Will downloading kill the music business, part 3,980,876,312

I'm pretty much an absolutist on downloading music--I only do so when the artist is voluntarily giving it away. I've long voiced worries that the file-sharing culture will kill the music business, making us all worse off--a classic example of the tragedy of the commons. Don't worry, file-sharing advocates reply; bands can use albums as loss-leaders for their concert revenue.

This has never seemed very convincing to me; live performances are limited in a way that albums are not. I can expand the amount of music I listen to, but frankly, these days if I see three live shows in a week, that's a huge week for me--and most people my age don't go to any, because concert venues don't like infants. Depending on concert revenue is limiting in terms of market size, and also, it seems to me, puts a time limit on an act; once your core demographic hits thirty, you'd better start looking for another job.

The American has suggests another reason concert revenue will not replace album sales:

Concerts might be a short-term fix. As one national concert promoter says, “The road is where the money is.” But in the long run, the music business can’t depend on concert tours for a simple, biological reason: the huge tour profits that have been generated in the last few decades have come from performers who are in their 40s, 50s, and 60s. As these artists get older, they’re unlikely to be replaced, because the industry isn’t investing in new talent development.

When business was good—as it was when CD sales grew through much of the 1990s—music labels saw concert tours primarily as marketing vehicles for albums. Now, they’re seizing on the reverse model. Tours have become a way to market the artist as a brand, with the fan clubs, limited-edition doodads, and other profitable products and services that come with the territory.

“Overall, it’s not a pretty picture for some parts of the industry,” JupiterResearch analyst David Card wrote in November when he released a report on digital music sales. “Labels must act more like management companies, and tap into the broadest collection of revenue streams and licensing as possible,” he said. “Advertising and creative packaging and bundling will have to play a bigger role than they have. And the $3 billion-plus touring business is not exactly up for grabs—it’s already competitive and not very profitable. Music companies of all types need to use the Internet for more cost-effective marketing, and A&R [artist development] risk has to be spread more fairly.”

Albums are a classic high-fixed-cost, low-marginal-cost industry--the kind where you want volume sales to defray large up-front expenses. What I hadn't though of before is that, in a sense, so are concerts. The larger the venue, the higher the profit--so a very fragmented music industry may not provide enough money for anyone to make a career.

Music is basically a tournament business: a few people get rich, encouraging many others to toil in poverty. This almost certainly generates more new music than paying everyone $18,000 a year for the rest of their lives. If the tournament runs out of prizes, what will happen to those of us who like having a lot of new albums to listen to every month?

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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