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Rockonomics: Economics & Public Policy in the Rock & Roll Industry Alan B. Krueger • Economics of Ticket Pricing • Industry Trends • Long-Run Explanations Superstar Model Baumol & Bowen’s Disease Wealth Effects • Short-Run Explanations Concentration Complimentary Goods Under Priced Asset
“Somebody said to me, ‘But the Beatles were timaterialistic.’ That’s a huge myth. John and I literally ed to sit down and say, ‘Now, let’s write a wimming pool.” -- Paul McCartney “[I]n some fashion, I help people hold on to their own humanity, if I'm doing my job right.” -- Bruce Springsteen “I don’t see how carving out the best seats and charging a lot more for them has anything to do with rock & roll.” -- Tom Petty
• To maximize short run profit “Price Discriminate” • Charge more to those who are less “price sensitive” • Extreme example is variation in prices for airline seats • Don’t go overboard because of tie-in sales & fan loyalty
Seven Lessons from Super Bowl Sunday New York Times • List price was $325 in 2000; market price was around $2,500 • Secondary market develops if price too low, but its size can be exaggerated (20%) • Endowment effect • NFL could raise short-run profit by raising prices • But NFL wants to reward loyal fans to build enterprise • Besides, 60% of $4 billion of football revenue from TV • “Gift Exchange”
Figure 1: Average P ric e per Tic ket and Overall Inf lation Rate, 1981- 2003
60
50
40
Avg. Price
30
CPI 20
10 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Figure 1: Average P ric e per Tic ket, High and Low P ric e Tic kets, and Overall Inf lation Rate, 1981- 2003
60
50
40
Avg. Price
30
CPI 20
10 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Ticket Prices Soared Relative to Overall Price Inflation the Last 5 Years Proportionate Price Growth 0.700 0.620 0.600
Proportionate Growth
0.500
0.400 Avg. Ticket 0.301
CPI
0.300
0.255
0.243 0.207
0.206 0.200
0.152 0.128
0.100
0.000 1981-86
1986-91
1991-96 Per i od
1996-01
© Alan B. Krueger, 2002.
Prices are Growing Faster at the Top Price of the 90th, 50th, and 10th Percentile - All Artists 80
Price
60
40
20
0 1981
1986
1991 year
1996
2001 2003
Further Analysis • October 2001 edition of Rolling Stone’s Encyclopedia of Rock and Roll • Consistent universe of artists • 1,786 artists, from Abba to ZZ Top; 1,274 in Pollstar database • Responsible for 75% of ticket sales, 1981-2003. • Merged on additional data: year formed; gender; genre; prominence (mm)
Average Price Increase Understates Rise for a Consistent Set of Artists Average Price for Artists Listed in Rolling Stone Encyclopedia 55 50
Encyclopedia Bands
45 40 35
Average
30 25 20 15
Grow at CPI
10 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Source: Alan Krueger’s computations based on Pollstar and BLS data.
Year 20
20
19
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Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year 20
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Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year 20
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Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year 20
20
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00
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Ticket Price
Average Concert Ticket Price, Selected Artists
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120
100
80
60
40
20
0
Year 20
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81
83
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Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year 20
20
19
19
95
94
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00
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81
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Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year 20
20
19
19
01
00
99
98
97
96
95
94
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19 19
87
86
88
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85
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83
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Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year 20
20
19
19
01
00
99
98
97
96
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94
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Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year 20
20
19
19
01
00
99
98
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Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year 20
20
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00
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Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Portland Tacoma St. Louis Kansas City Nashville Louisville Austin Houston Charlotte Raleigh Pittsburgh Cincinnati Hartford Anaheim Salt Lake City Atlanta New York
Ticket Price
The Boss Hardly Varies His Price Across Cities Low, High and Average Ticket Price Bruce Springsteen & E Street Band, April-J une 2000
80
70
60
50
40
30
20
10
0
Figure 4a: Number of Shows Each Year Rolling Stone Encyclopedia Artists 8000
Number of Shows
7000 6000 5000 4000 3000 2000 1000 0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Number of Tkts. Sold (Millions)
Figure 4b: Number of Tickets Sold Each Year Rolling Stone Encyclopedia Artists 40
35
30
25
20
15
10 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Figure 4c: Total Ticket Revenue in 2003 Dollars Rolling Stone Encyclopedia Bands Ticket Revenue (Millions of $)
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Scalping and List Prices • Survey at Springsteen “The Rising” Concert, Oct. 6, 2003 in Philadelphia, PA. Every ticket sold for $75. • Stratified random cluster sample of seats. Interviewed 858 people in the 15 minutes before the start of the show. • Short questionnaire on index card. Very high response rate. • 20-25 percent of tickets scalped. Worst seats more likely to be resold. Average resale price was $300. • Springsteen gave away $3 million in consumer surplus
Explanations For Two Key Facts Need To Be Found: • Long run faster growth in concert prices than inflation • Short-run acceleration in prices the last 5 years
The Economics of Superstars • Sherwin Rosen (AER 1981) • If undergoing heart surgery, willing to pay a lot more for the best surgeon over the second best surgeon • Imperfect substitutes Convex reward function • Plus, size of market Best can reach more customers • Human capital would not have a linear effect – twice as good paid more than twice as much
Apply to Rock & Roll • Superstars are known to a broader audience because of technology • Improved technology differentiates the best from the rest and permits bigger audience (unlike Ms. Billington) • Demand to hear the very best is higher • Rewards for the best should rise
110.0
100.0
90.0
Price of Consumer Audio Equipment After Adjusting for Inflation (1978=100)
80.0
Price Index
70.0
60.0
50.0
40.0
30.0
20.0 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Source: Bureau of Labor Statistics.
The Top Artists are Getting a Larger S hare of Total Tic ket Revenue 100% Everybody Else
84%
80%
60%
Top2-5 Percent
62%
56% 40%
26% 20% Top1Percent
Top 1% 14.6%
0% 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Year
Source: Calculated by Alan Krueger based on Pollstar data.
Novel measure of “Star Quality”: Amount written about artist in Rolling Stone’s Encyclopedia of Rock & Roll Measured in millimeters to be scientific
399 mm
The Return to “Star Quality” on Log Price Log Difference in Price for 1 Standard Deviation Change in Star Quality for Encyclopedia Bands 0.140
0.123
Log Difference
0.120 0.100
0.091
0.080 0.060
0.047
0.052
1981-86
1987-91
0.040 0.020 0.000
1992-96
1997-03
Note: Based on multiple regressions of log annual revenue on millimeters of print, year dummies and covariates. Sample consists of 10,043 artist/year observations. See Table 3, col. 4.
The Return to “Star Quality” on Revenue per Show
Log Difference
Effect of 1 SD Change in Star Quality on Log Revenue per Show for All Artists 0.8 0.75 0.7 0.65 0.6 0.55 0.5 0.45 0.4 0.35 0.3
0.698
0.714
1992-96
1997-03
0.618
0.482
1981-86
1987-91
Note: Based on multiple regressions of log annual revenue on millimeters of print, year dummies and no. of support acts. Sample consists of 35,835 artist/year observations. See Table 1, col. 3.
The Return to “Star Quality” on Revenue per Show Effect of 1 SD Change in Star Quality on Log Revenue per Show for Encyclopedia Bands 0.6
Log Difference
0.55 0.5
0.532
0.528
0.492 0.440
0.45 0.4 0.35 0.3
1981-86
1987-91
1992-96
1997-03
Note: Based on multiple regressions of log annual revenue on millimeters of print, year dummies and covariates. Sample consists of 10,043 artist/year observations. \ See Table 3, col. 6.
$55.00
Average Price for Selected Characteristics, All Else Equal $55.00
Age of Band
$50.00
Gender
$50.00
$47.69 $45.56 $44.03
$45.00
$41.85
$45.00
$42.79
$42.56
$40.00
$40.00
$35.00
$35.00
$30.00
$38.50
$30.00
5
10
20
30
Male
Female
Mixed
$55.00
Genre $50.01 $50.00
$47.86 $44.09
$45.00
$41.60
$40.62
$41.48
$40.00
$37.98
$38.02 $36.10
$35.13
$35.00
$30.00
Blues
Country & W estern
Folk
Jazz
Other
Pop
Rock
Rhythm & Blues
Reggae
Rap
Note: Based on a multiple regression of log price on millimeters of print, age of band, gender of band, genre of music, foreign vs. U.S. group, and year dummies. Sample consists of 79,375 concerts performed by 1,253 artists. Weighted average price indexed to 2001 average price.
Tina Turner: What’s Age Got to Do With It? As Artists Age, the High-Low Ticket Price Ratio Rises
Ratio of High to Low Price
2.5
2
1.5
1 1982
1986
1991
1996
2000
Baumol and Bowen’s Disease • Takes same amount of time and input to play Free Bird • Concerts are a low productivity growth sector (modular technological change) • Would expect prices in low productivity growth sectors to grow relatively quickly
The Demand for Leisure has Risen with Wealth • As society becomes wealthier people demand more leisure and higher quality leisure activities • Demand for leisure is a “super normal good” – the share of income devoted to leisure rises with income • Price of most leisure activities is growing relatively fast • The demand for leisure is likely to continue to grow
Leisure Hours Per Day 8
6
4
2 1850
1900
1950
Source: Robert Fogel (1999).
2000
2050
C oncert Tickets versus M ovie, Theater, and Sports Tickets C oncert Venue Price Index versus C PI for M ovie, Theater and Sports Events
Proportionate Growth in Price
0.600
0.546
0.500
0.427 0.400
0.358
0.332
Concerts
0.278
0.300
0.252
0.241
0.207
Movies, Sports & Theater
0.200
0.100
0.000 1981-86
1986-91
1991-96 Per i od
1996-01
© Alan B. Krueger, 2002.
What Explains Recent Price Growth? • Production Costs Increased • Consolidation • Decline in Complementary Revenue Source: Record Sales • Undervalued Asset
Industry Consolidation • Vertical Concentration - Venues - Radio - Marketing, etc. • Horizontal Concentration - SFX, Clear Channel Clear Channel
Telecommunications Act of 1996 • Signed Feb. 8, 1996 • Prior to 1996 Act, radio stations could own just 40 stations nationally, and 2 in a market • Cap eliminated nationwide, and raised to 8 in a market • Since 1996, 10,000 radio station transactions worth $100 billion • Further legislation could lead to consolidation with TV and newspapers
The Industry Has Become More Concentrated Recently Percent of Total Revenue Handled by Biggest Four Promoters – All Artists
Percent of Ticket Sales
80
60
40
20 1981
1986
1991
1996 year
2001
2003
Nationally, the Industry Has Become More Concentrated Recently Percent of Total Revenue Handled by Biggest Four Promoters - Top Artists
Percent of Ticket Sales
80
60
41% CC
40
20 1981
1986
1991
1996
2001 2003
Source: Calculated by Alan Krueger based on Pollstar data. Only concerts performed in the U.S. are included in the analysis. Sample consists of artists listed in Rolling Stone Encyclopedia.
Figure 4a: Number of Shows Each Year Rolling Stone Encyclopedia Artists 8000
Number of Shows
7000 6000 5000 4000 3000 2000 1000 0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Figure 5: Proportion of Seats That Are Filled for Concerts held by Artists Listed in Rolling Stone Encyclopedia of Rock & Roll 0.95
Proportion of Seats Filled
0.90 0.85 0.80 0.75 0.70 0.65 0.60 0.55 0.50 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Average Within-Market Percent of Revenue Handled by Biggest Four Promoters Average of Percent in Each of the Top 24 Markets
Percent of Ticket Sales
90.5% 80
60
40
© Alan B. Krueger, 2002.
20 1981
1986
1991
1996
2001
Source: Calculated by Alan Krueger based on Pollstar data. Only concerts performed in the U.S. are included in the analysis. Sample consists of artists listed in Rolling Stone Encyclopedia.
Change in Prices vs. Change in Big-Four Concentration Ratio, 1993-94 to 2000-2001; 98 Largest Cities
Proportionate Change in Price
2
r = 0.04
1.5
1
.5
0
-.5 -50
0 50 Change in Big-Four Concentration Ratio
100
Clear Channel’s Share of Concert Revenue versus their Share of Radio Listeners across 98 Largest Radio Markets Share of Concert Revenue, 2000-01
1
r = 0.01 .75
.5
.25
0 0
.1
.2 .3 Share of FM Radio Market, 2002
.4
.5
Herfindahl-Hirschman Index for Venues, 1986-2001 Average Across 24 Largest Cities 6000
Average HHI
5000
4000
3000
2000
1000 1986
1991
1996
2001
Note: Venues that are exclusively used by one promoter in a year in a particular city are pooled together into one conglomerate. An industry with an HHI above 1,8000 is considered highly concentrated according to the Justice Department Merger Guidelines.
Surge in Average Price Per Concert Ticket in Canada is Similar to that in the United States – 67% Nominal Growth from 1996 to 2001 $50
Price (US Dollars)
$40
$30
$20
Avg. Price
Grow at U.S. CPI
$10
$0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Alternative Model - Complementary Goods • Dependent Demands with Shift in Record Market • Records and Concerts are complementary goods • Because of new technology, the complementarity is weaker
1.2
Total Albums and Singles Shipped Billions of Units
1 0.8 0.6 0.4 0.2 0
1990
1992
1994
1996
1998
2000
Source: New York Times, Feb. 25, 2002, p. C1.
Music shipments were down an estimated 9.6 percent last year, after declining 7 percent in 2000. Sales were flat 1994 to 2000.
Bands Produce 2 Complementary Goods with Market Power Good 1: Concert Tickets Good 2: Record Sales
max p1 D1 (p ) + p2 D2 (p ) −C1 (D1 (p ))− C2 (D2 (p )) ∼
∼
' ' p1 −C1 = 1 − (p2 − C2 )D2 ε12 ε11 p1 p1 D1 ε11
∼
∼
“Music itself is going to become like running water or electricity. So it’s like, just take advantage of these last few years because none of this is ever going to happen again. 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. It’s terribly exciting. But on the other hand it doesn’t matter if you think it’s exciting or not; it’s what’s going to happen.” David Bowie The New York Times
June 9, 2002
p1 − C1' = 1 − (p2 − C2' )D2ε12 ε11 p1 p1D1ε11
Monopolistic Price Setting Concerts Only Marginal Cost
P Concert Price
Demand for concerts Marginal Revenue Q
Concerts
Monopolistic Price Setting with Complementary Product: Records
Concert Price
Marginal Cost
P P’
Demand for concerts Marginal Revenue Q Q’ Concerts
Revenue from Complementary Product Falls Because of MP3, etc.
Concert Price
Marginal Cost
P P
Demand for concerts Marginal Revenue Q Q’ Concerts
Price Growth by Genre,1996-2001 74.1%
80% 70% 55.6%
60% 50%
45.0%
47.7%
Reggae & Other
Folk & Country
40% 30%
23.4%
20% 10% 0% Jazz & Blues
Rap & R&B Pop & Rock
450
There’s A Long Way to Go to Catch the Super Bowl!
400
350
Price
300
250
200
150
100
50
Superbowl Concerts
0 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Conclusions • Rising superstar effects, but not accelerating • To understand the market must understand industrial organization and technology • Legal changes that allowed Clear Channel to dominate industry may be overrated • Antitrust action in future? Revised Telecom Act? • Complementarities between concerts and album sales key to market for Rock Stars?
“Somebody said to me, ‘But the Beatles were timaterialistic.’ That’s a huge myth. John and I literally ed to sit down and say, ‘Now, let’s write a wimming pool.” -- Paul McCartney “[I]n some fashion, I help people hold on to their own humanity, if I'm doing my job right.” -- Bruce Springsteen “I don’t see how carving out the best seats and charging a lot more for them has anything to do with rock & roll.” -- Tom Petty
• To maximize short run profit “Price Discriminate” • Charge more to those who are less “price sensitive” • Extreme example is variation in prices for airline seats • Don’t go overboard because of tie-in sales & fan loyalty
Seven Lessons from Super Bowl Sunday New York Times • List price was $325 in 2000; market price was around $2,500 • Secondary market develops if price too low, but its size can be exaggerated (20%) • Endowment effect • NFL could raise short-run profit by raising prices • But NFL wants to reward loyal fans to build enterprise • Besides, 60% of $4 billion of football revenue from TV • “Gift Exchange”
Figure 1: Average P ric e per Tic ket and Overall Inf lation Rate, 1981- 2003
60
50
40
Avg. Price
30
CPI 20
10 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Figure 1: Average P ric e per Tic ket, High and Low P ric e Tic kets, and Overall Inf lation Rate, 1981- 2003
60
50
40
Avg. Price
30
CPI 20
10 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Ticket Prices Soared Relative to Overall Price Inflation the Last 5 Years Proportionate Price Growth 0.700 0.620 0.600
Proportionate Growth
0.500
0.400 Avg. Ticket 0.301
CPI
0.300
0.255
0.243 0.207
0.206 0.200
0.152 0.128
0.100
0.000 1981-86
1986-91
1991-96 Per i od
1996-01
© Alan B. Krueger, 2002.
Prices are Growing Faster at the Top Price of the 90th, 50th, and 10th Percentile - All Artists 80
Price
60
40
20
0 1981
1986
1991 year
1996
2001 2003
Further Analysis • October 2001 edition of Rolling Stone’s Encyclopedia of Rock and Roll • Consistent universe of artists • 1,786 artists, from Abba to ZZ Top; 1,274 in Pollstar database • Responsible for 75% of ticket sales, 1981-2003. • Merged on additional data: year formed; gender; genre; prominence (mm)
Average Price Increase Understates Rise for a Consistent Set of Artists Average Price for Artists Listed in Rolling Stone Encyclopedia 55 50
Encyclopedia Bands
45 40 35
Average
30 25 20 15
Grow at CPI
10 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Source: Alan Krueger’s computations based on Pollstar and BLS data.
Year 20
20
19
19
01
00
99
98
97
96
95
94
19
19
19
19
93
92
91
90
89
19 19
87
86
88
19
19
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84
85
19
19
82
81
83
19
19
19
19
Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year 20
20
19
19
01
00
99
98
97
96
95
94
19
19
19
19
93
92
91
90
89
19 19
87
86
88
19
19
19
19
19
84
85
19
19
82
81
83
19
19
19
19
Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year 20
20
19
19
01
00
99
98
97
96
95
94
19
19
19
19
93
92
91
90
89
19 19
87
86
88
19
19
19
19
19
84
85
19
19
82
81
83
19
19
19
19
Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year 20
20
19
19
01
00
99
98
97
96
95
94
19
19
19
19
93
92
91
90
89
19 19
87
86
88
19
19
19
19
19
84
85
19
19
82
81
83
19
19
19
19
Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year 20
20
19
19
01
00
99
98
97
96
95
94
19
19
19
19
93
92
91
90
89
19 19
87
86
88
19
19
19
19
19
84
85
19
19
82
81
83
19
19
19
19
Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year 20
20
19
19
95
94
01
00
99
98
97
96
19
19
19
92
91
93
19
19
19
19
90
89
88
19
19
19
87
86
85
84
19
19
19
19
83
82
81
19
19
19
Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year 20
20
19
19
01
00
99
98
97
96
95
94
19
19
19
19
93
92
91
90
89
19 19
87
86
88
19
19
19
19
19
84
85
19
19
82
81
83
19
19
19
19
Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year 20
20
19
19
01
00
99
98
97
96
95
94
19
19
19
19
93
92
91
90
89
19 19
87
86
88
19
19
19
19
19
84
85
19
19
82
81
83
19
19
19
19
Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year 20
20
19
19
01
00
99
98
97
96
95
94
19
19
19
19
93
92
91
90
89
19 19
87
86
88
19
19
19
19
19
84
85
19
19
82
81
83
19
19
19
19
Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Year 20
20
19
19
01
00
99
98
97
96
95
94
19
19
19
19
93
92
91
90
89
19 19
87
86
88
19
19
19
19
19
84
85
19
19
82
81
83
19
19
19
19
Ticket Price
Average Concert Ticket Price, Selected Artists
140
120
100
80
60
40
20
0
Portland Tacoma St. Louis Kansas City Nashville Louisville Austin Houston Charlotte Raleigh Pittsburgh Cincinnati Hartford Anaheim Salt Lake City Atlanta New York
Ticket Price
The Boss Hardly Varies His Price Across Cities Low, High and Average Ticket Price Bruce Springsteen & E Street Band, April-J une 2000
80
70
60
50
40
30
20
10
0
Figure 4a: Number of Shows Each Year Rolling Stone Encyclopedia Artists 8000
Number of Shows
7000 6000 5000 4000 3000 2000 1000 0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Number of Tkts. Sold (Millions)
Figure 4b: Number of Tickets Sold Each Year Rolling Stone Encyclopedia Artists 40
35
30
25
20
15
10 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Figure 4c: Total Ticket Revenue in 2003 Dollars Rolling Stone Encyclopedia Bands Ticket Revenue (Millions of $)
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Scalping and List Prices • Survey at Springsteen “The Rising” Concert, Oct. 6, 2003 in Philadelphia, PA. Every ticket sold for $75. • Stratified random cluster sample of seats. Interviewed 858 people in the 15 minutes before the start of the show. • Short questionnaire on index card. Very high response rate. • 20-25 percent of tickets scalped. Worst seats more likely to be resold. Average resale price was $300. • Springsteen gave away $3 million in consumer surplus
Explanations For Two Key Facts Need To Be Found: • Long run faster growth in concert prices than inflation • Short-run acceleration in prices the last 5 years
The Economics of Superstars • Sherwin Rosen (AER 1981) • If undergoing heart surgery, willing to pay a lot more for the best surgeon over the second best surgeon • Imperfect substitutes Convex reward function • Plus, size of market Best can reach more customers • Human capital would not have a linear effect – twice as good paid more than twice as much
Apply to Rock & Roll • Superstars are known to a broader audience because of technology • Improved technology differentiates the best from the rest and permits bigger audience (unlike Ms. Billington) • Demand to hear the very best is higher • Rewards for the best should rise
110.0
100.0
90.0
Price of Consumer Audio Equipment After Adjusting for Inflation (1978=100)
80.0
Price Index
70.0
60.0
50.0
40.0
30.0
20.0 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Source: Bureau of Labor Statistics.
The Top Artists are Getting a Larger S hare of Total Tic ket Revenue 100% Everybody Else
84%
80%
60%
Top2-5 Percent
62%
56% 40%
26% 20% Top1Percent
Top 1% 14.6%
0% 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Year
Source: Calculated by Alan Krueger based on Pollstar data.
Novel measure of “Star Quality”: Amount written about artist in Rolling Stone’s Encyclopedia of Rock & Roll Measured in millimeters to be scientific
399 mm
The Return to “Star Quality” on Log Price Log Difference in Price for 1 Standard Deviation Change in Star Quality for Encyclopedia Bands 0.140
0.123
Log Difference
0.120 0.100
0.091
0.080 0.060
0.047
0.052
1981-86
1987-91
0.040 0.020 0.000
1992-96
1997-03
Note: Based on multiple regressions of log annual revenue on millimeters of print, year dummies and covariates. Sample consists of 10,043 artist/year observations. See Table 3, col. 4.
The Return to “Star Quality” on Revenue per Show
Log Difference
Effect of 1 SD Change in Star Quality on Log Revenue per Show for All Artists 0.8 0.75 0.7 0.65 0.6 0.55 0.5 0.45 0.4 0.35 0.3
0.698
0.714
1992-96
1997-03
0.618
0.482
1981-86
1987-91
Note: Based on multiple regressions of log annual revenue on millimeters of print, year dummies and no. of support acts. Sample consists of 35,835 artist/year observations. See Table 1, col. 3.
The Return to “Star Quality” on Revenue per Show Effect of 1 SD Change in Star Quality on Log Revenue per Show for Encyclopedia Bands 0.6
Log Difference
0.55 0.5
0.532
0.528
0.492 0.440
0.45 0.4 0.35 0.3
1981-86
1987-91
1992-96
1997-03
Note: Based on multiple regressions of log annual revenue on millimeters of print, year dummies and covariates. Sample consists of 10,043 artist/year observations. \ See Table 3, col. 6.
$55.00
Average Price for Selected Characteristics, All Else Equal $55.00
Age of Band
$50.00
Gender
$50.00
$47.69 $45.56 $44.03
$45.00
$41.85
$45.00
$42.79
$42.56
$40.00
$40.00
$35.00
$35.00
$30.00
$38.50
$30.00
5
10
20
30
Male
Female
Mixed
$55.00
Genre $50.01 $50.00
$47.86 $44.09
$45.00
$41.60
$40.62
$41.48
$40.00
$37.98
$38.02 $36.10
$35.13
$35.00
$30.00
Blues
Country & W estern
Folk
Jazz
Other
Pop
Rock
Rhythm & Blues
Reggae
Rap
Note: Based on a multiple regression of log price on millimeters of print, age of band, gender of band, genre of music, foreign vs. U.S. group, and year dummies. Sample consists of 79,375 concerts performed by 1,253 artists. Weighted average price indexed to 2001 average price.
Tina Turner: What’s Age Got to Do With It? As Artists Age, the High-Low Ticket Price Ratio Rises
Ratio of High to Low Price
2.5
2
1.5
1 1982
1986
1991
1996
2000
Baumol and Bowen’s Disease • Takes same amount of time and input to play Free Bird • Concerts are a low productivity growth sector (modular technological change) • Would expect prices in low productivity growth sectors to grow relatively quickly
The Demand for Leisure has Risen with Wealth • As society becomes wealthier people demand more leisure and higher quality leisure activities • Demand for leisure is a “super normal good” – the share of income devoted to leisure rises with income • Price of most leisure activities is growing relatively fast • The demand for leisure is likely to continue to grow
Leisure Hours Per Day 8
6
4
2 1850
1900
1950
Source: Robert Fogel (1999).
2000
2050
C oncert Tickets versus M ovie, Theater, and Sports Tickets C oncert Venue Price Index versus C PI for M ovie, Theater and Sports Events
Proportionate Growth in Price
0.600
0.546
0.500
0.427 0.400
0.358
0.332
Concerts
0.278
0.300
0.252
0.241
0.207
Movies, Sports & Theater
0.200
0.100
0.000 1981-86
1986-91
1991-96 Per i od
1996-01
© Alan B. Krueger, 2002.
What Explains Recent Price Growth? • Production Costs Increased • Consolidation • Decline in Complementary Revenue Source: Record Sales • Undervalued Asset
Industry Consolidation • Vertical Concentration - Venues - Radio - Marketing, etc. • Horizontal Concentration - SFX, Clear Channel Clear Channel
Telecommunications Act of 1996 • Signed Feb. 8, 1996 • Prior to 1996 Act, radio stations could own just 40 stations nationally, and 2 in a market • Cap eliminated nationwide, and raised to 8 in a market • Since 1996, 10,000 radio station transactions worth $100 billion • Further legislation could lead to consolidation with TV and newspapers
The Industry Has Become More Concentrated Recently Percent of Total Revenue Handled by Biggest Four Promoters – All Artists
Percent of Ticket Sales
80
60
40
20 1981
1986
1991
1996 year
2001
2003
Nationally, the Industry Has Become More Concentrated Recently Percent of Total Revenue Handled by Biggest Four Promoters - Top Artists
Percent of Ticket Sales
80
60
41% CC
40
20 1981
1986
1991
1996
2001 2003
Source: Calculated by Alan Krueger based on Pollstar data. Only concerts performed in the U.S. are included in the analysis. Sample consists of artists listed in Rolling Stone Encyclopedia.
Figure 4a: Number of Shows Each Year Rolling Stone Encyclopedia Artists 8000
Number of Shows
7000 6000 5000 4000 3000 2000 1000 0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Figure 5: Proportion of Seats That Are Filled for Concerts held by Artists Listed in Rolling Stone Encyclopedia of Rock & Roll 0.95
Proportion of Seats Filled
0.90 0.85 0.80 0.75 0.70 0.65 0.60 0.55 0.50 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Average Within-Market Percent of Revenue Handled by Biggest Four Promoters Average of Percent in Each of the Top 24 Markets
Percent of Ticket Sales
90.5% 80
60
40
© Alan B. Krueger, 2002.
20 1981
1986
1991
1996
2001
Source: Calculated by Alan Krueger based on Pollstar data. Only concerts performed in the U.S. are included in the analysis. Sample consists of artists listed in Rolling Stone Encyclopedia.
Change in Prices vs. Change in Big-Four Concentration Ratio, 1993-94 to 2000-2001; 98 Largest Cities
Proportionate Change in Price
2
r = 0.04
1.5
1
.5
0
-.5 -50
0 50 Change in Big-Four Concentration Ratio
100
Clear Channel’s Share of Concert Revenue versus their Share of Radio Listeners across 98 Largest Radio Markets Share of Concert Revenue, 2000-01
1
r = 0.01 .75
.5
.25
0 0
.1
.2 .3 Share of FM Radio Market, 2002
.4
.5
Herfindahl-Hirschman Index for Venues, 1986-2001 Average Across 24 Largest Cities 6000
Average HHI
5000
4000
3000
2000
1000 1986
1991
1996
2001
Note: Venues that are exclusively used by one promoter in a year in a particular city are pooled together into one conglomerate. An industry with an HHI above 1,8000 is considered highly concentrated according to the Justice Department Merger Guidelines.
Surge in Average Price Per Concert Ticket in Canada is Similar to that in the United States – 67% Nominal Growth from 1996 to 2001 $50
Price (US Dollars)
$40
$30
$20
Avg. Price
Grow at U.S. CPI
$10
$0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Alternative Model - Complementary Goods • Dependent Demands with Shift in Record Market • Records and Concerts are complementary goods • Because of new technology, the complementarity is weaker
1.2
Total Albums and Singles Shipped Billions of Units
1 0.8 0.6 0.4 0.2 0
1990
1992
1994
1996
1998
2000
Source: New York Times, Feb. 25, 2002, p. C1.
Music shipments were down an estimated 9.6 percent last year, after declining 7 percent in 2000. Sales were flat 1994 to 2000.
Bands Produce 2 Complementary Goods with Market Power Good 1: Concert Tickets Good 2: Record Sales
max p1 D1 (p ) + p2 D2 (p ) −C1 (D1 (p ))− C2 (D2 (p )) ∼
∼
' ' p1 −C1 = 1 − (p2 − C2 )D2 ε12 ε11 p1 p1 D1 ε11
∼
∼
“Music itself is going to become like running water or electricity. So it’s like, just take advantage of these last few years because none of this is ever going to happen again. 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. It’s terribly exciting. But on the other hand it doesn’t matter if you think it’s exciting or not; it’s what’s going to happen.” David Bowie The New York Times
June 9, 2002
p1 − C1' = 1 − (p2 − C2' )D2ε12 ε11 p1 p1D1ε11
Monopolistic Price Setting Concerts Only Marginal Cost
P Concert Price
Demand for concerts Marginal Revenue Q
Concerts
Monopolistic Price Setting with Complementary Product: Records
Concert Price
Marginal Cost
P P’
Demand for concerts Marginal Revenue Q Q’ Concerts
Revenue from Complementary Product Falls Because of MP3, etc.
Concert Price
Marginal Cost
P P
Demand for concerts Marginal Revenue Q Q’ Concerts
Price Growth by Genre,1996-2001 74.1%
80% 70% 55.6%
60% 50%
45.0%
47.7%
Reggae & Other
Folk & Country
40% 30%
23.4%
20% 10% 0% Jazz & Blues
Rap & R&B Pop & Rock
450
There’s A Long Way to Go to Catch the Super Bowl!
400
350
Price
300
250
200
150
100
50
Superbowl Concerts
0 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Conclusions • Rising superstar effects, but not accelerating • To understand the market must understand industrial organization and technology • Legal changes that allowed Clear Channel to dominate industry may be overrated • Antitrust action in future? Revised Telecom Act? • Complementarities between concerts and album sales key to market for Rock Stars?
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