that the Four Sopranos earn from their recordings are surprisingly small; the recordings mainly serve as advertisements for their concerts. The fans attend these concerts not to appreciate the music (they can do that far better at home), but for the experience of seeing their idols in person. In short, instead of becoming a knowledge economy we became a celebrity economy.

Goes to show how far a smart man can see if he knows some economics!

6 comments:

Jay said...

will this happen in the movies also...maybe tanul has an answer

Rajeev Ramachandran said...

Hmm... yes, would like to know what she thinks, but what about you?

Jay said...

broadway replacing hollywood na .

Watch Tom cruise turn into mush as he faces a live audience. rotten eggs to collected along with your tickets...I would love to do this..

Jay said...

sorry no eco thought there pure spite

tanul said...

Don't think that live movies or theaters will ever be able to generate more revenues than the films purely because of the vieweung expirience. Everything on the silver screen is larger than life and replicating that on stage however sophisticated is tough, including special effects, change in loactions etc.
I think incase of concerts it works better because of the overall sound effect, the joy of a live performace, the improvisations.

Rajeev Ramachandran said...

Re Tanul's comments:
I agree its unlikely to happen in the case of movies: Movies are still to expensive to produce for the net, as music and books are not. Likely to see
more "blockbusters", that emphasize the experience aspects of the movies? I suspect its the "middle-brow" movies that will be cut out.
Will low-budget movies still be made? What drives the costs of a movie? Production? Distribution? Will we see more multiplexes that will run niche movies, AND a few big screens? What do I know?
http://www.marginalrevolution.com/marginalrevolution/2005/07/the_fall_of_the.html
http://www.marginalrevolution.com/marginalrevolution/2004/01/the_further_dec.html