42 Lessons from Alan B Krueger’s Rockonomics

Business, Creativity and Life Lessons from the Music Industry

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1. Be Data Informed, Not Data Driven

Krueger says that “by melding first-hand observations from those on the front lines of the music business with big data on the industry as a whole, I developed a richer more reliable and more representative picture of how economic forces shaped the music industry”.

2. Supply, Demand and All That Jazz

Supply and demand are one thing, but markets aren’t perfectly rational. Don’t underestimate the jazz of emotions, psychology, and social relations on consumer behavior.

3. Scale and Non-Substitutability are Two Ingredients to Superstardom

First, top performers are able to reach a larger audiences, and second, the sound, products sold in superstar markets must be unique with distinct features.

4. The Power of Luck, the third ingredient.

Talent and hard work alone aren’t sufficient for success.

5. Bowie Theory

David Bowie once quipped 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”.

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6. Price Discrimination is Profitable

Economists use the term price discrimination to refer to any practice used to segment customers and charge a higher price to some than to others.

7. Control Your Costs

Successful bands and businesses have to monitor and minimise their costs to maximize their profits.

8. Pain and Creativity

“You have to get to that broken place of your heart to write songs.” — Lady Gaga

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9. Power Laws and the Pareto Principle

“Your ability to create Superstars in music as amplified by power laws. The popularity of the top of former is a multiple of the second most popular performer which in turn is a multiple of the third most popular performer, and soul on.”

10. The Long Tail

In his bestselling book, The Long Tail, Chris Anderson predicted that the internet would lead to greater opportunity for those in the long tail of sales, because more producers will be able to find niche markets.

11. Record Labels are like VC Funds — You’ve Got To Place Many Bets

Only 1 or 2 out of every 10 albums actually pays off for a record label. This is no different to investments in startups.

12. Free Content with Paid Up-Sells

“The Wall Street Journal the New York Times Bloomberg and The Economist all increasingly rely on live events for revenue. News is available from countess online sources often for free. Soon newspapers and magazines could be loss leaders for live conferences and lectures.”

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13. Work with Undiscovered Talent

Startup Rehegoo works with undiscovered musicians to improve market and stream their music. Seek untapped opportunities to differentiate yourself in crowded marketplaces.

14. People Aren’t Motivated Purely By Self-Interest

Economic theory suggests that people are motivated purely by self-interest. However, Radiohead’s pay-what-you-want experiment provided real world evidence that considerations of fairness can motivate human behaviour.

15. “Coin is the time of your life” — Carl Sandburg

As Seneca said, we are frugal with our money but careless with our time, but time, unlike money, can’t be earned back after you’ve spent it. Spend it wisely.

16. Freemium and in-app upgrades in the music industry.

Chance The Rapper releases his albums for free and makes money touring and selling merchandise. He has the distinction of being the first artist to win a Grammy without selling physical properties as music.”

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Chance the Rapper

17. The Power of Persistence

“Even to be a moderately successful musician takes a huge amount of repetitive effort and a lot of luck.”

18. The Source of Creativity A

Steve Liesman says that creativity comes from walking his dog. “All of the songs I’ve written have basically come from walking my dog.”

19. The Source of Creativity B

The ability to take unrelated things and put them together leads to innovation.

20. Outsourcing in the Music Industry

As music is becoming more complicated, artists are reaching out to others to contribute when their expertise needed. “In this regard, music reflects the trends of wards outsourcing that is affected the rest of the economy.”

21. You’re Only as Strong as Your Weakest Link

“A band — especially in the early stages — is only as strong as its weakest link” — Cliff Burnstein, Q Prime (manager of bands like Metallica and Def Leppard)

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Mensch and Burnstein from Q Prime

22. Profit Seeking Can Destroy Creativity

Constantly trying to generate the income required can kill a band’s creativity and chemistry. Bernstein tries to find a balance between touring and writing and studio time, in order to generate enough revenue to keep a band going while maintaining the creativity and chemistry that got them to where they are in the first place.

23. The 1 Percent in Music

“The top 1% of artists increase their percentage of total concert revenue from 26% to 60% in 2017. The top 1% are now taking more revenue than the bottom 99% combined.”

24. Cumulative Advantage and the Snowballing Effect

Cumulative advantage refers to the snowballing effect that comes with gaining a small edge over your rival at the very beginning. Quality isn’t enough — social network transmission and getting off to a good start is critical. Jacob Collier says that “the first set of comments posted any one of my YouTube videos can affect whether it goes viral or not”.

25. The Paradox of Choice in Music and our Social Networks

“The number of musical choices facing individuals has greatly expanded with the advent of streaming services which is likely to lead us to rely even more on our social networks for clues in selecting songs and artists.”

26. Watch Out For Survivorship Bias

We never hear about the chance meetings that didn’t occur.

27. Beware of Luck and Complacency

Only 22% of the 490 bands to produce the top 10 songs from 1960 to 2017 managed to do it again.

28. You Only Have So Much Control, Take Your Chances

“Events, historical and cultural, create an opportunity — special songs fall on your lap and a window for impact, communication, success, and the expansion of your vision opens… it may close as quickly or never return.” — Bruce Springsteen

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29. On Taking Ownership and Equality of Opportunity

On average we found that a twin who completed for more years of education than his or her sibling and about 60% higher wages.

30. Myriad Ways to Satisfy Supply and Demand

Some bands choose to increase ticket prices for their shows.

31. Buying Tickets From Scalpers

“If you buy tickets on the secondary market you can get the best deals by waiting until the latest possible moment to purchase your ticket.”

32. Artists and Their Labels

Unsuccessful artists often complain about their record label. Musicians frequently complained that the label failed to better promote their work.

33. Technology Always Wins, But…

“Technology always wins but what if you can make a better product than piracy?” — Daniel Ek, Spotify founder

34. How Spotify Works with Talent

Streaming services such as Spotify share 65% to 70% of their revenue in royalties for rights holders. This includes production, composition, and publishing.

35. Copyright is Messy

“Only one thing is impossible for God: To find any sense in any copyright law on the planet.” — Mark Twain

36. Copyright and Creativity / Taxes and Innovation

Professors gear Giorcelli and Moser found that the number of operas produced increased by 150% in states that became covered by copyright protection compared to states that did not.

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Questlove

37. Incentivising Creativity

“Creativity is hard to incentivize for science and music. The best insight economics has to offer is a simple one; if there are more people looking to make a new discovery the more likely it is that a new discovery will be found.

38. The Home Bias for Music is Dissipating

“40% of the home bias preference for domestic music has dissipated since 2004. Another consequential finding is that the mixes of music that people listen to in different countries are growing closer together.”

39. Murky Waters Have All The Fish

This Chinese saying reminds us that when things seem murky and opaque, we should be wary of corruption.

40. Music Makes Us Happier

No great insight here other than try listening to more music when you’re feeling down. It’s also been shown to improve our perception of activities we would otherwise some of us may not be all that fond of — such as cleaning, or going for a run.

41. Men Form Their Adult Taste in Music Between 13 to 16 Years of Age

This research from Seth Stephens-Davidowitz echoes what author David Meerman Scott and I discussed in an episode of the Future Squared podcast. We no longer have the rites of passage into adulthood that we might’ve had in our tribes.

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Iron Maiden

42. Superstar Economies

Elizabeth Billington was a leading opera singer in her day. She was highly constrained in reaching live audience because the number of persons who could be reached by a human voice was strictly limited.

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Founder: Collective Campus, Host: Future Squared, Author: Time Rich & Employee to Entrepreneur. Clubhouse: @steveglaveski Visit: steveglaveski.com #MELB

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