How is export income distributed among artists?
As well as considering how export revenues are distributed among groups in the industry, another question which needs to be considered is how expoxt income is distributed among artists. There is scant information available on export income of musicians. However, based on our survey of musicians in Australia, 25 out of the 63 (that is, 40%) artists in our survey reported foreign income or expenses. This closely matches the 39% figure reported by Throsby and Petetskaya (2017, p. 59) of musicians who had a foreign engagement in the previous five years. A comparison of income shows that exporters have a significantly greater average domestic income compared with non-exporters (A$28,545 vs. A$15,147), and expox-ters on average have a higher total profit (from both domestic and foreign sources)—approximately twice as much (A$10,710 vs. A$5,315).
However, it should be noted that simply taking average incomes may be misleading, as income distribution among artists is highly skewed, with a few artists earning significantly greater amounts than the rest. Krueger (2005, p. 15) found that the top 5% of revenue generators earned 62% of concert revenue in 1982; and this figure increased to 84% in 2003. Similar skewed distributions have been observed in other creative industries such as film (Rosen, 1981) and patent royalties (Scherer et al., 2000), suggesting that this is a general pattern for creative industries. To quote Menger (2015, p. 148):
creativity has the flavour of a scarce ability much sought after: people well endowed with it come to be rewarded with earnings and prestige disproportionately higher than what the presumable underlying distribution of skills and abilities would command among the workforce concerned.
Krueger (2005) also hypothesised that the increasing skew in concert incomes is because of lower returns from recorded music. In the past, when greater concert attendance translated into greater artists’ record sales, artists had an incentive to price their tickets below the profit-maximising price for concerts alone in order to gain more record sales. Now that new technology allows many potential customers to listen to recorded music without purchasing a recording, concerts are being priced more like single-market monopoly products, allowing successful artists to charge much higher prices to attend concerts. These findings seem to confirm the advice of the late David Bowie to musicians that “Music itself is going to become like running water or electricity ... You’d better be prepared for doing a lot of touring because that’s really the only unique situation that’s going to be left” (quoted by Pareles, 2002).
Figures on live music pexformances globally are difficult to obtain but we found in our survey of Australian musicians that despite the increase in digital music sales, live music and streaming are the two most impoxlaxit income streams in the music industry. Despite the increase in digital music sales, live music still makes the largest contribution to the total foreign income of artists, accounting for approximately 49% of total foreign income. This is compared to 37% from song-writing and performance royalties and 17% from other sources such as merchandising and sponsorship. The Citi GPS (2018, p. 63) report on the music industry in the United States reported similar findings. Of the four major income sources of artists (concerts, music publishing, music platforms and music sales), concerts contributed most to the growth in artists’ income since 2002. Similarly, Krueger and Zhen (2018) report that musicians in the US earn most of their income from performing at live events.
The skew also appears to be greater when export earnings are considered. To further investigate the distribution of export revenues, we fitted a Pareto distribution to the royalty data of Australian artists following De Vany (2006). [A Pareto distribution is characterised by thick tails (on one or both sides) and is often used in order to examine income distributions (Wold and Whittle, 1957).] Both the domestic and foreign royalty income distributions (Figures 2.7 and 2.8 respectively) follow a Pareto distribution in which most people earn relatively little and a few people earn the majority of income in the industry. An analysis of domestic earnings from royalties indicates that 10% of artists contribute approximately 90% of total domestic earnings from royalties. The results are highly consistent with those of Pitt (2010) who found a similar pattern in music royalty distribution in the US. However, our analysis of international earnings from royalties shows that the skew is even greater in international royalty earnings, where approximately 10% of artists earn approximately 97% of the total international royalty earnings. This would be consistent with the view that the most successful artists are able to earn disproportionately greater international incomes.
Figure 2.7 Distribution of domestic royalties. Source: Authors’ analysis based on aggregate figures supplied by APRA AMCOS.
Figure 2.8 Distribution of international royalties. Source: Authors’ analysis based on aggregate figures supplied by APRA AMCOS.
This “superstar” phenomenon in music (and other creative industries) where some performers earn a disproportionate share of the income can be explained by a combination of non-substitutability of goods, economies of scale and bandwagon effects (Krueger, 2005). Substitutability in economics refers to the ability of two or more goods to be substituted for one another. In other words, if one good is not available, the willingness of a consumer to purchase another good which provides a similar benefit is measured. Krueger (2019) argues that in the case of music, substitutability is generally low since consumers have strong preferences for a particular performer which may not be satisfied by other performers. This leads to a near-monopolistic position in those markets, which enables superstars to command high prices for their performances as they cannot be substituted by other performers. The second factor identified by Krueger is economies of scale, i.e. economies that are generated owing to the scale of a particular activity. Fox- example, the costs of production of a particular good or sendee may be lowered through a greater volume of production. In the case of superstar performers, the large number of their followers might enable them to spread the costs of distributing their song over a larger number of people, enabling them to reach a large number of people at a relatively low cost. The third factor is the bandwagon effect. In economics, this refers to a phenomenon whereby the rate of consumption of a product or service increases the more that it has already been bought or adopted by others (Leibenstein, 1950). In the case of music superstars, a bandwagon effect may be observed where the rate of increase in popularity of a performer or song increases with the number of listeners as more people are attracted to songs that other people listen to, regardless of the inherent merits of the song. Such bandwagon effects may be accentuated in global markets by global social network platforms such as Facebook and Twitter, which enable listeners to connect with other listeners worldwide. Xu and Fu (2014) found a global bandwagon effect in Hollywood movies where movies that had been successful at the box office in the US were more likely to be adopted in other countries.