Tuesday June 27, 2017
Jan 2013



The Economics of the Music Industry: 5 Guiding Principles

By: Anthony Villiotti




Every business professional, at some point in his/her life, has studied economics, at least at an introductory level. Boston University requires all first-year management students to take two semesters of economics, for an obvious reason: to train us to become business leaders.

However, why does a recording artist need to understand economics? Essentially, as an artist entering an extremely competitive industry, you should be thinking of running your brand as a business.

Now, let’s learn some music industry economics!


1. Supply & Demand. No economics lesson goes without learning about supply and demand, and a lesson is music industry economics is absolutely no exception. Think about it, what brings an artist from a local gig performer to an arena selling celebrity? Demand. If there is no demand for you, you won’t sell. How do you ensure this doesn’t happen? You need to differentiate yourself from your competitors, and create that demand. The existence of substitutes drives down demand significantly, so don’t let there be any!


2. Investing. To invest means to spend money with the expectation of some kind of return. In the financial world, there are people who do this for a living, buying stock of corporations. However, in the music industry, you need to think of yourself as both the investor and the investee. You must invest significantly in your musical career if you want a big return. You cannot just record yourself singing and sell it. Invest in the voice lessons, the best producers, and even things that have no monetary value like time or effort. Big-name stars often come with stories of dropping out of school or quitting their day jobs to pursue a career in entertainment, think of the cost of giving up what they had as an investment.


3. High risk, high reward. In stock trading, there are such things as high-risk investments, which usually come with a much higher return. Think of this concept as the degree to which you are investing. Are you playing it safe and merely trying out the music thing? Then don’t expect a high reward. Are you sort of following the footsteps of an already established artist? Then don’t expect to be propelled to stardom. The music industry is constantly searching for unique & distinguished talent. What investment did Twista make to ensure success? The practice and drive (investment) that led to his unprecedented speed of rapping (return) that distinguishes him from his competitors, created more demand.


4. Product. There are three levels to each product sold. Level one is the core product: the song or album. Level two is the actual product: a song sung by Whitney Houston or a song sung by an indie newcomer. Finally, level three is the augmented product: intangible benefits that are not advertised (i.e. motivation). Although not many people know about this, consumers subconsciously search for all levels when making purchasing decisions.


5. Elasticity. The economics definition of elasticity is how the supply or demand reacts to a change in price. Both supply and demand are going to stay the same for the music industry definition, but instead of price, substitute consumer trends. Do you want to be a one-hit-wonder or a classic, is essentially what this principle addresses. You need to be able to adapt to trends in the music industry. A classic example of a classic star adapting to industry trends is Mariah Carey. Mariah began singing classic pop songs like Someday and Vision of Love, and then transition into collaborations with hip hop artists like Snoop Dogg and Busta Rhymes, and then, this past summer, Mariah dropped Triumphant which is a predominantly rap song, while she sings the chorus. While still holding onto her classic style, she picks up new ones and incorporates them into her career.


There you have it!  Your first music industry economics lesson! Understand these steps as you focus on running your brand as a business.

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