From an economic standpoint, the fact that there is an endless supply of people who are willing to create and perform music virtually for free because of its intrinsic appeal puts downward pressure on incomes in the industry for all but the superstars. In fact, singer/guitarist Bob Geldof lamented to me that in some clubs, bands are required to pay a fee for the privilege of performing.22 As J. P. Mei, an economist and founder of the Shanghai Peking Opera Company, put it, “The idea of a starving artist may be an equilibrium.”
Even music superstars are relatively low-paid compared to superstars in other arenas. Billboard magazine compiles a list of the top fifty moneymakers in music each year. Some are solo performers and others are multi-person bands, which split their income among their members. If we focus on the twenty-nine solo performers in the top fifty, the average of these music superstars earned $19.5 million in 2017. That’s a lot, to be sure, but only about half of what the average of the top fifty CEOs at publicly traded companies earned that year ($37 million), and less than half of the average pay of the top fifty athletes that year ($51.1 million).23 And all of this is small change compared to the incomes of top hedge fund and private equity managers.
I advise students to go into fields that they are passionate about. My argument is that they will spend a huge amount of time and energy working, so they should find something that excites them and makes them proud; the rest will take care of itself. But if possible, I advise students, they should find a field that they enjoy and that others find less enjoyable, because that limits the supply of people going into their field, thereby increasing pay for those who do go into it.
Music falls squarely in the first of these categories. I used to think that musicians entered the field because of overconfidence, with oversized expectations that they will attain fame and fortune despite the long odds. After all, Adam Smith, the eighteenth-century founder of economics, long ago argued that “the contempt of risk, and the presumptuous hope of success, are in no period of life more active than at the age at which young people choose their professions.”24 But even presumptuous young musicians seem to me to be under little illusion that they will achieve fame and fortune. They simply can’t imagine another career path that would provide them with more joy or a better outlet for their creative passions. And musicians typically do not work alone—they work with other musicians, who are united in their comradery and common purpose, helping to strengthen that commitment and drive. As the Grateful Dead sang, “But I can’t stop for nothing, I’m just playing in the band.”25
Steve Liesman: Reporter by Day, Musician by Night
Steve Liesman has two great gigs. You probably recognize him as the economics reporter on CNBC’s business show Squawk Box. But he also plays guitar in the Stella Blue’s Band, one of the best Grateful Dead cover bands. Liesman exemplifies the thousands of musicians who have managed to earn a living doing something else, but who work passionately as musicians on the side. I interviewed him about the role of music in his work and life on September 21, 2018, at CNBC’s studio in Times Square, New York.
How do you manage to work as both a TV reporter and a musician?
I live this double life. I go to work every day around 5:30 in the morning, then I play a gig at night that sometimes starts at 9:00 pm. I go to every gig with a little five-hour energy drink in my car thinking I’ll need it for the ride home or somewhere in the middle of the show—but I never need it.
When did you start playing music?
I was sixteen years old. I was sitting there drinking beer and smoking cigarettes on the curb of the local elementary school in Edgemont, New York, and I decided there had to be more to life than this.
What’s funny is that everyone played. But, somewhere around twenty-one or twenty-two years old, everyone else got a memo that said you can stop playing now, and I never got the memo.
How many guitars do you own? Is gear a big part of your budget?
I’m not a big expensive guitar or gear guy. I use two or three guitars playing and each one has a backup. I think a lot of guys spend an awful lot of time worrying and fretting about gear, and I spend more time worrying and fretting about how I’m playing.
You go to a gig with $3,000 or $4,000 of gear in the car. And, sometimes you’re doing it for $50 or $100, so that difference is quite remarkable.
When did you decide to earn a living as a reporter instead of a musician?
I was in my early twenties. I was playing in Manhattan every week. I walked into Kenny’s Castaways at midnight and there was an amazing guitar player playing in the vestibule. I looked at how good he was, and I decided that if he’s that good and playing in the vestibule, the world doesn’t need me playing as a professional guitar player.
I was the international diamond reporter for the National Jeweler Magazine at the time. So I always pursued these two professions, journalism and music. I’m not sure why and how they come together. I wrote my essay for Columbia Journalism School on that.
Do you feel that music and reporting complement each other?
To me, there’s a connection that I cannot describe between crunching data on the spreadsheet and figuring out the right notes on a Jorma Kaukonen song, or what Bob Weir plays. There’s an analytical part of music that really works in my brain with the economics and the math that I use in my life.
Does being a live performer in front of an audience help you perform before a television audience?
No. Sitting in front of a camera, you just don’t get the feedback from the audience.
What I do know about performing live is that I’ve got to know something one hundred times better on guitar in my living room to play it live. There’s this disconnect between how well I know something in my living room versus what I need to know playing live.
You only have so many hours in the day. What do you sacrifice to practice music?
Sleep.
How many bands have you been with over the years?
I’ve played with eight to ten bands. I just always had a band, wherever I was. People don’t get how much it takes to play live. Having a gig and a band makes you work to perfect stuff.
How often do you perform with the Stella Blues Band?
I do a paid gig with the Stella Blues Band two to four times a month. On a good night, the band makes $1,500 or $2,000, and we divide that by seven. We take a part of that and put it into advertising and other things the band might need. So, on a good night, we walk away with $200 or $150 each.
We did a free show in Central Park and there were probably a thousand people there. Most nights we play before one hundred and two hundred people. And, they pay between $10 and $20.
As an economics reporter, I know that playing music is economically ridiculous. Yet, I would even play more if I could. I have separate buckets in my head for what I should be paid in music and what I should be paid in my day job. If we make $150 a night playing, that’s usually a good night. If we make $300 a night, that’s an amazingly good night. But that’s a fraction of what I get paid with my day job. So, they’re ridiculously incongruent. Perhaps behavioral economist Richard Thaler could explain it.
Have you ever played with any members of the Grateful Dead?
I’ve played with Bob Weir a couple of times. Stella Blue’s played the Capitol Theater in Westchester, and Phil Lesh came on and played a set with us.
What was it like playing with Bob Weir and Phil Lesh?
It’s such a sort of awestruck moment, and you’re trying so hard not to screw up, that you don’t even know the moment’s there. Bob was a little weird to play with because I play his parts with the Dead band, so it was a little hard to play with him.
The tough part of playing with them is that they’re true creative geniuses that, in my opinion, were involved in creating
some of the most classic American music ever. They love to jam but have little interest, as true artists, in repeating what they’ve already done. No artist does. So, the idea that I’m doing stuff that they did before means that they’re less interested in what I’m doing now.
I know Bob Weir pretty well, and he thinks it’s funny that people try to imitate his sound. Bob rarely goes back and listens to his live performances. I constantly do. We’re sort of on a different plane than them.
What do you think is the source of creativity in music?
I have a very easy answer for that: walking my dog. All of the songs I’ve written have basically come from walking my dog.
For the Grateful Dead, I think drugs were part of their secret. But I don’t think it was all of it. They really knew music very well. Jerry Garcia was a world-class banjo player and then he became a world-class jazz musician. Bob Weir has essentially innovated his own style of rhythm guitar. It’s the ability to take unrelated things and put them together and kind of make them work together or layer together. They knew jazz and blues and country, and they kind of melded it all into one thing and that’s doing their own thing, and I think that’s creativity.
It’s like trying to find previous analogs for the Beatles. You can do it, but they represented, in my opinion, such a revolutionary step that it’s hard to go back and say, “Oh this was the precursor to the Beatles, or that was.”
On my day job, the most creative thing that I do is I think about metaphors to explain economics and business.
Do you have a good metaphor for the difference between musicians like yourself and Bob Weir?
I divide the world into two different kinds of musicians: there’s mutants and there’s everybody else. The mutants are the great players; they’re the guys who hit the hundred-mile-per-hour fastballs, or throw them. In music, they hear a song once and know it forever. Even if they haven’t heard a song before, they know where the next chord is. They invented music that we know and love. And, there’s everybody else. I consider myself somewhere toward the top of everybody else. But, fairly early on, I realized I wasn’t a mutant, and that I was not going to be a mutant.
I’m good enough to keep pace with the mutants on a song that I know, but when they go off into LaLa Land, they leave me behind. A friend in the music business says they have a name for someone like me, but he told me I’ve proven myself not to be one of those people. They’re called “dentists with Alembics.” That’s a rich professional person who can afford expensive gear but doesn’t play well. They’re a big group. Some of them pay musicians $500 to $600 a night to play with them. That’s a business.
This is why the money modestly matters to me. It distinguishes me from the dentists. I’m not paying to play; I’m trying to make it work.
The Organization of Bands
“I couldn’t possibly think of any adjectives to introduce this next group,” Frank Sinatra declared on his live album recorded at the Sands on his fiftieth birthday, “so I merely say the magnificent Count Basie and his great organization.”26 Sinatra’s description of a band as an organization struck a chord with me as an economist. A band is an organization, like any other small business or association. Musical groups, from garage bands to symphony orchestras, can be analyzed with the tools of the economic field of industrial organization.
Every organization must confront several essential questions: How many members should the group contain? How should decisions be made? How should income be divided among members of the organization?
The number of members in a musical group has fallen over time. The bands listed in the Billboard Top 100 in 1976, for example, had an average of 4.5 members. In 2016 there were far more solo artists in the Top 100; even excluding solo performers, the average size of a group fell to 3.2 members.27
Why have bands been shrinking? The likely explanation is that technology has made it easier for fewer musicians to create more music. All else being equal, there is a significant economic benefit to having a smaller number of members in a band, given that the money the band generates is divided among its members. A smaller band means more money per person. It is what I call the 1/N problem, as revenue must be divided among N members of the band.
While the size of bands has been getting smaller, an increasing number of songs recorded by superstars today feature other artists. Some examples are “Stand Up” by Andra Day (feat. Common); “Perfect” by Ed Sheeran (feat. Beyoncé); and “Despacito” by Luis Fonsi and Daddy Yankee (feat. Justin Bieber). Figure 3.1 shows the sharp rise in the number of songs in the Billboard Top 100 that involve collaborations among artists.
Figure 3.1: Number of Songs on Billboard Top 100 That Are Collaborations
Source: Author’s calculations using data from Billboard Year-End Top 100.
Another trend is that songwriting has become much more of a collaborative endeavor since the 1980s, as the number of writers per song in the Billboard Top 100 almost doubled.
There are many potential explanations for the trend toward greater collaboration. In some cases it reflects the fact that music is becoming more complicated, and artists are reaching out to others to contribute when their expertise is needed. In this regard, music reflects the trend toward outsourcing that has affected the rest of the economy.
Singer-songwriter Dan Wilson mentioned that, in his experience, more composers are contributing to songs because the process of recording music has become compartmentalized, with various contributions transferred around the world and inserted into the finished product. He cited as an example a song by Halsey (featuring Big Sean and Stefflon Don) called “Alone,” which credits seven songwriters. Wilson explained how so many musicians came to be credited with the song:
“Alone” started with a groove that Josh Carter from Phantogram created, and he brought it to a Phantogram session that I was working on….I sang a verse right there. And then, it got rejected for their album, but [Eric Frederic’s] next record that he was working on was with Halsey, and he and she wrote a song that magically needed that verse that we had done. And then they sent the files to a couple of other producers and I’m wondering, “It’s a lot of people on the record.” So they got a rap on it from Big Sean and Stefflon Don….[Tony Hester is credited] because Josh’s original version of the song had a sample from a Marilyn McCoo and Billy Davis Jr. song from long ago that he wrote. Then Halsey and Ricky wrote the song and they included that verse that I wrote. So part of the reason there are so many people writing on a song is because you can do it now.28
Interestingly, Wilson thought that the compartmentalization of music means that music has become simpler, with complex melodies often dropped from the finished recording because they don’t fit in, or because a contributor down the line doesn’t appreciate the value of the variation.
In some cases, collaborations are also a means for artists to cross over to reach a new audience—for example, for a pop artist to reach hip-hop fans, or vice versa. And certain genres, such as hip-hop, rely more on collaborative efforts because of the nature of their sound and work practices.
Today, it has also become much more acceptable for musicians to acknowledge the collaborative input of other artists on their songs. In the early days of recorded music, collaborative contributions were rarely acknowledged, even when they occurred. We have come a long way since the time when Tommy Dorsey was credited with the number one song on the very first Billboard Top 10 Chart in 1940, for “I’ll Never Smile Again,” which in fact was a collaboration with an unnamed Frank Sinatra.29
It took the rise of hip-hop as a mainstream genre in the 1990s for collaborations to become popular. We have since reached the point that Dr. Dre’s attorney, Peter Paterno, could quip, “The biggest artist in the world right now is Featuring. That guy is on every record.”30
1/N
Most bands s
tart out by dividing their income evenly. This is a transparent and fair method. When he was the lead singer and songwriter for Semisonic, which produced the hit “Closing Time,” Dan Wilson agreed that his three-man band would divide their earnings equally, in exchange for Wilson receiving creative control over all musical decisions.31
“At the beginning,” manager Cliff Burnstein told me, “a band has to be a democracy, because it is all about survival. Everyone has to get the same amount.”32 He stressed that “at the early stage a band is only as strong as its weakest link.” It must earn enough money to keep everyone committed to the group. “Think about the minimum amount of income that the guy with three kids and a wife needs to make to stay in the group,” he said. Suppose there are four members in the band. “The microeconomics of the band,” he explained, “requires that you multiply this minimum amount by four, and the band must earn at least that much to survive.” One challenge, of course, is that constantly touring to generate the income they need can kill the band’s creativity and chemistry. Burnstein tries to find a balance between touring and writing and studio time to generate enough revenue to keep the band going, while maintaining their creativity and chemistry.
When should a band stop splitting its income evenly and reward the more creative contributors more generously? Burnstein’s answer surprised me: “Not until their third arena headliner tour.” When I commented that it could be a long time before a band had a third arena tour, he responded, “Yes, but after their first arena tour they might not have another one. They need to demonstrate that they’re more than ephemeral.”
If a band achieves superstardom, there is a risk that the biggest star will leave unless he or she is paid a bigger share. This is when a band usually makes a transition from a democratic model, where all revenues are split equally, to more of an authoritarian one, in which the rewards are more heavily skewed to the stars. As Cliff gently put it, “Only once you have the confidence that this is going to be a long-term proposition, you can evaluate the ways to incentivize the creative guys a little more. This is the economics of fairness.” This is also when good management becomes essential to maintain the band’s chemistry, and to minimize resentment and friction among the members who are receiving less than their 1/N share.
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