Synthesizing Research on The Business Behind the Music Industry

SOURCE: Ultimate Guitar

The economic principle I researched was “people usually respond to incentives in predictable ways.” My overall research question was how does the music industry incentivize artists to create popular music? Overall, I found that more than ever before, artists are encouraged to conform to mainstream music trends in order to be successful in the current music industry that is rapidly changing the way music is made, distributed, and listened to. 

First, the way artists are making money today is rapidly changing because of the growing popularity of digital music. In years before the recent digital boom, the main way artists would make money would be through the sale of physical albums. Now, however, because most music is streamed digitally, artists have to rely on touring and selling merchandise to make the bulk of their money. Of course, artists also can make money from selling royalties of songs to other artists or labels. The way that music is distributed today, also contributes to the way that artists make money, and how music is heard. In days of music past, artists would have to go through a distributor before getting their music heard by their fans. Today, artists and labels can upload their own music directly to streaming services like Spotify and Apple Music. This has definitely had a huge effect on the music industry as it is music easier today to have you music heard by an audience- and essentially, just about anyone can create a band.

Next, record labels have a huge impact on how artists make music. Traditionally, the common belief has been that in order to find success, an artist needs to be connected to a label. In many ways this still holds true as labels help artists with funding, booking tour dates, and provide a huge financial advantage over artists that are not signed to labels. On the other hand however, a lot of mega-music labels have only one goal in mind- making more money. Because of this, I would argue that some of the benefits of being an independent artist, or signing to an indie label, would be that you have more freedom over the music you create. Finally, the streaming services of today have shifted the way that artists create music, and has possibly even worsened the quality of music that is created. An example of this, as I mentioned in my fifth blog post is how artists have jumped into the new digital format by making albums with much more songs than in previous years. This shows how these artists are incentivized to make money rather than make quality music because they understand that the more songs they release at once, the more listens they will get. And as I found in my third blog post, artists make money for every time their song is played (or streamed) on one of the many digital streaming services today.

To conclude, I think that like other businesses, the music industry is ultimately run by money. Money is what causes record labels to sign new artists, and it’s what inspires artists to write hit songs. In the end, like any other business, the music industry needs money to keep going, and as long as our favorite bands and artists continue to create music we love, the music industry won’t be changing anytime soon.