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Equilibrium in the Market for Rock 'n' Roll

by Arnold Kling

March 13, 2001

Today, legendary guitarist Ted Nugent has an anti-Napster rant in the Wall Street Journal. In general, rockers seem to be very disappointed that the Internet is not raising the equilibrium wage rate for their work.

It would be nice if we all could be rock stars. Imagine how neat it would be if all of us could receive recognition and financial rewards for our contribution to rhythm and blues.

In practice, however, the rewards for creativity tend to be disappointing. While there are rich movie stars, there are many actors and actresses who wait on tables.

Talented musicians will find at least two characteristics to lament about the distribution of rewards.

  1. Average compensation is low.
  2. The distribution of compensation does not seem to match the distribution of talent.

On average, musicians are not paid well. True, a tiny minority of pop stars gets paid an enormous amount. However, this is offset by the low wages paid to the vast majority of bands.

The other problem with the market for creative expression is that the correlation between talent and reward is low. In October of 1999, I wrote an essay called Effective Tournaments, in which I talked about how various processes work to sort out winners and losers.

(My goal in that essay was to suggest that the stock market was not doing a particularly good job of selecting the most promising Internet companies. Today, few would argue with my assessment.)

The question about "effective tournaments" is how well rewards are correlated with ability. In chess or golf, the correlation is very strong. It seems to me to be highly probable that Gary Kasparov was indeed the most talented chess player of his era, and that Tiger Woods is the most talented golfer today.

Compare the professional tennis tournament to the pop music tournament. I think that it is a safe bet that your local tennis pro cannot play as well as Venus Williams. However, it would not be safe to bet that it would be hard to find a local lounge singer who is as good as Britney Spears.

If there were an equation that tried to predict market rewards in popular music on the basis of creativity and talent, it would not work very well. In statistical jargon, the R-squared of that regression would be low, and the residual errors would be large.

My guitar-playing would not even get me into a local band. On the other hand, I am competing in an artistic tournament. I am writing a book that falls under the category that publishers call "trade, business." That is, it is targeted at a business audience, and it is to be distributed through ordinary ("trade") bookstores, rather than as a textbook.

Within the trade business category, the past year or so has been dominated by a particular book. This reigning champion--the Gary Kasparov or Tiger Woods that the rest of us are gunning for--is called Who Moved My Cheese?. From the description, the book sounds even worse than the title. Something tells me that the book business is not an effective tournament.

People have a hard time accepting the fact that their creativity is not much valued. For example, most web designers complain that their work is not appreciated. Jakob Nielsen constantly tells Web designers to tone down their sites and make them usable. Instead, web designers continue to show off, to the irritation of consumers.

It is as if Nielsen were telling prospective musicians that their best chances of success in rock would come from building a band around drums, bass, and guitar. Finding this advice too stifling, the creative geniuses attempt to form a group consisting of xylophone, kazoo, and tuba. The market often is unkind to originality.

The Internet and the Role of Distributors

When the World Wide Web hit the scene, many rockers became aware of the Internet. Some thought that the Internet would eliminate distributors, allow musicians to sell directly to the public, and thereby solve the problems that had previously existed with market compensation of creative work.

The theory that distributors are the root of all evil holds that:

If distributors were eliminated, the thinking goes, the musicians would earn more money, and the correlation between quality and popularity would be higher.

It turns out that the Internet is indeed threatening to upset the traditional distribution system for pop music. However, no matter what new system emerges, my guess is that the effect on the equilibrium compensation for musicians is likely to be small.

Fundamentally, there is a lot of supply in the market for pop music. Because there are so many people willing to supply services at a relatively low wage rate, the average wage rate is never going to get very high, regardless of what happens to the distribution system.

The other problem--the poor correlation between talent and commercial success--probably reflects consumer network effects. Much of the reason that my daughters like the groups that they do is because their friends like those groups. As the popularity of a band builds, it starts to feed on itself as more consumers recommend the band to one another. Unless the Internet reduces network effects--and I can think of no reason that it should--the random component in success will continue to be large.

What is true in rock 'n' roll is true in many other creative fields. If you are waiting for the Internet to deliver an equilibrium in which creative artists are highly paid and there is a strong, systematic relationship between talent and success, do not hold your breath.