MBUS3000 Final UGA
low overhead
"bets" are inexpensive or acquired free in the course of other activities
Problem with narrative fallacy that point to Hit fallacy
1. advertising 2. tour support 3. promo person; hours, skilled creative. 4. video and recording; budget 5. "black ops"; bribes, cocaine, prostitutes, payola
Order of behavioral economics
1. expected value (real value) 2. expected utility -both of which assume humans to still be rational 3. risk seeking/risk averse inversion 4. prospect theory
Adulation exceptions
360 deals; record label takes some of the responsibility of touring, but generally does not.
secret reason #2 why record companies/publishing companies are profitable
Risk aversion/risk seeking inversion, prospect theory; artists sell their services, sound recordings, songs, for way too little. record/publishing companies buy cheap and sell high.
Matthew Effect
a term used by sociologists to describe the notion that certain scientific results get more notoriety and influence based on the existing prestige of the researchers involved
Mistake causality
absence of failure from evidence leads us to draw lessons from non-responsive pool of data
Lower ranking/lower paid members of the touring group...
accept a lot of their pay in hedonistic experiences (sex, drugs, rock n roll). they are more likely to participate in these hedonistic experiences.
Narrative fallacy
addresses our limited ability to look at sequences of facts without weaving an explanation into them, forcing a logical link. Explanations bind facts together, makes them more easily remembered, makes more sense. Unintentionally weaving together a fictional story to explain the success of something.
Studio vs. Live Performance: live performance
adulation, exciting, audience, good chance of meeting mates, good access to alcohol and drugs. most musicians take some of their pay in adulation
surviorship bias: An executive might explain
all of the things that they did to "make" their successful artists successful. They omit from their narrative that they did all the same things for their unsuccessful artists. things they did were irrelevant
Known to self; known to others
arena
secret reason #4 why recording companies/publishing companies are profitable
artists assume downside risk of touring, they are risk seeking when it comes to losses. also touring is where they are most highly compensated with adulation.
wild variation
average is skewed, meaningless.
Risk Averse Behavior
away from risk, towards "sure bet"
Pseudo scientific instance of survivorship bais
basically the DNA for making a hit is skewed by the fact that the non hits are basically not around to be examined for survey. venn diagram
Why do we fool ourselves into thinking the music business is more rational than it really is
because of the belief in the Hit machine
Gershing is
bi-directional; move away from failures, move toward successes, or both
Not known to self; known to others
blind spot
Wendy Fonerow important role of live music theory
can't take the sex, drugs, rock n roll, part of live music out of the economic equation
Homo Economicus
concept that humans are rational and narrowly self actors who have ability to make judgments toward their subjectively defined ends. basically look at a situation and compute expected value. under this belief; people would not gamble.
Studio vs. Live Performance: studio
critical environment, tedious, no audience, low chance of finding a mate, poor access to alcohol and drugs
Known to self; not known to others
facade
Most artists, records, songs, are
failures, but even the possibility of fame and adulation is given a monetary value by artists
Artists underprice their songs and recordings in exchange for
fame and adulation
Ahmet Ertegun
found of atlantic records. first randonmess; throw 10 records at the wall and see which one sticks. unpredictable which artist is successful.
most reliable way artists promote their music
going on tour
Limited upside
hip hop beat creator selling beats for $500 a session; short volatility. only so many sessions they can do in a day.
expected utility
idea that playing the lottery is irrational from pure financial perspective but playing is fun so that makes up for some of the value you lose gambling. thinks of gambling as rational due to utility for participant
risk seeking/risk averse
if there weren't laws requiring General ortiz to take an $11 a day rental car insurance vs. the loss of the vehicle, they would probably gravitate towards the loss of the vehicle.
Tyranny of the average
individual events are not consequential
Tyranny of the accident
individual events can be highly consequential.
secret reason #3 why record companies/publishing companies are profitable
irrationality in labor pricing in the music business; musicians will accept some of their compensation in non-monetary form.
humans seem to be risk averse when
it comes to gains
humans seem to be risk seeking when
it comes to losses
people behave irrationally when
it comes to risking money, protecting themselves against remote risks, selling their music and songs.
Because prices of sound recordings exhibit wild variation...
it pushes down price of songs and recordings allowing labels/publishers to buy low and sell high
Use of the word random because
it urges you to adopt a statistical approach to the music business. dont use the words: unpredictable, turbulent, chaotic, irreducibly complex
The fact that record label has a statistical advantage, it won't be apparent over long term on every deal on bets, but the_____ guarantees it become reality
law of large numbers
40 watt club presents dinosaur jr.
limited upside; can only sell 600 tickets and demand is 2000. can't sell more tickets so upside is limited
Songwriters, record companies need hit, usually don't have hit but when they do get a hit, things change beyond expectations, unlimited upside.
long volatility
You profit if things change beyond expectations
long volatility
------- lose a little money most of the time, but make so much money on their winnings that is makes up for the losses. ex: record label, songwriter
long volatility positions
-------- tend to not blow up; not go out of business
long volatility positions
In the music business; record companies, publishing companies, songwriters, and other with unlimited upside are
long volatility traders
Songwriters, recording artists who receive royalties based on sales, record labels, publishing companies are
long volatility traders
record producers, mix engineers, managers, business managers are
long volatility traders
Unlimited upside=
long volatility; ex: author selling a amazon single on amazon has long volatility because increased demand of single increases revenue
Logical fallacies and matthew effect in jobs in music business
managers often have their lack of talent mashed by the matthew effect because managers make the fewest bets. takes a while to see if someone is truly talented because luck is a big factor in music business.
The bleed
many small "bets" that rarely pay out
Not everyone needs to be irrational for...
markets to be distorted, need just enough of the actors being irrational to distort the market
secret reason #1 why record companies/publishing companies are profitable
markets/humans are bad at pricing wild variation. music sales exhibit wild variation. generally markets under-price wild variation in the long term. a record companies assets are largely comprised of sound recordings; virtually all of them long shots that have paid too little.
Talent is overrated but not irrelevant, for instance...
mix engineer gets a song and mixes it and it becomes a hit, now the engineer gets better music to mix because of his success from the hit. Has a statistical advantage of mixing another hit
Compensation =
money + adulation
Live music is
more complicated and has more risk than recorded music
Full gersh
moving away from failure but then reclaiming it when it becomes successful, or the opposite
wild roulette
no fixed payout, no fixed expected return, most likely a good investment. most like the music business
Is the music business really random?
no, but it is helpful to expect outcomes in music business as random and build business model accordingly
Not normal variation
non gaussin, wild, mandelbrotion. frequency of words in english, distribution of wealth in society, stock prices changes, website hits, book sales, youtube video as a proxy for song sales.
All songs are share characteristics even non hits but
non hits missing from survey causes mistaken causality
Live music generates...
normal variation
Robert Merton
observed that in the sciences, success seems to accumulate
Long volatility
on average and over the long term, to be profitable or successful in the music business you must have an unlimited profit potential. the greater the demand the greater the profit.
Success breeds success, luck breeds success
once an individual or entity is successful in the music business, because of either talent or luck, they tend to attract more talented artists, giving them a statistical edge, increasing probability of a hit
wildness
payouts or "upside" must be virtually unlimited. Payouts must exhibit a "wild" variation. Payouts more than make up for all the small losses
Normal variation
physical things, height, baseball stats. also called gaussin variation. has useful average.
expected utility: playing lottery relates to
playing in a band and selling recordings to record label
A lot more risk on the activity of
playing live music as apposed to hiring a band to record album and promote it through distribution networks.
most reliable way for record labels to promote their artists
promising or giving the possibility of adulation for artists, some pay is simply being in front of an audience.
Entities that benefit when artists tour
record labels (more sales and streams) publishers (more songwriter royalties) agents (more agency fees) managers (15-20% Net on live performance, songwriter royalties, record sales, streams)
artists assume risks of touring which benefit label companies by
reduces risk risk=expenses reduce expenses increase revenue
key behavioral economic concept
risk seeking/risk averse inversion
Risk seeking behavior towards...
risk, away from "sure bet"
Michael Jackson
second randomness; why was thriller 40-80 times better than off the wall. unpredictable size of hit
Michael Urbano
session drummer: irrationality in labor prices. charges more for studio session than live tour due to adulation from live performances.
Concert promoters are hoping that performers draw is approximately the same or as expected, limited upside
short volatility
------- make money most of the time but when they lose they tend to wipe out all their previous winnings. ex: concert promoters
short volatility positions
-------- tend to blow up; go out of business, ex: nightclubs
short volatility positions
In the music business; concert promoters and other with limited upside are
short volatility traders
entertainment lawyers, concert promoters, music venues, accountants hourly are
short volatility traders
for hire musicians, engineers hourly rate, record executives, tour managers, road crew are
short volatility traders
Survivorship bias
someways similar to gershing but involves drawing conclusions.
Gershing example
the black crows, who signed nirvana
3 components of long volatility
the bleed, wildness, low overhead. these are strategies for harvesting luck
good investment roulette
the casino is the sucker
Behavioral economics
the evolution of how we modeled how humans behave in the economic realm.
survivorship bias example
the stock market dow jones average myth, when a company goes bankrupt is it thrown out of the index. this historical rate of return on how the dow jones average only measures the survivors
How do agents get artists to sign with them?
they pay them with the promise of adulation
Because musicians want to play...
they under price their performances
Not known to self; not known to others
unknown; most risk
Record label profit and loss chart
unlimited upside
second type of randomness
we are never really sure how that hit will be
first type of randomness
we are never really sure which artist will be a hit
two kinds of randomness and further problems playing the music business game; related to long volatility
we need long volatility/long tail strategy to capture both kinds of randomness
When does narrative fallacy go wrong
when it increases our impression of understanding
Gershing
whereby a producer, record executive manager, somebody in the music business, downplays their involvement in failures, thus artificially increasing their win-loss ratio
Recorded music generates...
wild variation
song revenues exhibit...
wild variation
When it comes to gains, human behavior says
will take lump sum away from the risk even though it is lower value than the hypothetical risk
Normal roulette
you are a sucker
