Investment and Original Music

The music industry is one of the most difficult industries in the world to try and make a living in. This is because the majority of the money within the industry is controlled by a disproportionately small number of people within it. Basically the top 1% of musicians earn the vast majority of the money in the industry. This is why Ed Sheeran earns way more money than your local pub singer despite them technically having the same occupation.

The big disparity between the incomes of people within the music business can be explained by a concept in financial economics known as High Risk High ReturnLow Risk Low Return. This basically means that the riskier an investment is, the greater the returns there will be on it if the investment is successful, and conversely the safer an investment is, the lower the returns will be if the investment is successful.

Proof of this example can be seen in the music industry when we look at musicians who are richer than others. The Beatles for example are the most successful band of all time, which has made Paul McCartney a very wealthy man. However, Beatles’ tribute bands who play identical covers of the exact same music as the Beatles earn very modest fees for their services by comparison to the fees of the Beatles. This is largely due to the difference in risk that the Beatles took in comparison to their cover bands.

Obviously it would be great to write a hit single, but it’s a very hard thing to do and there’s a very  small chance that after all the writing, recording, producing, and marketing that it will even be successful. However, if it does become successful there are great returns involved in writing one. Conversely, there is relatively low risk involved in covering another person’s music because the song has already been proven to be successful and it is already written so it can be replicated quickly.

However, this is  also why there are very low returns associated with covering other people’s music, it’s easy to do so nearly anyone can do it. The difference in returns can be seen below by comparing the number of monthly listeners the Beatles have compared to their tribute bands.

The Beatles Tribute band monthly listeners vs the Beatles

As can be seen above the Beatles have nearly 20,000,000 monthly listeners on Spotify, where as their cover bands have less than 20,000 each. This large disparity makes sense as well from the perspective of the consumer, if you want to listen to the Beatles’ music, who better to listen to than the Beatles? So while covering the already successful music of other bands is a good way of getting small gigs in pubs and clubs, it does mean that you won’t enjoy the larger returns associated with the riskier option of writing and performing your own music.

I would like to thank Fergal O’Connor of UCC who suggested the concept of High Risk High ReturnLow Risk Low Return for this blog post.

By Daragh O’Leary

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