XVI. Secret number 4XVII. VolatilityThere profitable because what they give away to you isn’t fame or the adulation there simply just giving you the chance, hope of being famousB) the secret reasons record companies/publishing companies are profitable1. four reasons why there profitablemarkets are about at pricing wild variation overall in the long term record companies buy for cheap and sell at a higher priceDue to a quirk of human nature something called “Risk Averse/Risk Seeking Inversion” and the related theory “Prospect theory” artists sell their services, sound recordings and songs for too little. Or looked at another way. Record companies and publishing companies buy them “too cheap”musicians accept some of their compensation in non monetary form. Artists will underprice their song and recordings in exchange for a chance at fame and adulationMoney losing proposition for them, there getting compensated by chance not by fameArtists assume downside risks of touring, they are Risk Seeking when it comes to losses. Also touring is where they are most highly compensated with adulation.C) Homo Economicus1. Theories of humans as rational and narrowly self- interested actors who have the ability to make judgments toward their subjectively defined ends.2. Example:Humanswould not play roulette because he/she would immediately grasp that the game is simply a way of losing money. However people do play roulette3. Homo Economicus says that humans are totally rational but were actually un-rationalD) Irrationality in Labor Pricing in the Music Business1. Secret Reason record companies/publishers (and promoters) are profitable.Musicians accept some of their compensation in non-monetary form. Artists will underprice their songs and recordings in exchange for a chance at fame and adulation!2. Objectively we know that people charge more for unpleasant tasks (behavioral economics)3. It’s reasonable too assume they charge less for fun tasks.4. Musicians are partially paid in “adulation”This definitely helps concert promoters. Some of the pay is simply being in front of an audience. Musicians want to play so they often underprice their live performances.To a certain extent Record labels also benefit. Arts want the chance to be famous to receive adulationE) Dan Arielly=behavioral economist1. Did experiment and showed that being completely neutral to your employees has the same effect as being harsh to your employeesF) Wendy Fonarow: The indie professor, rock anthropologist1. The lower paid members of touring group are much more likely to participate in these hedonistic experiences like sex and drugsG) Studio vs Live performance1. StudioCritical environment, tedious, no audience, low chance of meeting mate, poor access to alcohol and drugsAFM says $250 3 hour session2. Club/Theatre performanceAdulation, exciting, audience, good chance of meeting mate, good access to alcohol and drugsaverage tour salary $1500 a weekH) Michael urbano session drummer1. Charges $600 hour day studio2. But will charge $600 weekend 2 shows and travel sometimes 4 days, Why?Because he is a family man and he’s not looking for sex, drugs and rock and roll but other people are, so this distorts the market and the price goes downI) Agents1. Why don’t they pay artists to sign with them?They do they pay but they pay them with the promise of adulation(possibility of fame).2. Agents are the gatekeepers to go on tourJ) Living in the Antechamber of Hope1. “The person involved in such gambles is paid in a currency other than material success: hope.” As Taleb argues, most artists and scientists spend most of their life waiting for that one big rewarding event that gets them the recognition they’d been hoping for and justifies for “the social consequences of the appearance of continuous failure,”2. does hope have a monetary value? Yes small chance that you will get fameK)Secret number 41. Artist’s assume downside risks of touring. They are risk seeking when it comes to losses. Also touring is where they are most highly compensated with adulation2. Helps record labels become profitable3. When you’re on tour you’re short volatilityL) Volatility1. Long Volatility:fail most of the time.Lots of small losses occasional big wins ScalableLuck2. Short volatility:succeed most of the timeLots of small wins occasional big lossesNon-ScalableSkillThere’s only so much money you can make on tourMBUS 3000 1st Edition Lecture 14Outline of Last Lecture I. Adam Smith vs. Karl MarxII. Free market capitalism vs. communismIII. Insurgent music world vs. corporate music world IV. Morris Levy Richard Branson and “Cookie” LyonV. Price variation can be seen as a measure of how “free” a market isOutline of Current Lecture VI. Compensation = Adulation + MoneyVII. the secret reasons record companies/publishing companies are profitableVIII. Homo EconomicusIX. Irrationality in Labor Pricing in the Music BusinessX. Dan Arielly=behavioral economistXI. Wendy Fonarow: The indie professor, rock anthropologistXII. Studio vs. Live performanceXIII. Michael urbano session drummerXIV. AgentsXV. Living in the Antechamber of HopeXVI. Secret number 4 XVII. VolatilityCurrent LectureThese 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.A) Compensation = Adulation + Money1. Secret Reason Record Labels Profit #3- There profitable because what they give away to you isn’t fame or the adulation there simply just giving you the chance, hope of being famous  B) the secret reasons record companies/publishing companies are profitable 1. four reasons why there profitableo markets are about at pricing wild variation overall in the long term record companies buy for cheap and sell at a higher price o Due to a quirk of human nature something called “Risk Averse/Risk Seeking Inversion” and the related theory “Prospect theory” artists sell their services, sound recordings and songs for too little. Or looked at another way. Record companies and publishing companies buy them “too cheap”o musicians accept some of their compensation in non monetary form. Artists will underprice their song and recordings in exchange for a chance at fame and adulationo Money losing proposition for them, there getting compensated by chance notby fame o Artists assume downside risks of touring, they are Risk Seeking when it comesto