Music Industry and Pharma

Cody Willard of posted something for his trading journal today from a dinner he had last night(It cost money to view, so no link).

I had dinner with Mitch Rose, who is the touring agent of a few little artists like Madonna, KISS and Christina Aguilera (hey, you never know who's reading RealMoney!) last week, and he highlighted some other fascinating ramifications of the disruption that has taken place in the music business.

Gross receipts for touring have exploded to the upside from in recent years. Mitch's thought is that growth has come from two primary catalysts. The decline in revenue from album sales has prompted more artists to tour more frequently. The decline in spending on albums, especially from young adults and teens, has freed up discretionary money that still goes to music, but it goes to live concerts, not to recorded albums.

This summer should be a huge one for touring. Will be fascinating to see if the trend of higher spending on touring continues as the proliferation of free downloading has declined in the midst of the record company going after these thieves.

By this account, people aren't necessarily spneding less money, but just in different ways. So, people have to work harder for their money, it doesn't surprise me that this has happened. Perhaps if they look at the ablum as a marketing tool instead of the prime money maker, much of the controversy would be moot. It wouldn't surprise me that looking deep into why the Clear Channel has become a large concert promoter, it has been this change. Their radio stations have just becoame giant commercials for their shows.

One thing to think about, the record industry is moving from being a business of low marginal cost to high, from producing albums to producing shows. This is entirely due to being easily ripped off, an album can be digitized, but a live performance needs the artists. You can just download a song, but something like pharmaceuticals is much more difficult to stop(Botch, the following few sentences is not what I meant, see the edit at the bottom). This is why drug importation is a hot topic. Not many people are willing to risk their health ordering something over the internet with out assurances of quality, but music downlaoding is something else.

Pharma is stuck because they have no leverage with any of these other countries. If you don't sell them the drugs, they merely make them themselves. Who will stop them? Other countries are acting as Napster, what would be the concert show alternative for Pharma?

Edit: God, I botched that post, never write anything late at night after having a few drinks. What I meant was that both have people trying to undercut them. The record industry competes with a zero average total cost in a digitized world, while pharma has an extremely high upfront cost but low variable cost in production phase, a high average total cost. Governments feel it is within their right to produce drugs unless they are sold to them at a minimum above average variable cost. One of the few countries which currently doesn't follow this pattern is the U.S., but that attitude has changed in the few years as people come aware of the inequity. So the industries are related in that in one, you can't enforce your ownership because it is too easy to skirt, and in the other, governments are actively participating in pushing down prices to AVC. The music industry has an alternative, concert shows, but pharma doesn't. If governments succeed, pharma could exist a while since they would still be able to recover some costs, but eventually stop R&D since it is unlikely they would recoup future fixed costs, politicians don't seam interested in addressing this problem.


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This page contains a single entry by Bob published on May 29, 2004 3:17 AM.

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