• The everyday economics of hanging supply and demand, streaming music meant new kinds of contracts with record companies and new relationships with consumers.

    Hey, Spotify. Taylor Swift called. She wants her money.

    Nov 20 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic History, Entertainment, Innovation, International Trade and Finance, Labor, Lifestyle • 48 Views

    In China they are telling people it’s because of copyright reasons. But really, Taylor Swift has removed her music from free streaming because, ”I think there should be an inherent value placed on art.”

    Much bigger than saying her new album, 1989, is not available through Spotify in the U.S. and Alibaba in China, Swift’s decision is about supply and demand in an entire industry.

    But first…

    Our story starts in Sweden during October, 2006. Retired at age 23 and independently wealthy because of an internet ad firm, Daniel Ek said his lifestyle was depressing him. So, he sold his red Ferrari, moved into a cabin to meditate, and decided his next venture was providing access to music. The big challenge was the pirates. Recognizing the allure of free music, his solution was free availability, higher quality and complementary services. And, his affluence and connections provided the time to be patient and the entree to the four big music companies.

    Although it took several years to establish Spotify, ultimately Ek was able to sign contracts with Sony, Universal, Warner Music and EMI.

    His deal became a part of the huge revolution that was transforming the music business. You can see below that as recently as 11 years ago, CD sales dominated the revenue stream:

    Supply and demand changes in the music industry

    From: WSJ

    Spotify and the Supply Side

    Now instead of CDs, downloads and streaming from Pandora, iTunes, Rhapsody and Pandora are dominant. On the supply side, a firm like Spotify pays the music companies with royalties, lump sum payments, and equity (a piece of themselves). For the royalty part of the deal, I have read that Spotify’s formula involves dividing an artists’ monthly streams by its total number of streams and then multiplying the answer by total monthly revenue. Spotify then allocates 70 percent to the labels who pay the artists and keeps 30 percent for itself.

    Okay, even if we know that real life is much more complex than a fraction, still you can see the difference between now and a CD dominated music industry. In terms of the dollars, these are the estimates from Time for what the labels have gotten from Spotify:

    Supply and demand for music industry revenue

    Supply and demand for music industry revenue from Spotify

     

    Spotify and the Demand Side

    Meanwhile, on Spotify’s demand side, you have free streaming funded by ads and a second tier for which listeners receive additional services because they pay $9.99 a month. And you have Taylor Swift who might not have taken economics but knows she wants more of an equilibrium price than zero.

    Our Bottom Line: Supply and Demand

    Like a supply and demand earthquake, the tectonic plates in the music industry are shifting. With new incentives that influence performers, providers and artists, the only constant is Adam Smith’s invisible hand. Firms and performers want profits while listeners want low prices.

    No Comments

    Read More
  • The Economics of Winter

    Ice Cold Economics

    Nov 19 • Perspectives • 66 Views

    By Isabelle Vicens with Elaine Schwartz

    No Comments

    Read More
  • Ask Alexa Economic Advice from econlife.com

    Refrigerator Refill

    Nov 19 • Ask Alexa • 77 Views

    Dear Alexa,

    By the time Sunday rolls around, my husband and I are extremely tired from a week’s worth of work. But, one of us has to go to the supermarket to restock the fridge. Who should it be?

    Sincerely, Tired Tiffany

    Dear Tired Tiffany,

    Have no fear, your supermarket stress is not very difficult to resolve! The first thing to address is how you or your husband could have used the time that it takes to run to the grocery store. What do you give up by buying the groceries? Say, for example, that your husband wants to watch the latest sports event, while you were planning on walking the dog. This sacrifice, walking the dog, is your opportunity cost.

    Once you have identified the most desirable thing that you give up, your decision becomes very simple. Just keep in mind that the opportunity cost is always something positive. So, the opportunity cost of preparing for an important presentation would be more sleep or watching a movie.

    From an economist’s perspective, the person with the lower opportunity cost should always be the one to do a task. Instead of debating who is more tired, decide who sacrifices less. Therefore, because walking the dog is arguably more important than watching a sports game, your husband should be the person to run to the supermarket.

    Keeping the idea of opportunity cost in mind can help you make all kinds of decisions in your life, from who should pick up kids from school to who should take out the trash.  The person not doing these chores is always the one whose time is being used to do something more valuable.

    I hope this helps you become less tired!

    Best of luck,

    alexa-sig

    No Comments

    Read More
  • Women experience appearance discrimination.

    It Ain’t Easy Being Pretty

    Nov 19 • Behavioral Economics, Businesses, Fashion, Gender Issues, Government, Labor, Lifestyle, Media • 61 Views

    For one whole year, Australian Today Show anchor Karl Stefanovic wore the same suit and no one realized. Explaining, he said, “I’m judged on my interviews, my appalling sense of humour – on how I do my job, basically. Whereas women are quite often judged on what they’re wearing or how their hair is … that’s [what I wanted to test].”

    Where are we going? To appearance discrimination.

    Appearance Discrimination

    A bartender is fired because she would not tease her hair, wear lipstick or nail polish (and the court rules for the employer). A banker at Citibank sues when she is told not to wear fitted clothing because her body shape made her distracting. Also claiming appearance discrimination, a Harvard librarian took the school to court saying she was passed over for promotions because they viewed her as a “pretty girl,” not your stereotypical librarian.

    While these are cases that were litigated, most are about everyday life. And that returns us to the Today show. While Karl Stefanovic can wear the same suit everyday, his co-host, Lisa Wilkinson, regularly gets email about her clothing. Told that a viewer said Wilknson’s “…outfit is particularly jarring and awful. Get some style,” Stefanovic points out that he is judged on how he does his job.

    Our Bottom Line: Gender Gap

    Whenever gender inequity is discussed, the pay gap gets the headlines. Perhaps though, because job discrimination based on appearance can reflect a patriarchal attitude toward women, the dominance of one social group’s values, and unfair performance reviews, it should receive more attention. But, I am torn because having workplace dress code rules is not necessarily bad.

    No Comments

    Read More
  • Everyday economics and automation

    The Robots Are Taking Over! (Our Most Mundane Jobs)

    Nov 18 • Businesses, Demand, Supply, and Markets, Economic History, Innovation, Labor, Tech • 93 Views

    Imagining the next half century, Americans told Pew Research the inventions they hope (and some expect) will enter their lives. The one innovation I most liked was the personal robot servant. Named by eight percent of respondents aged 30-49, the personal robot was on a list that included wearable implants and devices, drones, driverless cars and even “teleportation” through which we can abandon our planes and trains.

    From Pew, this table provides some idea of what people were contemplating:

    The impact of innovation on human capital and job creation

    Where are we going? To the impact of technology on jobs.

    “Lousy and Lovely” Jobs

    With machines playing a larger role in our lives, work will become very different. Described in “Lousy and Lovely Jobs,” automation creates polarization. The jobs we wind up with are “lovely” at the top because they involve cognition, variety and high pay. At the bottom, the “lousy” low paying jobs that will remain require “non-routine” manual skills.

    Meanwhile, the middle shrinks. Documented as having already begun to happen by MIT economists, middle income jobs are being replaced by automation. The arrows, below, indicate the extent to which the relative numbers of specific jobs have gone up or down.

    The impact of automation on job creation.Job creation and automation of middle income employment

    Asked about the common denominator for job increases and declines, the authors of the study say that routine is the reason. More routine means more of a chance of being replaced by a machine. Then, looking at specific jobs, they conclude that middle income earners are hit the hardest by automation because of their jobs’ repetitive patterns. The result is a polarized labor force dominated by “lovely” high paying and “lousy” less lucrative jobs.

    Our Bottom Line: Job Creation

    With an increasingly larger hole in the middle that is occupied by machines, the U.S. labor force will become more polarized. But, instead of a skilled and unskilled divide, we wind up with routine being the key variable.

     

    No Comments

    Read More