Rockonomics

by Alan B Krueger

  Chinese artists often look for complementary activities to leverage their celebrity status in order to earn a living. A common strategy is to sell merchandise and work as a brand sponsor. The band Mayday, for example, reinvests most of its earnings from touring and recording back into its music production, and earns substantial income from merch sales. The band wears its merchandise onstage to advertise its product.

  New companies are also sprouting up to disseminate music, enforce copyright protection, promote music, and collect royalties for individual artists and labels. An example is HiFive, a two-year-old company with ninety employees, headquartered in Chengdu. The company publishes music, places songs on streaming platforms, collects royalties, promotes artists, monitors “audio fingerprints” across the web to police unauthorized copies of songs, and acts as an agent for booking shows. It represents a catalog of ten million tracks. HiFive also invests in music promotion, which could involve paying streaming services to post banners and push music. In exchange for its services, HiFive receives a 30 percent share of artist royalties.

  Another innovative startup is Kanjian Music, which works both with foreign labels to place their music on Chinese streaming services (QQ, Netease, etc.) and collect royalties, and with foreign streaming services (Spotify, Apple, etc.) to export Chinese music.22 The four-year-old company has approximately four million tracks under a licensing agreement. Kanjian shared with me its top one hundred imports for the twelve months ending in April 2018. They mainly include indie Western artists, such as Tobu (Lithuanian), Alex Krindo (Danish and Norwegian), and Nightwish (Finnish), as well as the American production company Two Steps from Hell, which produced songs for hit movies such as X-Men, Interstellar, and the Harry Potter films. Streaming is highly skewed toward the top songs in China, as elsewhere. Kanjian’s top ten songs accounted for as much streaming and downloading activity as the next ninety songs.

  Chinese music companies are responsible for screening songs, artwork, and music videos for domestic consumption to ensure that they do not include offensive lyrics or images. Companies like HiFive and Kanjian are required to administer the first line of censorship.

  In a widely publicized incident in early 2018, the rapper GAI was abruptly dropped from a popular reality television show called Singer, just as his fans were anticipating his second appearance on the program. The State Administration of Press, Publication, Radio, Film and Television (SAPRFT), China’s top media regulator, issued an edict banning performers belonging to the hip-hop culture or other subcultures, including anyone with tattoos, from appearing on televised shows. In earlier years, several rap songs were blacklisted.23

  The pressure to conform embodied in Chinese culture and enforced by government policy could inhibit the development of a world-class music industry. Even apart from government censorship, Chinese education typically emphasizes rote learning, rather than creativity and independence. Top Western musicians often come from a counterculture environment and use music to express extreme feelings of love, anger, sadness, pain, and joy. It remains to be seen whether Chinese musicians can make the leap to expand the musical frontiers along the lines of earlier iconoclastic visionaries such as Beethoven, Miles Davis, Chuck Berry, Bob Dylan, the Beatles, Aretha Franklin, Carole King, Freddie Mercury, James Hetfield, and Dr. Dre.

  Streaming Is Surging in China

  Following the crackdown on piracy, streaming of recorded music is flourishing in China. Live-streaming and reality music television shows are also immensely popular. Nearly one billion Chinese people, making up 72 percent of the population, listen to music every week, according to a 2016 Nielsen survey.24 The average listener spends sixteen hours per week listening to music, and two-thirds of listeners report using a streaming service. Some seven billion songs are streamed a day.

  Tencent Music Entertainment, or TME, is the largest music streaming conglomerate in China. TME operates QQ, Kugou, and Kuwo, three distinct streaming platforms. The platforms attract different groups of users. QQ, for example, is more popular in tier-one cities, such as Beijing and Shanghai, than is Kugou and Kuwo. Combined, the three streaming services had six hundred million monthly users in 2017, and two hundred million daily users.25

  NetEase Cloud Music is the second-most-popular streaming company. The company claims to have four hundred million monthly users.26 Despite its efforts, Alibaba has made a relatively unsuccessful foray into streaming so far. Spotify, Google, and Amazon Music are not available in China, and Apple Music has a small presence. Spotify and TME are strategic partners, however, and have swapped roughly 10 percent of each other’s stock.27

  As in the United States, in China streaming platforms offer a “freemium” (ad-supported) service and a paid subscription service. The Chinese streaming business is overwhelmingly supported by ad revenue, not subscription payments. Only 4 percent of users of QQ Music, for example, are paid subscribers, and Kuwo and Kugou have an even lower percentage of paid subscribers, just 2 percent. In an example of price discrimination, TME offers some exclusive content that only paid subscribers can download, and enables paid subscribers to download higher-quality music (what it calls “Super Quality Music”).28

  Tencent Music Entertainment pays out more than 50 percent of its revenue net of costs in royalties. In 2016, $400 million in royalties were paid out, and in 2018 that figure was estimated to have doubled to $800 million. Revenue was $1.3 billion in the first half of 2018, up 92 percent from a year earlier. About half of the revenue generated by TME is from live-streaming, an indication of the popularity of home-grown Internet phenoms. In May 2017, TME and Universal Music Group signed a multi-year licensing agreement that enables QQ, Kugou, and Kuwo to stream music from Universal’s catalog.29 TME has similar arrangements with several other labels.

  Tencent Music Entertainment’s library of songs increased from between fifteen million and seventeen million in 2017 to twenty million in 2018. According to Andy Ng, vice president of TME, English-language songs make up over 60 percent of the tracks in TME’s catalog, while Chinese songs make up just 4 percent. But over 80 percent of users listen only to the Chinese catalog.

  Tencent Holdings Limited, the largest company in Asia and the world’s largest Internet company, is the parent company of TME. It is unclear whether TME is earning an operating profit from streaming music. Unlike Spotify, however, TME can afford to lose money on streaming if it raises demand for WeChat, videogames, and other apps that its parent produces. Thus, TME yields complementary benefits to Tencent’s other activities, just as Amazon’s Alexa provides a complementary portal to drive demand for Amazon’s core retail business, and Apple Music is complementary to the manufacturer’s core device business.

  With hundreds of millions of users, China’s streaming platforms collect enormous volumes of Big Data on users’ preferences and listening habits, which can be used to tailor recommendations to users, target concert tours, and guide music production. Because the services are new, however, the use of Big Data is still in its infancy.

  Although China is one of the largest and fastest-growing music markets in the world, TME investor Sam Jiang noted that the total amount of money spent on online music in China “is about the same size as one real estate project in a tier-one city.” Still, with hundreds of millions of people streaming music every day, the business is a powerful force shaping Chinese culture, leisure activities, and consumption. In China, as elsewhere, music punches well above its weight.

  Risk and Opportunity in China

  China provides endless potential for entertainers—both new and old, Western and Asian—to reach a vast audience. The signs bode well for China to launch international music superstars. Massive audiences partake in streaming and live shows, and the infrastructure for nationwide touring is improving and becoming more standardized. Music impresario John Cappo is optimistic about the prospects for the Chinese music market. He points out that “hundreds
of millions of Chinese listen to music on their smartphones,” and he expects rapid growth over the next decade.

  Eric Zho expects a “Yao Ming of music” to come along and become an internationally famous Chinese superstar, much like the original Yao Ming became a basketball phenomenon in the United States. “I go around the world to conferences and preach on this,” he said. “The pie in China is so big now. A couple of international Chinese superstars will make the pie much bigger.”

  China could indeed create a new “world song,” as Bill Zang idealistically envisions. And the world may be ready: countries’ musical preferences are moving in the direction of a tapestry of world songs in an era of frictionless global streaming catalogs.

  Still, there are enormous risks. The Chinese government could step in and shut down the entire enterprise. Music streamed on the Internet could be more tightly controlled. Concerts and festivals, with mass gatherings of energized young people, could pose a special threat to orderly government rule.

  Archie Hamilton has highlighted critical paradoxes at the heart of modern China, which could determine not just the future of its music market but also the nation’s role in the world economy.30 According to what he calls the “paradox of scale,” “in China, as long as you’re marginal, as long as you’re not reaching more than 100, 200, 300 people,” the authorities give a lot of latitude. “You can do whatever you want on the margin and get away with it.” But if you grow too big, you are at risk. “The hip-hop thing was very much that paradox of scale. It was small and emerging and underground, and suddenly it is huge and it’s influential and it’s crazy. And they discouraged it. They say that doesn’t exist anymore.”

  Sounding like an economist, Hamilton observed, “China seems to pursue an export-driven expansionist policy on trade, and an import-substitution policy on culture.” He calls this the “paradox of engagement,” and it involves the contrast between “China’s outward expansion and inward containment.” As a practical matter, this tension requires a bureaucratic approval process for music, which places the state’s moral concerns and values above economic and business considerations.

  So far the government has haltingly allowed the Chinese music business to develop and grow. Even the hip-hop ban is far from complete. Hip-hop is still allowed as long as it is devoid of offensive language, misogynistic references, and tattoos. But it remains to be seen if China can influence the world’s music without allowing the world’s music to influence China too abruptly, and possibly cause the government to push the stop button.

  *1 Jack Ma, China’s wealthiest man, may be Wong Fei’s number one fan: he recorded a duet with the diva for a movie he produced.

  *2 Artists who are banned from touring may nonetheless have their music available for streaming.

  *3 Although the choice of 1989 had nothing to do with China (it is Swift’s birth year), the government banned Swift’s merchandise because the reference to 1989 conjured images of the 1989 Tiananmen Square protest. And it didn’t help that Swift’s initials, T.S., printed on some of her merch, happen to be the initials for Tiananmen Square. Nevertheless, pirated T.S. merchandise was widely available outside the arena.

  CHAPTER 11

  Music and Well-Being

  I have been rich, and I have been poor. Believe me, baby, rich is better!

  —Ella Fitzgerald

  Al Stenner began his career as a Presbyterian minister and later earned a Ph.D. in philosophy at Michigan State University. He moved to St. Louis in the 1960s to teach at Washington University and raise his family. Al was also a talented pianist. When Ella Fitzgerald brought her jazz band to town to play the Kiel Auditorium, her longtime pianist Paul Smith came down with the flu, so she asked around for the best piano player in St. Louis. Someone recommended Al Stenner, and he eagerly filled in. Feeling that he had risen to the occasion, after the show the philosophy professor asked the First Lady of Song to grade his performance. Al was only slightly deflated when she replied that he had done “a good job but missed a few notes.”

  Unfortunately, Alzheimer’s disease robbed Al of his memory later in life. By the time I met him, he could not remember most of the milestones of his life, including accompanying Ella Fitzgerald, or his scholarly publications in philosophy. His son Jack told me the story about Al and Ella Fitzgerald. Although Al’s memory had faded, he could still play the piano—quite well. He seemed transported in time when I saw him energetically play “Mack the Knife,” “Moon River,” “Summertime,” and other tunes from memory, without missing a note.

  Al Stenner’s experience is not atypical. Music therapy has been shown to stir memories and emotions in people afflicted by neurological disorders. The documentary film Awake Inside provides vivid examples of how patients suffering from dementia and other memory disorders can come alive when they hear music of their youth. As the late physician Oliver Sacks has written, “Musical perception, musical sensibility, musical emotion and musical memory can survive long after other forms of memory have disappeared.”1 Part of the reason for the durable power of music appears to be that listening to music engages many parts of the brain, triggering connections and creating associations, according to neuroscience research.2

  Listening to music can profoundly affect people’s emotional experiences during their daily activities as well. It is impossible for me to watch James Corden’s “Carpool Karaoke” with Paul McCartney (and other guests) and not smile, or to listen to Billy Joel and not feel nostalgic. Beyond anecdotes, there is a voluminous literature on the psychological and physiological impacts of music on our lives. From an economic standpoint, this research documents that music contributes to our “utility,” the satisfaction we derive from the goods and services we consume. Simply put, music makes us happier. Music can also help people to regulate their emotions, and it can provide an enjoyable distraction from everyday mundane tasks. And because music is more widely available today, the contribution of music to human welfare is greater than ever.

  If You’re Happy and You Know It

  Many approaches have been used to measure the psychological effects of music on our well-being, and they point to a wide range of benefits resulting from listening to music.

  Because listening occurs in real time, the most direct approach is to examine how music affects people’s emotional states while they are listening. Studies find that time spent listening to music ranks among the most enjoyable activities that people undertake in their daily lives. My research with the psychologist Danny Kahneman and others, for example, found that music is in the same class as participating in sports, religious worship, and attending a party in terms of the presence of positive emotions (such as feeling happy) and absence of negative ones (such as feeling stress and anger).3 And, of course, music is often combined with these other activities.

  Listening to music is most often a secondary activity—a welcome distraction while driving to work, doing chores, or exercising. It is often playing in the background during parties, conversations, and meals. Maybe you’re even listening to music while you read this chapter!

  Recent research finds that listening to music as a secondary activity, while focusing attention on some other activity, tends to make the other activity more enjoyable. This finding emerges, for example, from an in-depth study of 810 women in Columbus, Ohio, and 820 women in Rennes, France, that I conducted with Kahneman and others.4 Specifically, we asked the women to list the activities they engaged in during the previous day, and how happy, stressed, or sad they felt during each episode. Our survey approach, known as the day reconstruction method (DRM), included many innovations. We asked respondents to divide their days into episodes and identify all of the activities that they engaged in during each episode. If multiple activities were reported, they indicated the one that seemed most important at the time. Although we published many results using the data, we did not previously focus on music.

 
Of the 22,715 episodes reported, a total of 1,572 involved listening to music.5 In only 7 percent of these incidents, however, was music considered the main activity. Listening to music was more common in the United States than in France, and more likely to be a secondary activity in the United States than in France.

  What were the subjects focused on while listening to music? The most frequent non-music-related activities indicated as most important while listening to music were commuting or traveling, working, talking or conversation, and doing housework or cooking. For each of these four focal activities, Figure 11.1 shows the average rating of happiness (on a 0 to 6 scale) that respondents reported, depending on whether or not they were also listening to music at the time. The figure also reports results for all activities, divided by whether or not music was listened to as a secondary activity during the episode.

  Commuting, for example, is one of the most unpleasant activities that people report in their daily routines.6 The average happiness rating reported for occurrences of commuting or travel that did not involve music was 3.7, and the average rating during commuting or travel time that also included listening to music was 4.0. Turning on music while commuting improves the experience to close to the overall average happiness rating.