Though the mountains divide
And the oceans are wide
It’s a small world after all.
—Richard and Robert Sherman, 1964
The first concert I attended outside the United States was performed by Air Supply in Hong Kong in 2001, four years after the city-state was returned to Chinese rule. The sold-out crowd never stood up, never danced, and never sang along. The audience seemed more like they were observing a chess match than attending a rock concert. The Australian-English duo of Russell Hitchcock and Graham Russell soldiered on, singing one love ballad after another: “Even the Nights Are Better,” “Dance with Me,” “Here I Am,” “All Out of Love.” The audience was respectful, but hardly anyone seemed familiar with their hits.
The music that people listen to and the ways they engage with live entertainment are different around the world. But they are rapidly converging. The Chinese authorities recently started allowing concertgoers to stand and dance during a show—but they have to stand on their chairs! Another change is the growth in the number of music festivals in China. International stars have participated in the Ultra festival in Beijing and Shanghai, for example. And more music is streamed in China than in any other country in the world.
Digital technology is transforming the global music market. For centuries, countries have used music to forge their national identity and establish a unique cultural heritage. Canada, France, Australia, New Zealand, and several other countries require radio stations to broadcast a minimum amount of domestic content to promote the nation’s music. But streaming—which provides listeners with access to the entire world’s catalog of music—is breaking down those barriers. A decade from now, the global music market will likely look more homogenous than it does today. In the future, you probably will be listening to more music produced by international stars from foreign countries.
In this chapter I use the lens of economics to highlight the differences and similarities in music markets around the world. I focus in particular on China, because China for decades lagged far behind the rest of the world in music production, dissemination, and access as a result of the Cultural Revolution, isolationist policies, and lack of copyright protection. But that is rapidly changing. Scale matters in a superstar market. With the world’s largest population and second-largest economy, China is poised to be a world leader in music. China has also begun to enact and enforce copyright protection for music. According to the superstar model (see Chapter 4), China will likely soon begin to produce a growing number of Mandarin-music mega-stars.
If China is a sleeping giant in music, Sweden is the mouse that roars (or at least sings loudly). With a population of under ten million, Sweden punches well above its weight in the music market. The Scandinavian nation has produced such iconic groups as ABBA and Roxette, leading-edge music technology companies like Spotify, and chart-topping composers like Max Martin. Why? The answer probably lies in Sweden’s widespread music education, its citizens’ proficiency in English, and its embrace of the global economy. The Scandinavian country also benefited from what economists call agglomeration economies, meaning positive spillovers from having others in the same industry nearby who foster creativity and productivity. Agglomeration benefits sometimes start by chance, and of course chance or luck plays a big role in the success of music. But agglomeration economies can have lasting effects. Other countries, too, such as Japan and India, have their own idiosyncrasies that influence the development of their music markets.
The Global Music Market
Measured by consumer spending, the United States is the largest music market in the world. Japan is a distant second. The United Kingdom, Germany, and France round out the top five music markets. China recently broke into the top ten.1
Countries with larger populations and higher income tend to spend more money on music. The scatter graph in Figure 10.1 plots spending on recorded music (vertical axis) against GDP (horizontal axis) for forty-nine countries with available data. The axes use a logarithmic scale. The upward-sloping line shown on the graph indicates that spending rises in proportion with a country’s GDP, on average. Most countries cluster near the line, but there is one notable outlier: China. Total spending on recorded music in China is about $2 billion below what one would predict based on the size of its economy.
Indonesia, India, Russia, and Singapore are the next-largest negative outliers. Inadequate copyright protection likely contributes to underspending in these countries. India’s music market is also distinct in that it is dominated by Bollywood soundtracks. Charming Hindi songs and dance routines are integral to Bollywood movies, which in turn spur interest in Bollywood songs. As much as 80 percent of music revenue in India is derived from Bollywood songs.2 The preference for Bollywood music likely crowds out demand for other genres of music, which might explain the lower-than-expected spending on music in India. Streaming services, such as Spotify, have found India a challenging market as well, and will have to cater to Indian tastes for Bollywood songs to succeed there.
Figure 10.1: Spending on Recorded Music and GDP Across 49 Countries, 2017
Source: Author’s calculations based on data from IFPI Global Music Report and the World Bank. Music spending is wholesale figures converted to U.S. dollars using 2017 exchange rates. The indicated line is based on an ordinary least squares regression of the logarithm of spending on the logarithm of GDP.
Japan, the United Kingdom, and Sweden spend substantially more on recorded music than would be predicted from the size of their economies alone. The fact that Japan is the largest positive outlier is consistent with the country’s long-running commitment to CDs and its slow adoption of Internet streaming platforms for music distribution.3 In this respect, the Japanese music market resembles the U.S. market circa 2000, when revenue was at a peak. Music also plays a big role in the popular anime and videogame industry in Japan. The United Kingdom and Sweden have a long tradition of producing innovative music, which may boost spending in those countries.
It’s a Smaller World
The spread of digital downloading and streaming platforms around the globe has greatly expanded the set of songs available to listeners. Long gone are the days when music lovers could only choose from the limited set of albums stocked by Sam Goody and other retail record stores. Sales of physical records (vinyl or CDs) were subject to various “trade frictions,” because consumers could only choose from what was in stock, and because knowledge was limited to a small set of artists and songs. Streaming platforms and online stores enable users to discover and listen to music created by a nearly unlimited supply of musicians from all over the world, regardless of where they live.
Evidence suggests that the decline in trade frictions brought about by streaming and digital downloads is beginning to alter the pattern of music people listen to in various countries. The most frequently played and purchased music in a diverse set of countries appears to be converging toward a common tapestry of songs produced by musicians from around the world, rather than a dominant genre produced by musicians from a single country. Music is still a superstar affair, and probably even more so with streaming, but the national origins of the superstars are changing.
Economists who study international trade have discovered a strong “home bias” in trade patterns, meaning a tendency for people to purchase domestically produced goods and services of all kinds, as opposed to goods and services produced in other countries.4 National borders matter for trade.
In a series of studies, the economist Joel Waldfogel and his co-authors have applied a similar set of tools to analyze the national origins of the music purchased by consumers in several countries.5 This work requires some strong statistical assumptions to overcome data limitations (for example, sales are inferred from chart rankings using a power law assumption), but the results nonetheless provide important insights into the listening habits of people in differen
t countries and the ways digitization is changing old habits and shifting demand for various types of music around the world.
For decades, the music that people listened to and purchased around the globe exhibited a strong home-country bias, as it does for other products. Swedish musicians, for example, are more likely to reach the top of the Swedish pop charts than are musicians from any other country, and Japanese musicians are most likely to reach the top of the charts in Japan. Some of this home bias is explained by language differences: there is a pronounced tendency to listen to music in one’s native language. But language does not explain the whole phenomenon. In the United Kingdom, for example, English groups are more likely to make it to the top of the pop charts than are American groups, and in the United States the reverse holds.
Waldfogel’s research reveals that this home bias, though still strong, started to erode after 2004, following the launch of the Apple iTunes store (April 2003) and the proliferation of streaming services. Approximately 40 percent of the home bias preference for domestic music has dissipated since 2004. And less of a tendency for home bias is exhibited on music streamed over Spotify than in chart rankings (which are based on radio airplay, sales, streaming spins, and other measures), suggesting that streaming will likely continue to break down barriers.
Another consequential finding of this line of research is that the mixes of music that people listen to in different countries are growing closer together. Waldfogel refers to this as a “leveling of the playing field,” where the share of popular music attributable to past giants, including U.S. recording artists, is shrinking. As a result, people around the globe are listening to music created by musicians from a more diverse and far-flung set of countries. The music world has indeed grown smaller with streaming.
Sweden has had one of the largest trade surpluses in music in the world starting in the 1990s. Although the country has produced fewer stars since the early 2000s—and its most recent international star, Avicii, died at age twenty-eight in 2018—it nonetheless continues to be a hit maker in many respects. Max Martin and Denniz Pop formed a remarkably successful songwriting and producing team until Pop died of stomach cancer in 1998, and afterward Martin carried on the tradition. American stars such as Bon Jovi, Christina Aguilera, Ricky Martin, Kelly Clarkson, the Backstreet Boys, and Britney Spears have flocked to Sweden to produce music.6
Many hypotheses have been floated to explain Sweden’s outsized success in music, but a definitive test is lacking. Quincy Jones told me that Sweden was a popular destination for American jazz musicians, which spread knowledge and generated interest.7 A night owl, he also noted the long Swedish winter nights. Max Martin attributed his own success to Swedish support for public school music education: all first-graders are taught to use a recorder, music education is required until age nine, and subsidized after-school music programs are widely available.8 After the success of ABBA, a sophisticated infrastructure developed to produce music and support the music business, including publishing, recording studios, and videography. Many of these conditions exist outside of Sweden (in Denmark, for example), so it may be that Sweden was just lucky—a few fortunate superstars helped to put Sweden on the music map, and the infrastructure to produce more stars followed. Abroad, Swedish musicians outperform on Spotify compared with their rankings based on the charts, radio play, and album sales, suggesting that the expansion of Spotify and streaming will help Sweden continue to be an export powerhouse in music.
If the music world continues to grow smaller, American musicians and record labels will face greater competition both at home and abroad. One response to this new environment is for record labels to seek to diversify their rosters and recruit recording artists from around the globe. It could also make sense for bands to become more geographically diverse by embracing members and music from other countries, instead of just one local area. Among some recent collaborations by international stars on the vanguard of this trend are “Despacito” by Luis Fonsi and Daddy Yankee of Puerto Rico and Justin Bieber of Canada; “Lean On” by Major Lazer of the United States, DJ Snake of France, and MØ of Denmark; and “Waka Waka (This Time for Africa)” by Shakira of Colombia and Freshlyground of South Africa. The spread of streaming could lead to even more crossover artists, who cross over in new and different directions.
Music in the Middle Kingdom
Although some American music executives believe “China is the country of the future for music, and always will be,” the future may arrive sooner than many expect. Music sales grew faster in China than in any other country except Argentina from 2012 to 2017, according to IFPI data. More people speak Mandarin than any other language. The superstar model predicts that the Chinese market is ripe for superstars. Sooner or later, China is likely to produce its own home-grown stars, who will dominate the music market in Asia and perhaps other continents.
Even if China remains a relative music backwater, the nation’s music business illustrates several lessons in economics, and serves as a microcosm for the Chinese economy in general. All seven of the economics lessons I emphasize throughout this book (supply, demand, and all that jazz; preconditions for superstars; power of luck; complementarities; price discrimination; cost disease; and the magical property of music) can readily be seen in the Chinese music market.
To learn more about the Chinese music market firsthand, I visited China in March 2018 and interviewed a dozen executives from the live and recorded music industry, and a handful of musicians. If the music business in the United States is less than transparent, in China it is positively opaque. John Cappo, who was president and CEO of AEG China from 2008 to 2016, describes the Chinese music industry by pointing to a Chinese saying that translates as “Murky waters have all the fish.”9 Business matters are often cloaked in layers of secrecy and insider dealing, because this arrangement enables powerful parties to capture a larger slice of the pie.
There is an acute shortage of data on the music business in China, and business practices are often murky, monopolistic, and fraudulent. The government also keeps a watchful eye on the music business, censoring some music and strictly regulating concerts. The situation is changing, however, and becoming more commercial.
The Heavenly Queen: Wong Fei
Perhaps no story better illustrates the mishegoss of the Chinese music market than the saga of Wong Fei’s New Year’s concerts in Shanghai in 2016. The singer Wong Fei (called Faye Wong in the West) was born in Beijing and moved to British-ruled Hong Kong at age eighteen in 1987. She became famous in the early 1990s singing pop songs in Cantonese (the dialect of Hong Kong), although she has mostly recorded in her native Mandarin since the late 1990s. She has also been a movie star and TV actress.
Wong Fei may be the Madonna of China; her nickname is “the Heavenly Queen.” After not performing for six years, she agreed to hold two concerts at Shanghai’s Mercedes-Benz Arena on December 29 and 30, 2016. Here is where the details become murky. She apparently committed to not performing another concert in China for at least five years, which elevated the already high demand for her show. Jack Ma, Alibaba’s founder, reportedly paid Wong Fei $16 million for each show.10 The first show was described as a private event for Ma’s friends, and the second one was open to the public. Tickets for the December 30 show were listed for $260 to $1,100. But here’s the rub: only eight hundred of the arena’s more than eight thousand seats were reportedly sold to the public, and the true number may have been even lower. The vast majority of tickets were sold through ticketing agencies and scalpers, for prices that ran as high as $85,000! It is unclear where the money went, who distributed the tickets, and how many people actually attended the show.
The sky-high ticket prices and minimal number available for public purchase became an embarrassment to the government, which launched an investigation into the incident and barred the arena from holding shows for a period of time. Individuals involved prefer not to ta
lk about what happened. The fact that many devoted fans were willing and able to part with tens of thousands of dollars to watch the forty-seven-year-old diva perform is an indication of the high income inequality that now pervades China.*1
Live Events
In China, as in the United States, musicians earn most of their income from performing live shows. Live events account for more than 60 percent of music spending in China, a higher share than in Taiwan, Japan, South Korea, and Australia.11 The live event market in China can fairly be described by imagining Bill Graham Presents, the legendary San Francisco promoter’s operation, on steroids.
The standard practice is that venues contract with promoters to put on concerts, and promoters distribute the tickets. This is where the waters become cloudy. Although Chinese people routinely use WeChat and Alipay apps on their smartphones instead of cash to pay for almost everything, the ticket market still relies on old-fashioned paper tickets. This antiquated technology is used so tickets can be duplicated, resold, distributed to friends and family—and not tracked. Ticket distribution does not go through traditional channels, like a box office or Ticketmaster. Instead, there is a highly structured and sophisticated scalping market that operates largely offline and uses cash.
John Cappo recalled that when he started promoting concerts in China in 2009, the scalper market was run by regional cartels that would fight, literally, over territory. They would budget money to take their victims to the hospital after disputes were settled, he said. Fortunately, the market has become less violent.
Another peculiarity is that the Public Security Bureau (i.e., the police) requires an allotment of tickets that can run from 10 to 20 percent of available seats. The police sometimes double- or triple-print the same ticket to sell or give to friends and family. This creates an obvious problem, as two or three people may arrive at a show holding tickets for the same seat. Promoters must hold extra seats open to accommodate the police and, in some cases, their guests and customers.
Rockonomics Page 25