About a year ago, I received a copy of Alan Krueger’s book, Rockonomics, in the mail.

His publisher had sent it my way — one of the many perks of hosting a modestly successful podcast. However, a pitfall of being sent many books is analysis paralysis, and at the time I must have had other learning priorities because Rockonomics found a home on my bookcase without a single page being read.

However, with the COVID-19 enforced shutdown of bookstores in my home city of Melbourne, I went rummaging through said bookcase to find such books that I might have a newfound interest in reading.

And this time, the cover, Rockonomics: What the Music Industry Can Teach Us ABout Economics, absolutely spoke to me. It might be because I recently launched a media company, speaking volumes about the notion that you’ve got to discover books at the right time to truly absorb them, or that when a student is ready a teacher appears.

Whatever the case, I devoured the 300-page book by Krueger — former chief economist of the US Treasury from 2009 to 2010 who, I discovered, sadly took his life in 2019 — in just two evening sittings. Being a massive music fan and entrepreneur might’ve helped.

But the book turned out to be more than just an entertaining way to pass the time whilst enduring an 8pm curfew for the next few weeks, but full of business, creativity, and some life lessons.

So what is ‘rockonomics’?

As Krueger puts it, the music industry is like the proverbial canary in the coalmine, insofar as learning how technology will disrupt and shape an industry. While other industries might wait decades for the effects to play out, in the music industry it happens almost in real-time.

It seems like just yesterday that we were rocking our iPods — the cutting edge of technology — and now they’re already a relic of the past, alongside Walkmen and 8-tracks.

“Economists can learn new insights about the economy and human behavior from studying the music industry. That’s rockonomics.”

With that, below you will find 42 of the most important learnings I took out of Rockonomics. Where useful, I’ve added my own interpretations and unique takes, to add some additional perspective.

In honor of Alan B Krueger and dedicated to anyone, everywhere, suffering from mental health issues.

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1. Be Data Informed, Not Data Driven

Krueger says that “by melding first-hand observations from those on the front lines of the music business with big data on the industry as a whole, I developed a richer more reliable and more representative picture of how economic forces shaped the music industry”.

This is something I’ve long been an advocate of. Data alone isn’t enough. It can often be dirty, incomplete and/or misinterpreted. But by combining data with professional judgment and gut instincts developed over many years in a specific domain, we usually end up with a more effective compass.

2. Supply, Demand and All That Jazz

Supply and demand are one thing, but markets aren’t perfectly rational. Don’t underestimate the jazz of emotions, psychology, and social relations on consumer behavior.

You might have a functional product at the right price, but don’t forget about what Clayton Christensen called emotional and social jobs. We often don’t buy products purely for the function, otherwise, Chanel wouldn’t get away with charging thousands for its handbags.

3. Scale and Non-Substitutability are Two Ingredients to Superstardom

First, top performers are able to reach a larger audiences, and second, the sound, products sold in superstar markets must be unique with distinct features.

However, this isn’t enough — a third ingredient is fundamental in almost every permutation of success…

4. The Power of Luck, the third ingredient.

Talent and hard work alone aren’t sufficient for success.

“The unpredictable random spins of fortune that affect our lives and countless ways is particularly important in the music industry”.

5. Bowie Theory

David Bowie once quipped that “music itself is going to become like running water or electricity; you’d better be prepared for doing a lot of touring because that’s really the only unique situation that’s going to be left”.

He was right.

6. Price Discrimination is Profitable

Economists use the term price discrimination to refer to any practice used to segment customers and charge a higher price to some than to others.

Always explore tiered pricing for your products. Bands do this by offering more expensive front-row tickets as well as VIP packages and meet-and-greets. Similarly, Taylor Swift releases her album to her hardcore, paying fans several weeks before it goes live on Spotify.

7. Control Your Costs

Successful bands and businesses have to monitor and minimise their costs to maximize their profits.

This isn’t news to any business manager, but something that perhaps isn’t practiced all that well. In today’s age, you can eliminate or mitigate costs by outsourcing and automating much of what an expensive full-time equivalent once did.

8. Pain and Creativity

“You have to get to that broken place of your heart to write songs.” — Lady Gaga

9. Power Laws and the Pareto Principle

“Your ability to create Superstars in music as amplified by power laws. The popularity of the top of former is a multiple of the second most popular performer which in turn is a multiple of the third most popular performer, and soul on.”

10. The Long Tail

In his bestselling book, The Long Tail, Chris Anderson predicted that the internet would lead to greater opportunity for those in the long tail of sales, because more producers will be able to find niche markets.

However, Krueger informs us that this has yet to materialize in the music business. “Instead the middle has dropped out of music as more consumers gravitate to the smaller number of superstocks.”

11. Record Labels are like VC Funds — You’ve Got To Place Many Bets

Only 1 or 2 out of every 10 albums actually pays off for a record label. This is no different to investments in startups.

12. Free Content with Paid Up-Sells

“The Wall Street Journal the New York Times Bloomberg and The Economist all increasingly rely on live events for revenue. News is available from countess online sources often for free. Soon newspapers and magazines could be loss leaders for live conferences and lectures.”

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