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YMI Consulting

Market forces in the music industry

econ

Have you heard of the cookie analogy?

You’re six years old and there’s one cookie left in the cookie jar. You know that you are the only one who knows that there’s only one cookie left. If others knew that there was only a single cookie in the jar, they’d want it too. This makes the value of the cookie high. So you stuff your hand in the jar and grab the cookie. You eat it slowly. You savor every tiny bite you take, until it’s gone. Right after dinner, your mother whips up another batch of cookies for the entire family to enjoy. Suddenly, the value of a cookie plummets. You stuff your face with cookies, fill your pockets to have more later, and the rest of the family enjoys the cookies as well.

 

Supply and demand is a natural force in any market, including the music industry.

I had a discussion with Jonathan Hicks of Rags and Ribbons about the vast amounts of music available to listeners. The Internet makes it possible for anyone to share their music. That aspect incentivizes amateur musicians to create more music. Discovering new music has never been so simple and effortless. In other words, there is a greater supply of music compared to the days before the Internet.

 

What about demand?

Demand can be correlated with population, making it easy to predict. Population growth is the primary driving force behind increasing demand for music. The Internet has also impacted demand, because it removed barriers to accessing music. Those who wouldn’t have spent time looking for new music before widespread Internet access now have the tools to painlessly discover new music. However, once those people have entered the market, demand reaches its maximum.

 

Supply has outpaced demand.

It’s extremely difficult for an indie musician to sell recorded music. This is because the forces of supply and demand have driven prices down to virtually nothing. Once again, demand is limited by the amount of people in the market and how much music they can consume. But the market is flooded with music –supply. When supply outpaces demand, prices are driven down. In the case of the indie music industry, the price of a song is next to nothing, because there is no scarcity.

Of course, this is a broad, high level explanation of how the forces of supply and demand affect the music industry. We can discuss how these forces affect a single band, a local market, or a nation.

I will leave you with a thought: to increase the price of your recorded music, increase demand, or decrease supply.

Thoughts? Ideas? @YuriyM or yuriy@pdxpick.com

 

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I Get Things Done. Let's grow your business together!

2 Comments

  1. Mat
    Posted on September 2, 2013 at 7:13 pm

    Increase quality. Create your own demand and keep your price consistent. Online streaming makes sense but if it’s free, then by nature you increase supply and decrease demand. If you only make your (badass) music available to stream online but sell Vinyl with a download code, then you decrease supply and increase demand. Of course no one will buy it if your music sucks.

    • Yuriy Mikitchenko
      Posted on September 3, 2013 at 7:34 pm

      You’re making some points, but they all relate to the control of supply only. In the overall picture of supply and demand, decreasing supply increases price, yes, but if there is no demand to begin with, you still can’t come up with an equilibrium price higher than $0. Online streaming adds to supply, but doesn’t affect demand. Creating scarcity with vinyls and digital downloads chokes off supply, but also does not affect demand. Speaking in terms of a single band, you need to have great music that creates a market that you can sell to, and generates demand. Then you can manipulate supply to affect price. You’re right, though, if your music is sub par, even your friends won’t buy it.