International music trade flows

Three main groups of industry participants can be identified in the music industry in each country: Artists (songwriters and performers), publishers and record labels, who are connected to each other in a series of contracmal relationships. Although contracts are generally agreed between artists, publishers and record labels within their own country, increasingly cross-border deals are occurring, as shown in Figure 2.1, leading to a complex network of deals between parties in different countries. These complex relationships within and between countries lead to quite heterogeneous economic effects in music markets worldwide. The distribution of revenues in the global music industry varies significantly along three dimensions as shown in Figure 2.2 between countries, industry groups and

Income flows between industry actors and across countries

Figure 2.1 Income flows between industry actors and across countries.

Division of music industry exports

Figure 2.2 Division of music industry exports.

artists. The factors that affect the division of export income at each level are discussed in more detail below.

How large are global music exports?

The first question that we consider is how large are global music exports? The answer is not straightforward, as defining the global music industry is tricky. Most industrial classifications used by statistical agencies were designed to capture more traditional parts of the economy such as manufacturing. Music is often grouped with the visual and performing arts, making it difficult to identify a figure for music- only exports. In response, national music export agencies which are charged with increasing music exports have had to develop their own definitions of the industry.

For example, UK Music has developed a definition consisting of a core industry and a wider industry beyond. The inner core is defined by its relationship to the commercial assets of the UK music industry:

  • • Commercial asset 1: A musical composition and/or lyrics (the notes on a page);
  • • Commercial asset 2: A (master) recording of a musical composition;
  • • Commercial asset 3: A live musical performance;
  • • Commercial asset 4: An artist him- or herself (as a brand, reputation or image) (UK Music, 2017).

Thus, UK Music (2019) includes the following groups in its definition of the music industry:

  • • Musicians, composers, songwriters and lyricists, who create and perform the songs;
  • • Live music promoters and venues, who promote and provide the venues to listen to live music;
  • • Record companies, who record and distribute music;
  • • Music publishers, who publish the music written by composers, songwriters and lyricists;
  • • Music producers, recording studios and staff, who provide services to support musicians, record companies and others in recording music;
  • • Music representatives, such as collecting societies who act on behalf of the music industry;
  • • Music retail, including retail of musical instruments, physical music and digital music.

On the other hand, Music Finland’s (2019) definition of music exports also includes sales of audio equipment and computer software. This difference in industry definitions makes it difficult to directly compare export figures across countries.

The second issue with examining music exports is defining what exports mean in the music industry. “Exports” in economics refer to the value of goods and services produced by a countxy in a given period and which are sold abroad, where products refer to tangible items that can be consumed and services refer to tasks provided by individuals or organisations. Traditionally, most countries have only collected trade statistics on exports of goods, for example, commodities, manufactured components and finished goods, partly owing to the difficulty in collecting statistics on services. The definition of goods includes recorded music in the form of records and CDs. However, as noted in Chapter 1 and discussed further in this chapter, as music listening has increasingly moved towards digital streaming and downloads provided by music service providers in recent years, these sales of physical goods have become less important, and increasingly much more music is being traded as a service, such as the provision of streaming or download services, which is not reflected in the figures for tangible goods. A distinction between services and goods exports is that many sendees that are “exported” never cross any physical boundaries. For example, a local live music event is considered as engaging in export when foreign visitors pay to attend the event even though the event is held locally, and a local musician may be engaging in export without leaving the country when a listener in another countiy pays to listen to a song on the Internet. Such payments are difficult for govermnent trade agencies to track, making the collection of national and international trade statistics on music difficult.

In addition to differences in defining the scope of the industry, different methods have been used to estimate the economic value of the industry. The simplest and most common method is to take the total value of international sales or income earned by music industry participants overseas. However, this neglects the inputs required to produce the exports. A more nuanced approach that might be taken is to estimate the total contribution of the music industry to the country’s gross domestic product (GDP). The GDP of a country provides a measure of the monetary value of the goods and seivices that country produces in a specific year and is often used by economists as a measure of the strength of the economy.

Three methods are commonly used to calculate the GDP of an economy (OECD, 2009):

  • (1) In the expenditure approach, a country’s GDP is measured by the total expenditures that occur in a country, i.e. consumer spending plus business investment and government spending as well as its net exports (i.e. exports minus imports);
  • (2) With the income approach, the GDP of a country is calculated as its national income plus its indirect business taxes and depreciation, as well as its net foreign factor income (the difference between the aggregate amount that a country’s citizens and companies earn abroad);
  • (3) A problem with both the expenditure and income approaches is avoiding double-counting the value of intermediate goods (goods and sendees that are used in producing other goods and seivices). Therefore, an alternative approach that is sometimes used is to estimate the value-added (the difference between the cost of inputs to production and the price of output for each good and seivice). The value-added in different sectors of the industry is summed to arrive at the total gross value added (GVA). This is the approach that has been taken by UK Music (2017).

An alternative approach has been used by the Live Music Office (2015) in Australia in estimating the value of live music to the Australian economy. Costs include the direct costs (such as costs borne by individuals in the support of live music consumption and associated activities), and indirect costs, such as the opportunity cost from investing resources in live music (i.e. the cost of foregoing alternative uses of the resources). Benefits include "changes in the states of physical, human, social and symbolic capital in individuals, firms and communities” (p. 39). Interestingly, the Live Music Office report (2015) also includes the concept of non-use value or the benefits that individuals may obtain even if they do not use a service such as:

  • 1. Option value—reservation of the right to use the resource at some time in the future;
  • 2. Bequest value—maintenance of a resource for future generations;
  • 3. Existence value—the satisfaction people receive from knowing that something exists; and
  • 4. Altruistic value—appreciation of the right of others to use the resource.

The costs and benefits-based approach will generally provide a larger figure than the conventional GDP-based approaches, but the problem in the music export context is how to determine the export component (e.g. the increase in physical, human, social or symbolic capital that results from a music export).

In addition to differences in the methodology used to estimate the value of music exports, another issue is the lack of comprehensive statistics on the music industry. As other researchers (e.g. Krueger, 2019) have noted, comprehensive financial data for the global music industry do not exist, including data on music expoxts, and much information (such as information on contractual arrangements) is private and only rarely disclosed. There are, therefore, few reliable studies of the size of music exports in a countxy for the reasons above. The most comprehensive study to date is that conducted by UK Music, which estiinated the value of the UK music industry (defined as above) to be £4.4bn in 2017 and the total exports to be worth £2.5bn (UK Music, 2018). A smaller study conducted in Australia by the authors estimated the total value of exports of the three main groups in the industry (artists, publishers and record labels) to be SI95m (Australia Council, 2019). This also closely matches the figure of $250m for Australian film industry expoxts (Screen Australia, 2016). Comparing the exports of just the three main groups of artists, publishers axid record labels in Australia and in the UK, this equates to approximately 0.06% of total exports (USD 232 billion) in Australia compared with 0.36% of total exports (USD 752 billion) in the UK. This reflects the much larger value of exports from Australia from industries such as mining and agriculture as well as the stronger export power of UK musicians. (It should also be noted that the figure for Australian exports may be an underestimate as some Australian artists who have become international superstars have adopted foreign natiorxalities axxd so their earnings will be included in the export eamixxgs for their adopted country. Notable exaxrxples include Kylie Minogue and Olivia Newton-John.)

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