XI. Secret number 4XII. VolatilityOutline of Current LectureBans on texting while driving may actually lead to an increase in crashes because drivers, in order to evade police detection, have to hide their phones in places that are harder to see, keeping their eyes off the road longerB) Applying to music business:1. Artists pay managers a gross income because they want make an incentive to help them make more money and in theory you should make more money but it sets up some reverse incentive2. Paid % of Gross Live Revenues: Managers, Agents, and Business Managers3. aid on Net Revenues: Artists (indirectly) crew4. Benefit from touring activity: Record Label, Publishers, MerchandiserThe record label doesn’t care what the expense is for the tourGo on tour even if you don’t make money5. Managers and Agents have incentive to send artists on tours profitable or not and same for record labels, publishers and merchandisersC) Big Advances and hidden incentives1. “shopping lawyer” or “deal lawyer” for artist gets 8% of total 1st advance and they have incentive to trade lower artist points for bigger advance.2. bad for artist in long term because deal may not be sustainable.3. Manager gets better “net”off of a big recording advance. why?$500,000 recording advance - $200,000 recording budget = 15% of $300,000this option is way bettermuch lower artists loyalty so this works against you as a artist$250,000 recording advance - $200,000 recording budget = 15% of 50,000although artist may get more points on deal manager not 100% likely to be around when royalties start coming inD) The sophomore slump1. Refers to the tendency for second or “sophomore” albums to perform worse than an artists debut2. Main reason? Because you have your entire life to write the first album and have less than 2 years to write the second one3. First album you have nothing going on but during the second one you’re probably going on tour4. Most artists have their greatest success on their first album5. Managers “hidden” incentives to disregard the long term.Most management contracts are short. 1- 3 years.Most performing groups are unstable and rarely last more than 5 years.It’s less work (but often pays the same) to manage an artist for the short term. Many of the big “commissionable” events happen at the start of an artists career.** most artists that come to mind belong to the subset of long term successful artists. these are outliers. survivorship bias**E) 1999-20151. recorded revenue falls 69% and managers get 15% net # live performances increased by 300% 15% grossso artists toured more and managers like that2. Streaming is the future. Ultimately the ability for the consumer to rent a song is beneficial to the artist3. But current flat price per spin is unsustainable for all but the top artists4. In normal free market niche products are more expensive than a Popular products that are mass produced5. Flat pricing per spin makes every song the same price per spinDistorts market.Does not account for fixed costs.6. Every song Streamed the artists earns $0.005 per spin7. Does Netflix pay the same price for every view?No you pay a flat price and streaming for music should work the same way8. Flat price $9.99, a month all-you-can-eat streaming leads to a fixed size music business (short volatile) Unless there is windowingMBUS 3000 1st Edition Lecture 14Outline of Last Lecture I. Compensation = Adulation + MoneyII. the secret reasons record companies/publishing companies are profitableIII. Homo EconomicusIV. Irrationality in Labor Pricing in the Music BusinessV. Dan Arielly=behavioral economistVI. Wendy Fonarow: The indie professor, rock anthropologistVII. Studio vs. Live performanceVIII. Michael urbano session drummerIX. AgentsX. Living in the Antechamber of HopeXI. Secret number 4 XII. VolatilityOutline of Current Lecture XIII. Perverse incentivesXIV. Applying to music businessXV. Big advances and hidden incentivesXVI. The Sophomore slumpXVII. 1999-2015Current LectureA) Perverse incentives 1. A perverse incentive is an incentive that has an unintended and undesirable result, which is contrary to the interests of the incentive makers. Perverse incentives are a type of unintended consequences. These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.2. special type they’re usually produce the opposite reaction to what they were trying to fix3. Examples:- In Hanoi, under French colonial rule, a program paying people a bounty for each rat pelt handed in was intended to exterminate rats. Instead, it led to the farming of rats trying to get rid of rats but produced rats Funding fire departments by the number of fire calls made is intended to reward the fire departments that do the most work. However, it may discourage them from fire-prevention activities, which reduce the number of fires- Bans on texting while driving may actually lead to an increase in crashes because drivers, in order to evade police detection, have to hide their phones in places that are harder to see, keeping their eyes off the road longer B) Applying to music business:1. Artists pay managers a gross income because they want make an incentive to help them make more money and in theory you should make more money but it sets up some reverse incentive2. Paid % of Gross Live Revenues: Managers, Agents, and Business Managers 3. aid on Net Revenues: Artists (indirectly) crew 4. Benefit from touring activity: Record Label, Publishers, Merchandiser - The record label doesn’t care what the expense is for the tour - Go on tour even if you don’t make money 5. Managers and Agents have incentive to send artists on tours profitable or not and same for record labels, publishers and merchandisers C) Big Advances and hidden incentives 1. “shopping lawyer” or “deal lawyer” for artist gets 8% of total 1st advance and they have incentive to trade lower artist points for bigger advance. 2. bad for artist in long term because deal may not be sustainable. 3. Manager gets better “net”off of a big recording advance. why? - $500,000 recording advance - $200,000 recording budget = 15% of $300,000o this option is way better o much lower artists loyalty so this works against you as a artist - $250,000 recording advance - $200,000 recording budget = 15% of 50,000 o although artist may get more points on deal manager not 100%