The hit song “The Winner Takes It All” was released by the Swedish pop group Abba in 1980. That year also happened to be a turning point for economic inequality. Since 1980, more than 100 percent of the total growth in income in the United States has gone to the top 10 percent of families. A whopping two-thirds of all income gains have gone to the top 1 percent. The bottom 90 percent saw their combined income actually shrink.
Why has the economy become more of a winner-take-all affair?
Studying the music industry helps shed light on one key factor: the role of superstar markets.
Serious study of the economics of superstars began with the great English economist Alfred Marshall in the late 19th century. Marshall’s explanation for the growing income gap between superstar businessmen and everyone else rested on new developments in communications technology — namely, the telegraph. It connected Britain with America, India and places as far away as Australia. As a result, top entrepreneurs were able “to apply their constructive or speculative genius to undertakings vaster, and extending over a wider area, than ever before.” In other words, technology increased the scale of the market, an essential ingredient for a superstar to be able to earn a supersize income.
Ironically, he used music as a counterexample, a profession where superstar effects were limited. He pointed to the example of Elizabeth Billington, who was widely regarded as the greatest soprano of her era. But, Marshall observed, “so long as the number of persons who can be reached by a human voice is strictly limited, it is not very likely that any singer will make an advance on the £10,000 said to have been earned in a season by Mrs. Billington at the beginning of the last century.” Because even outstanding singers could not reach a large audience, they lacked the scale required to become superstars.
A second essential ingredient is that contenders for the top of the market have to be imperfect substitutes, meaning that each superstar has his or her own unique style and skills.
In other words, both scale and uniqueness have to be present to create a superstar market. Mrs. Billington’s voice was unique, but she lacked scale. Scale magnifies the effect of small, often imperceptible differences in talent. With the ability to scale, the rewards at the top can be much greater for someone who is slightly more talented than his or her next-best competitor, because the most talented person’s genius can reach a much greater audience or market, in turn generating much greater revenue and profit.
What changed since Mrs. Billington’s concerts? First, physical records, and the ability to record and replay musical performances, have enabled today’s top artists, those most in demand, to dominate the music business. Album sales and digital streaming clearly reflect the superstar phenomenon. The top 0.1 percent of artists accounted for more than half of all album sales in 2017. Song streams and downloads are similarly lopsided.
But a funny thing happened to musicians’ incomes as recorded music became more accessible. Because digital recording technology and the rise of the internet made it easy to copy and share recordings, artists’ and record labels’ revenue from selling recorded music has plummeted since the 1990s.
Touring, always an important source of musicians’ incomes, has become more of a superstar market over the past 40 years. The top 1 percent of artists increased their percentage of total concert revenue to 60 percent in 2017 from 26 percent in 1982.
Some have argued that the music industry has become more egalitarian because of streaming, computerized music-production technology and lower entry costs. But as far as artists’ incomes are concerned, it is becoming more unequal.
Spotify offers 35 million tracks. It would take six lifetimes for any individual to listen to all those songs. With such an enormous volume of music available, we rely heavily on the advice of our friends, on what we hear on the radio and on curated playlists.
In statistical jargon, the cascade of information and musical preferences through networks of fans generates a power-law distributionof popularity: the popularity of the most popular item is a multiple of the next-most-popular item, and so on.
Mathematically, this copycat procedure will result in a small number of songs responsible for most of sales. In 2016, the most popular artist, Drake, was streamed 6.1 billion times, followed by Rihanna (3.3 billion streams), Twenty One Pilots (2.7 billion streams) and The Weeknd (2.6 billion streams). Moving down a hundred places from Drake, the 101st-ranked group was the California band Los Tigres del Norte, which was streamed 0.5 billion times, or less than 10 percent as much as Drake. The sharp drop-off near the top is characteristic of a power law.
The idea of a power law is fundamental to understanding the music market as well as the superstar phenomenon. The distributions of streamed songs, album sales and concert revenue are all closely approximated by a power law. And so are the numbers of Twitter followers, YouTube subscribers and Facebook likes that musicians attract.
Contrary to the long-tail hypothesis, the availability of just about all music on the internet is unlikely to change the tendency for musical preferences to be socially determined and, as a consequence, highly skewed toward a relatively small group of musicians. And the systems that use Big Data to help us discover new music are also likely to reinforce network effects, unless there is a surge in demand for systems that recommend songs that are unpopular and likely to stay that way.
How does the music industry compare with the rest of the economy? Since 1980, the entire United States economy has moved in the direction of a superstar market. The distribution of income in the country over all is not as skewed as it is in the music industry, where the top 1 percent of performers take in about 60 percent of all income, but the United States is now back to the same level of inequality that existed during the Roaring Twenties.
At the very top of the income scale, technological changes that increased scalability have intensified superstar effects. The wealthiest Americans increasingly come from the technology, finance and mass-retail sectors, which are the most scalable industries.
One related part of the inequality story involves the rise of “superstar” companies. Google, Apple and Amazon have successfully deployed technological innovations to take advantage of enormous scale economies. But there is also a concern that such companies use their dominant position to stifle competition. They tend to employ higher-paid and more highly educated workers, and they often outsource jobs for lower-paid workers, such as those in janitorial, cafeteria and security positions.
Over the past decade the four largest American airlines increased their share of industry revenue to 65 percent from 41 percent. Larger hospitals have gobbled up smaller ones, and even in the beer business, despite the proliferation of craft breweries, the four largest breweries produce 90 percent of the beer consumed.
It is easy to see the hand of supply and demand in the rise of inequality, but the reverberations of political, corporate and social choices are also important. For example, cities and states that have raised their minimum wages have boosted earnings for low‑paid workers and reduced inequality.
Is there anything else we can learn from the music industry? When I saw the multitalented Questlove, leader of the Roots, in Miami Beach recently, he lamented the highly skewed nature of the business. “In my world I’d just like to see a balance,” he told me. “It’s like just one person and no one else. And whoever is the most digestible gets that spotlight and that attention. Meanwhile, there are zillions and jillions of artists who are just as worthy of getting these things. My position is, more or less, while the spotlight is still warm, to show people options.”
Alan Krueger was a professor of economics at Princeton University and the author of “Rockonomics: A Backstage Tour of What the Music Industry Can Teach Us About Economics and Life,” from which this essay is adapted.
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Home » Analysis & Comment » Opinion | The Economics of Rihanna’s Superstardom
Opinion | The Economics of Rihanna’s Superstardom
The hit song “The Winner Takes It All” was released by the Swedish pop group Abba in 1980. That year also happened to be a turning point for economic inequality. Since 1980, more than 100 percent of the total growth in income in the United States has gone to the top 10 percent of families. A whopping two-thirds of all income gains have gone to the top 1 percent. The bottom 90 percent saw their combined income actually shrink.
Why has the economy become more of a winner-take-all affair?
Studying the music industry helps shed light on one key factor: the role of superstar markets.
Serious study of the economics of superstars began with the great English economist Alfred Marshall in the late 19th century. Marshall’s explanation for the growing income gap between superstar businessmen and everyone else rested on new developments in communications technology — namely, the telegraph. It connected Britain with America, India and places as far away as Australia. As a result, top entrepreneurs were able “to apply their constructive or speculative genius to undertakings vaster, and extending over a wider area, than ever before.” In other words, technology increased the scale of the market, an essential ingredient for a superstar to be able to earn a supersize income.
Ironically, he used music as a counterexample, a profession where superstar effects were limited. He pointed to the example of Elizabeth Billington, who was widely regarded as the greatest soprano of her era. But, Marshall observed, “so long as the number of persons who can be reached by a human voice is strictly limited, it is not very likely that any singer will make an advance on the £10,000 said to have been earned in a season by Mrs. Billington at the beginning of the last century.” Because even outstanding singers could not reach a large audience, they lacked the scale required to become superstars.
A second essential ingredient is that contenders for the top of the market have to be imperfect substitutes, meaning that each superstar has his or her own unique style and skills.
In other words, both scale and uniqueness have to be present to create a superstar market. Mrs. Billington’s voice was unique, but she lacked scale. Scale magnifies the effect of small, often imperceptible differences in talent. With the ability to scale, the rewards at the top can be much greater for someone who is slightly more talented than his or her next-best competitor, because the most talented person’s genius can reach a much greater audience or market, in turn generating much greater revenue and profit.
What changed since Mrs. Billington’s concerts? First, physical records, and the ability to record and replay musical performances, have enabled today’s top artists, those most in demand, to dominate the music business. Album sales and digital streaming clearly reflect the superstar phenomenon. The top 0.1 percent of artists accounted for more than half of all album sales in 2017. Song streams and downloads are similarly lopsided.
But a funny thing happened to musicians’ incomes as recorded music became more accessible. Because digital recording technology and the rise of the internet made it easy to copy and share recordings, artists’ and record labels’ revenue from selling recorded music has plummeted since the 1990s.
Touring, always an important source of musicians’ incomes, has become more of a superstar market over the past 40 years. The top 1 percent of artists increased their percentage of total concert revenue to 60 percent in 2017 from 26 percent in 1982.
Some have argued that the music industry has become more egalitarian because of streaming, computerized music-production technology and lower entry costs. But as far as artists’ incomes are concerned, it is becoming more unequal.
Spotify offers 35 million tracks. It would take six lifetimes for any individual to listen to all those songs. With such an enormous volume of music available, we rely heavily on the advice of our friends, on what we hear on the radio and on curated playlists.
In statistical jargon, the cascade of information and musical preferences through networks of fans generates a power-law distribution of popularity: the popularity of the most popular item is a multiple of the next-most-popular item, and so on.
Mathematically, this copycat procedure will result in a small number of songs responsible for most of sales. In 2016, the most popular artist, Drake, was streamed 6.1 billion times, followed by Rihanna (3.3 billion streams), Twenty One Pilots (2.7 billion streams) and The Weeknd (2.6 billion streams). Moving down a hundred places from Drake, the 101st-ranked group was the California band Los Tigres del Norte, which was streamed 0.5 billion times, or less than 10 percent as much as Drake. The sharp drop-off near the top is characteristic of a power law.
The idea of a power law is fundamental to understanding the music market as well as the superstar phenomenon. The distributions of streamed songs, album sales and concert revenue are all closely approximated by a power law. And so are the numbers of Twitter followers, YouTube subscribers and Facebook likes that musicians attract.
Contrary to the long-tail hypothesis, the availability of just about all music on the internet is unlikely to change the tendency for musical preferences to be socially determined and, as a consequence, highly skewed toward a relatively small group of musicians. And the systems that use Big Data to help us discover new music are also likely to reinforce network effects, unless there is a surge in demand for systems that recommend songs that are unpopular and likely to stay that way.
How does the music industry compare with the rest of the economy? Since 1980, the entire United States economy has moved in the direction of a superstar market. The distribution of income in the country over all is not as skewed as it is in the music industry, where the top 1 percent of performers take in about 60 percent of all income, but the United States is now back to the same level of inequality that existed during the Roaring Twenties.
At the very top of the income scale, technological changes that increased scalability have intensified superstar effects. The wealthiest Americans increasingly come from the technology, finance and mass-retail sectors, which are the most scalable industries.
One related part of the inequality story involves the rise of “superstar” companies. Google, Apple and Amazon have successfully deployed technological innovations to take advantage of enormous scale economies. But there is also a concern that such companies use their dominant position to stifle competition. They tend to employ higher-paid and more highly educated workers, and they often outsource jobs for lower-paid workers, such as those in janitorial, cafeteria and security positions.
Over the past decade the four largest American airlines increased their share of industry revenue to 65 percent from 41 percent. Larger hospitals have gobbled up smaller ones, and even in the beer business, despite the proliferation of craft breweries, the four largest breweries produce 90 percent of the beer consumed.
It is easy to see the hand of supply and demand in the rise of inequality, but the reverberations of political, corporate and social choices are also important. For example, cities and states that have raised their minimum wages have boosted earnings for low‑paid workers and reduced inequality.
Is there anything else we can learn from the music industry? When I saw the multitalented Questlove, leader of the Roots, in Miami Beach recently, he lamented the highly skewed nature of the business. “In my world I’d just like to see a balance,” he told me. “It’s like just one person and no one else. And whoever is the most digestible gets that spotlight and that attention. Meanwhile, there are zillions and jillions of artists who are just as worthy of getting these things. My position is, more or less, while the spotlight is still warm, to show people options.”
Alan Krueger was a professor of economics at Princeton University and the author of “Rockonomics: A Backstage Tour of What the Music Industry Can Teach Us About Economics and Life,” from which this essay is adapted.
The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips. And here’s our email: [email protected].
Follow The New York Times Opinion section on Facebook, Twitter (@NYTopinion) and Instagram.
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