By Syeda Zona Seljouk (23020182)
With the world coming to a halt as Covid-19 was declared a pandemic, industries across the world struggled to deal with the economic fallout that followed the spread of the deadly virus. A quick look at many economies and industries across the globe would give us an idea about the numerous factors that are at play amidst the outbreak of the coronavirus. In the course of history, businesses across the globe have never suffered such a similar economic shock that would knock players off the bench with little or no hope for an economic return coupled by the catastrophic effect that covid-19 has on the unemployment rates. Among the countless industries that struggle to keep their heads above the water, the music industry is trying to make ends meet as well by bridging the gaps created by the economic disruption in February 2020.
Delving deeper into how the music industry survived the economic crises (whether it was caused by a pandemic or any other factor) over centuries would help us understand the trends and the outlook of the industry that one could expect post-covid-19. According to the New York times, like the coronavirus, though not as deadly, the 1918 influenza made it easier for people to return to their normal lives once the pandemic was over although the industry did suffer $5 million ($85.5 million today) in the US alone as compared to the $9 billion loss that would be incurred only by the concert industry in 2020.
Looking back in time, and tracing out the financial crisis that the music industry survived would further shed light onto how the music industry copes with such changes. One of the early economic downturns that the music industry survived was the Great Depression in the early 1920’s when record sales stooped to the lowest point ever recorded in history as companies were at each other’s throat to pull through this crisis. After years of the economic upheaval, the industry’s sales and progress skyrocketed as it clawed its way back to the surface. This was followed by the 1970 oil crisis when consumers were forced to cut down their budgets, restraining them from luxury spending and travelling as the costs were inordinate. The industry then saw the light before the stock market crash in October 1987 which further increased the rivalry amongst different record labels like that of Sony and Virgin as they spent millions of dollars in acquisitions in an attempt to establish a strong hold in the industry in times of distress.
Soon after this came the terrorist attack in September 2001 which burst the economic growth bubble for many artists as their tours were cancelled for their safety. The fear instilled in people quickly subsided which led to a boost in the economic growth in the next 6 years. 7 years after the last crisis, the world experienced the Great Recession which led to the music industry crumbling due to economic pressures. This then finally brings us to the most recent economic crisis: Covid-19.
One thing that was common in these economic crises mentioned above was that even though some were decades apart, the technological progress, the responsiveness and adaptability of the industry helped it stay afloat. This principle can be relied upon during the current situation as well. Keeping the progression of crises in mind, we will see how each affected the industry and how the music industry today could learn from the somewhat similar problems it faced before.
Firstly, the homogenization of the music industry with that of technology helped consumers transition from CD’s and radio to online streaming which increased the consumer reach. The way that this has been incorporated in today’s situation can be seen in how artists across the globe adapted to their new online reality as they continue to arrange online gigs and concerts to further increase their audience reach and engagement. Collaborations between the music and the gaming industry has led to an amplification of music consumption, one such example can be seen in how Minecraft hosted virtual concerts with a participation rate of an approximate 12.2 million people.
Moreover, the markets previously operated on an assumption that the private sector works in its own interests. However, during the current crisis, the public and private sector seem to be working hand in hand to protect the interests of the consumers. This can be seen in how the private sector is supporting the music industry by making huge investments, for e.g., Spotify recently made a financial contribution of $10 million to help artists in the industry.
Secondly, the industry’s ability to make quick decisions, make acquisitions to create market competition and continue R&D has always proven to be successful in later times. This flexibility and technology weren’t present in the previous economic crises mentioned earlier which led to a greater degree of unemployment along with unprecedented rivalry that relied upon the basis of the amount of resources that a business had. One can most certainly not forgo the damage that the pandemic has done to the industry as many retail stores, artists booking centers etc. have been knocked out of business; however, keeping the previous unfolding of events in mind, it is safe to assume that the music industry would be able to recover faster than it did in previous quandaries due to the technological advancement that has been made over the years.
Lastly, with this advent came piracy and copyright problems that the market was not able to deal with effectively; these were previously prevalent and haven’t been dealt with properly even during this pandemic. Framing this within the concept of market failure and externalities, we can examine the implications that can arise by a market inefficiency in the music industry. It is seen that during this pandemic, illegal downloading and file sharing has seen a sharp rise and this leads to a problem in the market as the prices paid are no longer a representation of the social marginal benefit since now more people could listen to music for free. Illegal downloading and file sharing percentages have increased due to several factors such as not being able to pay monthly subscriptions to music platforms as people struggle to pay for necessities due to the fact that companies have resorted to reducing their workforce to make ends meet which consequently effects consumers’ income, savings and their spending choices. However, according to the Coase Theorem, the allocation inefficiencies that arise from these externalities could be reduced by clearly defining property rights. The government could make stricter copyright laws and patents that would reduce the production externality as the prices would now be a reflection of the Social Marginal benefit in the market. This would slightly reduce the losses incurred as the businesses would be able to enjoy monopoly profits for a short period of time. This would help many businesses in the industry to recuperate the losses by redirecting their resources towards alternate methods of revenue generation.
On the other hand, the negative externalities created such as pollution have been reduced due to cancellation of major tours and festivals across the globe. According to Music x tech x future x, three quarters of the UK’s music industry’s greenhouse gas emissions comes from concerts and festivals. This makes the marginal private cost lower than that of the marginal social cost. The effect of this externality is that market is made inefficient as the social benefit is less than that of the social cost. During times when the pandemic did not exist, the government would impose a tax as the producers would be forced to create less pollution but produce less of the product and charge a higher price. However, with tours and events being cancelled, this tax would prove to be redundant as the pollution created by the music industry (concerts, festivals, transportation and commute to studios etc.) is negligible at this point which in turn has greatly reduced the negative externalities in this industry. This is different from the previous economic crises mentioned earlier as the music industry slowed down during those times but still contributed to an increase in pollution while the negative externalities during this pandemic have been greatly reduced as everything has been switched to a different platform.
Overall, the music industry’s mechanism and its approach towards different marketing strategies has changed drastically which in turn effects the workings of the positive and negative externalities produced within the market. Although, this pandemic has had an adverse effect on many working within this industry, the growth of the music industry is expected significantly improved from the times of other economic crises.