Monday, September 10, 2007

Sunday dollars+sense: Elton needs the money

APEC was the biggest show to hit Sydney this year. Elton John will be the biggest show to hit Canberra.

Sir Elton will perform all of his hits under the stars at Stage 88, Commonwealth Park at the end of November in what the National Capital Authority assures us will be “an entertainment coup for Canberra”.

They needn’t feel so proud.

An examination of Elton John’s finances, along with those of the world’s other top 35 musical superstars shows that they are virtually compelled to tour. Economically, they are prisoners of the road.

Most of us probably imagine that artists such as Sir Elton, Sir Paul McCartney and the rest make their money selling CDs...

That’s certainly how we spend our money. In 2003 US citizens spent $15 billion on CD’s, but only $2.5 billion buying concert tickets.

But according to Princeton University economists Marie Connolly and Alan Krueger in a paper entitled Rockonomics, for the artists the rewards are reversed.

Sir Elton made $25 million from live concerts in 2002, but only $1 million from selling CDs plus another $1.6 million from publishing.

The proportions were much the same for Sir Paul, the biggest earner, who made $74 million from concerts but only $2.7 million each from selling CDs and publishing music.

Billy Joel appears to have made nothing at all from selling CDs after rounding, but $20 million from touring.

And things are even worse at the bottom of the heap.

Connolly and Krueger say most recording artists never see a royalty cheque. They get an ‘advance’ to cover the cost of recording and making the promotional video which their royalty payments are meant to pay back.

But the royalty payments are tiny - a few cents per CD - and for all but the biggest selling CDs never come close to repaying the advance. The artists are continually “in debt” to their recording companies.

From an economic point of view CD sales are an incredibly inefficient means of rewarding the artists who create them. Each CD costs less than a dollar to manufacture, the artists get a few cents and the rest of the $30 price tag goes heaven-knows-where.

Only on the road can performers such as Sir Elton get what they deserve.

That’s why the sexagenarian will be back behind the piano on Stage 88 in November, even though he would probably prefer to be tucked up in bed being properly paid for the work he has already done.

Alan B. Krueger and Marie Connolly, Rockonomics: The Economics Of Popular Music, NBER Working Paper, No. 11282 April 2005

Sherwin Rosen,
The Economics of Superstars, The American Economic Review, Vol. 71, No. 5. (Dec., 1981), pp. 845-858.