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12.

market prices and revenues is spurious and it is ludicruous to argue that this phenomenon suggests that demand for radio advertising is inelastic.

The Copyright Office Study of recording artists'
employment and income contains several shortcomings.
The major ones include:

a) Recording artists are classified according to
income category. It is then pointed out that
a large proportion of artists are in the lowest
category. However the categories established
are not justified. Without such justification
the observation is meaningless. At one point
the study compares individual musician salaries
with statistics on family income for the

general population. This comparison is relevant
only if the labor force participation rate of
performing artists' spouses is zero.

b) The study attempts to evaluate the financial

Given

remuneration of recording artists. The focus on
royalties alone completely ignores the salaries.
received during the recording sessions.
the high probability of financial failure for
recordings, it's not surprising that the artists
would prefer not to bear the risks and, instead,
depend on fixed wage schedules. Our own study
shows that when income from all sources is

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c)

considered, the incomes of recording artists

are as high or higher than for other professional

groups.

The Copyright Office Study considers the fact
that few recording artists receive royalties to
be evidence that performers do not benefit from
the current system. Again, wages are ignored as a
benefit. In addition, since a large proportion of
recording artists make only 1 or 2 records a year
and 75-80 percent of all recordings are financial
failures one would expect only a small percentage
of artists to be receiving royalties. The fact
that the commercial life of a recording is short
(on the order of 90 days) contributes to this
result.

I. INTRODUCTION

The recording industry has, over the last quarter of a century, become a major entertainment medium. With annual sales of over three billion dollars, only the television industry dominates in economic terms. Indeed, retail sales have been steadily increasing from less than 200 million dollars in 1950. Even in constant dollars, after accounting

for inflation, real annual expenditures have risen about 600 percent since that time. Adding to the recording business importance is its status as a major input to the broadcast media. That is, radio stations depend on recorded music for the major proportion of their programming. Surely, the continuing dominance of television as a supplier of variety entertainment has meant that radio relies on music formats to attract audiences. Thus, the rapid growth in popularity and sales of recordings can be directly linked to the ability of radio to survive in the increasingly competitive media marketplace. One observes a 400 percent rise in nominal AM radio revenues since 1950. Even more dramatically, independent FM radio stations have experienced phenomenal growth recently. This growth is correlated with the development of technologies capable of transmitting the high fidelity sound of recordings.

What follows is an initial effort to describe and analyze the economics of the recording industry. Section II begins by describing, in general terms, the economic characteristics of the recording industry product. Further, the implications for market structure and performance will be considered. In addition, the markets are described, with special

emphasis on the links among participants.

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Section III is a brief summary of data relating to the recording industry. Measures of concentration and historical trends will be described.

Finally, Section IV serves to identify and analyze some of the major economic issues pertaining to the recording industry.

Specifically, the impact of the proposed expansion of performance rights on the radio industry will be considered as well as the effect on recording artists. The last section of the paper will also discuss issues involving the changing nature of distribution and trends in concentration.

Of course, this paper is not intended to be a definitive study. Its scope and depth have been constrained by the paucity of previous research as well as by limited resources. However, to the extent that we have identified the interesting issues and, though not having resolved them, suggested directions for further research, we hope that we have been successful.

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