Many Attempts, Few Successes: Holdups in the Music Industry


After MCA records spent $2.2 million promoting a new recording artist, her album sold only 378 copies.[9] According to The Wall Street Journal, such failures are commonplace in the music industry. Record companies spend millions on new talent, knowing that most of their money will be wasted. These companies hope to make enough from their few successes to pay for their many failures. Relying on the successful few, however, makes record companies vulnerable to holdups from their profitable artists.

Imagine that you spent $1 million on each of 10 new artists. You know that nine of these artists will probably fail, but the 10th will bring you $11 million in revenue. Further assume that you don’t know which of the 10 artists will be successful. What would happen if the one successful artist wanted to keep most of the $11 million in revenue she generated for herself? This artist might reason that since you spent only $1 million promoting her, it’s unfair that you get $11 million in revenue from her work. If you couldn’t “exploit” your own successful artists, however, you would suffer massive losses.

To avoid holdups, record companies force new artists to sign long-term contracts. These contracts ensure that the few marketable artists must stick with their record companies. Of course, from the artists’ viewpoint, once they have been discovered and proven marketable, they would rather be free to keep all their profits and not have to compensate record companies for the companies’ failed endeavors.

[9]The Wall Street Journal (February 26, 2002).




Game Theory at Work(c) How to Use Game Theory to Outthink and Outmaneuver Your Competition
Game Theory at Work(c) How to Use Game Theory to Outthink and Outmaneuver Your Competition
ISBN: N/A
EAN: N/A
Year: 2005
Pages: 260

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