FROM PRODUCT TO PERFORMANCE
SUPERSTAR TAYLOR SWIFT AND BRITISH ROCKERS OASIS CAN TEACH US A LITTLE SOMETHING ABOUT THE ECONOMY
This summer was bookended by two grand music tours. Taylor Swift’s Eras tour, which stretched across five continents, and the announcement of next year’s Oasis reunion tour of the U.K. For most fans, the experience of the first was beyond their wildest dreams. The second has left many looking back in anger. Both provide a fascinating window into modern-day economies and economics.
Music’s contribution to the global economy, at the headline level, looks rather dull. Even in the U.S. and U.K., the world’s two largest music exporters, its share of national income is less than one per cent. This has nudged up, little by little, since the 1970s. But the aggregate numbers mask sharp shifts in the composition of music’s contribution.
A generation ago, album sales accounted for the lion’s share of music’s contribution, with touring simply a vehicle for marketing an artist’s work.
Today, touring is the headliner, making up about three-quarters of music’s contribution to GDP and most of artists’ income. Touring now makes more money than album sales and downloads, with the Oasis tour boosting the relaunch of the 1994 album Definitely Maybe and a surge in streaming and downloads.
This shift, from product to performance, was predicted over 20 years ago by the little-known economic theorist David Bowie. The late Princeton economist Alan Krueger called it “Bowie Theory” in his book Rockonomics. Its power has grown to the point where there was an identifiable Eras Tour effect on GDP in a number of the smaller countries Swift toured this year, including Singapore and Sweden.
The move toward intangible assets has also contributed to a supersonic imbalance in income that favours an evermore concentrated set of “superstars” such as Swift and the Gallaghers. The emergence of an increasingly intangible and unequal music industry foreshadows identical trends in the wider economy.
The Bowie effect is now one of the most potent economic and societal, as well as musical, forces on the planet.
Ticketing for the two tours has also been a source of contention, with thousands of Oasis fans rejected, ejected or, for the lucky ones, scalped at the online box office. It is strange to have got this system so wrong. We have thousands of years of experience of ticket auctions. Their optimal design has been extensively studied by a glittering array of Nobel Prize winners in economics, such as William Vickrey and Paul Milgrom.
The best design of an auction typically depends on how efficiency and fairness considerations are traded-off. In general, dynamic pricing of tickets tends to fare well on the first, but poorly on the second, criteria. What distinguished the Oasis auction is that it seems to have been neither efficient nor fair. It appears that the band’s management team failed to familiarize Liam and Noel with the work of Vickrey and Milgrom.
Nor did they study the game plan of that less celebrated American auction theorist, Swift. Her ticketing master plan made use of innovative principles such as fan verification, loyalty ticketing and phased sales — all of which reduce the risk of scalping. This “slow ticketing” meant that Swift’s use of dynamic pricing cast a smaller shadow over her fan base.
One final way in which music shapes the economy is through its effect on our mood. Economists are not very good at dealing with emotions, often hiding behind the convenient fiction of rational behaviour. But words, music and stories have always shaped human life. Latterly, the work of Nobel laureates George Akerlof and Robert J. Shiller on “narrative economics” has woken up to this fact.
Their research shows that, especially at times of uncertainty and economic turning points, much of the variation in economic activity can be explained by sentiment rather than fundamentals. Stories shape spending.
The degree of optimism or pessimism expressed in the words used in songs and books can be a good predictor of economic activity. Music is a mirror on our spending, as well as our souls.