Superstar effects and inequality in the music industry

Following on from Thursday's post on superstar and tournament effects in social media, the Wall Street Journal earlier this year (gated) gave us some good data on superstar effects in the music industry:

A small number of superstars like Beyoncé and Taylor Swift is gobbling up an increasingly outsize share of concert-tour revenues, as music’s biggest acts dominate the business like never before.

Sixty percent of all concert-ticket revenue world-wide went to the top 1% of performers ranked by revenue in 2017, according to an analysis by Alan Krueger, a Princeton University economist. That’s more than double the 26% that the top acts took home in 1982.

Just 5% of artists took home nearly the entire pie: 85% of all live-music revenue, up from 62% about three decades earlier, according to Mr. Krueger’s research. “The middle has dropped out of music, as more consumers gravitate to a smaller number of superstars,” he writes in a new book, “Rockonomics,” set to come out in June. (Mr. Krueger died in March.)"

"Performers’ royalties—for acts big and small—are generally much smaller on streaming than on records, CDs or download sales, so artists have to turn to concert revenue for more of their income. And it’s only the superstars who have the ability to charge significantly more for tickets than their predecessors did a generation ago. That leaves non-superstar performers competing for a shrinking share of the concert pie...

Meanwhile, at the bottom of the industry, the lowest 2,500 acts ranked by revenue grossed an average of about $2,500 in 2017 from concert tickets, out of the 10,808 touring acts that year that Mr. Krueger studied. There were 109 acts in the top 1%."

As I noted in the earlier post, superstar effects occur because top performers are paid (in part) based on the amount of value that they generate. Usually this is the value generated for their employer, but in the case of (self-employed) music stars, it might also be the value they generate for their legions of fans. The more fans whose demand they can satisfy, the more they will earn.

Also readily apparent from the WSJ article quote above, is that superstar effects contribute to inequality. If the top 5% of artists are earning 85% of all live-music revenue, then that represents a pretty high level of inequality. A back-of-the-envelope calculation [*] leads to an estimated Gini coefficient for the music industry of 80. That is much higher than the Gini coefficient for any country - according to the World Bank, South Africa is the most unequal country, with a Gini coefficient of 63.

And note that inequality among music artists has been increasing over time. Of course, superstar effects is only one of many contributors to inequality, and inequality among musicians will be a trivial contributor to overall inequality. However, superstar effects are present in many industries, including art, books, entertainment, and even academia.

Finally, as a side note, I'm really looking forward to reading the late Alan Krueger's book Rockonomics. I trust that it builds substantially on the paper that I discussed in this 2017 post.

[HT: The Dangerous Economist]

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[*] Assuming that the income share of the bottom 95% of the population is 15%, and the income share of the top 5% is 85%, and assuming a kinked-line Lorenz curve, leads to an area under the Lorenz curve of 0.1, and a Gini Coefficient of 0.8. See here for more on how to calculate the Gini coefficient, using a Lorenz curve made up of kinked lines.