Expect a surge in spending on entertainment during the recession.

 

 

Lavatory Records

With all the hysteria about  global currencies volatility and the trade war with China and the USA, the global markets in the world are going through a bit of a frenzy due to news of another global recession. This is particular to the financial markets with accusations flying around about currencies being either overvalued or undervalued, depending on what each individual country’s (or region in terms of the European Union) agenda is in the global trade arena. With many businesses now plying their trade in the modern global game as either importers or exporters, the situation could adversely affect businesses depending on which on end of the foreign exchange rates is conducive to the particular success of the business. With all that is going on in the global economy, a good question would be how does this affect the music industry?

In the short term, when there’s a global recession or depression, it can usually be a very good thing for music entertainers! Usually when uncertainty looms the tendency “to distract and divert attention” is deployed by governments or businesses, whenever there’s a looming down turn in business or productivity. For example – when companies know that business activity closer to the end of the year will wind down, they then decide that this is the ideal time to have their office parties which involve bringing, food, liquor and entertainment (music). Much as office parties are a genuine gesture of employees thanking their employees, they can also be seen as an anomaly due to the employer “surrendering” to the forces of the market environment. When the festive season hits with all it’s “festivities”, it’s usually a good time of the year for artists as that is when they are at their busiest in terms of bookings. However, musicians can be busy at other times apart from the festive season. For example, when politicians around the world want to campaign elections – a lot of the time they would turn to musicians for endorsements.

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Profit Margins in the music business: How much should an artist give away and retain in this present music economy?

Lavatory RecordsIn the current paradigm music artists find themselves in the position of being wholly independent, which leads to many of them thinking they would be entitled to keep all of their earnings! Unfortunately, it doesn’t quite work like that, as “independent” doesn’t necessarily mean that an artist did everything by themselves – it’s actually quite the opposite! The more successful artists are the ones who actually know who to keep in their circle that make valuable contributions towards their careers.  Through various forms of revenue such as royalties, commercial deals, album sales etc, an artist would somewhere down the line have to pay people who are imperative to their success. This ties in with subject we have covered in our value-chain analysis article. The music economics series this time around discusses how special people are compensated for their efforts.

The splitting of the revenue comes in the form of management fees, agent commission, distributors duty & fees etc. All these forms of revenue split vary and depend on how the artist’s bargaining power is determined. The final fee or cut (in percentage form) from the point of view of the product or service (music album or stage performance)  an artist has to sell, goes a number of ways to cover expenses and then to determine how the profits are split. The moment the conversation comes to profit splitting, there are a number of dated principles that are still presently applied that need to be understood first before deciding to part with 10%, 20% or 30% and so on…

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Value Chain: The kind of relationships you form will make or break you

Lavatory Records

While growing up you may have heard sayings like “birds of a feather flock together”, “you are who you surround yourself with” etc. These sayings, pertaining to the company one chooses to keep, may be cliched but never get tired. The fundamental principle is that those who value the same things and share the same interests will find each other; and therefore naturally add value to one another. The concept of value adding is very important in trade and commerce and can be applied in music too.

Lavatory Records

 

According to Investopedia: “Value added is the enhancement a company gives its product or service before offering the product to customers”. In the context of the artist operating within the music industry, this would entail the artist having to take the role of being a producer in the economic sense. Your music composition would be adversely affected by your band mates, featured artists, music producer/ beatmaker, your post production audio engineer, and the publishing house that manufacture your CDs – all these people would be established as adding value to your final song as a product. These inputs ultimately affect the final outcome of the song you compose, to which you (as a composer) would find hard to quantify. This means, for as long as you as the composer/producer and your fans are happy with the final product, how much you spent into creating that piece of art is of little importance. Bearing in mind that the entire process of the creation of your work does not leave you in a pool of debt and you are staying within your means.

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Opportunity Cost – The cost of taking that free gig!

Lavatory Records

For many artists who are just starting out in their career there is always the possibility of finding themselves in a situation where gigs or bookings will be rewarded by “do it for the exposure” phrase as much more polite way of saying “you will not get paid”. Many will usually rant and rave and start talking about exploitation and being taken advantage of. However, there are a few things one must consider before writing off an opportunity. This again is a principle of economics in regards to Opportunity Cost, starting from analysis of one’s economic situation at individual level. By mastering the principles of being able to stay within and below your means, you would then be able to maximise off opportunities through developing an investment.

What we are saying at Lavatory Records: STOP COMPLAINING! No one can do to you what you don’t allow. Think carefully before deeming situations as “exploitative”. Taking a free gig can be beneficial to one’s career if done under the right circumstances.

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