What the music industry reveals about economics

Rockonomics. By Alan Krueger. Currency; 336 pages; $28. John Murray; £15.99.

WHAT CAN music tickets tell you about supply and demand, and the working of secondary markets? How do operas in early 19th-century Italy provide a natural experiment in the impact of copyright law on creativity? And how do the finances of a global concert tour illustrate Baumol’s cost disease? These are the sorts of questions that Alan Krueger, a chairman of the Council of Economic Advisers under Barack Obama, answers in “Rockonomics”. Mr Krueger died in March, before the publication of his book—which, as its title hints, sets out to emulate “Freakonomics” (a bestselling pop-economics compendium from 2005), only with added guitar solos.

The economics of the music industry matter for several reasons, Mr Krueger argues. For a start, they illuminate how the business works, which is widely misunderstood, despite the role of music in many people’s lives. They provide an early and informative example of an industry coping with digital disruption. But Mr Krueger dreams that his inquiry might attest to the value of the discipline of economics itself, and help restore its reputation with both the public and policymakers. “A broader audience might be willing—even eager—to listen if the story of the economic forces disrupting our world is told through the prism of the music industry,” he writes.

Mr Krueger’s love of music shines through as he anatomises the industry’s finances and its increasingly “winner takes all” nature. Today the top 5% of performers claim 85% of concert revenue, for example, and the top 1% take 60%. He looks at how recording and touring revenues have changed, the business model of streaming, how contracts work and whether political activism makes business sense for artists. He analyses why tickets are usually underpriced—and how Taylor Swift, Jay-Z and others have pioneered “slow ticketing”, whereby tickets are released gradually, so shows do not sell out straight away.

He also provides much wonkish detail on radio royalties and the evolution of copyright law. (It turns out that the number and quality of new operas increased in the parts of Italy where Napoleon imposed French copyright law; Rossini and Verdi were among the beneficiaries.) He notes that William Baumol used the example of a string quartet when formulating his “cost disease” theory about the relationship between prices and productivity (see Free exchange). A detailed analysis of the peculiarities of the Chinese music market is followed by a nod towards behavioural economics and music’s impact on happiness. There are also interviews with solo artists, bands and music executives.

Because it focuses on a single field, “Rockonomics” lacks the variety of “Freakonomics”. Despite its aspirations, the book is more effective at using economics to explain the music industry than vice versa. For readers with a budding interest in economics, other tomes will prove a more effective gateway drug. But for anyone thinking of entering the music industry, or working in it already, “Rockonomics” is an eye-opening and entertaining read.