Research

Benefits

So if live music making in Australia alters the states of physical, human, social and symbolic capital in individuals, firms and communities, how is this economically expressed? The economically valuable outputs of live music that impact on the welfare of all Australians is considered in this next section.

Ultimately, it is estimated that in 2014 live music making in Australia enabled at least 15.7 billion dollars worth of such benefits across the community.

Commercial Benefits

Using the Australian Regional Input-Output Matrix (RIOM) model, it is estimated that the impact of consumers’ expenditure on live music was to increase output in the Australian economy by 9.7 billion dollars. The increase in wages, rents, profits and taxes associated with the increase in production is estimated to have delivered 1.2 billion dollars of additional value, or profit, to all Australian producers (compared to an alternative case in which all the expenditure enabled by live music ceased).

Taken together with an employer enjoyed productivity premium of 884.3 million dollars, the sum of benefits returned to businesses as a result of live music making in Australia in 2014 was estimated to be 2.1 billion dollars.

Civic Benefits

The expenditure associated with live music making in Australia is also estimated to have enabled in the order of nearly 65,000 full-time and part-time jobs to the value of 2.2 billion dollars, and taxation revenue to all tiers of government of 950.6 million dollars.

Civic benefits acknowledged but not quantified by this study include the significant levels of volunteering that occur within live music making in Australia, as well as the costs potentially avoided by our civil systems of health, criminal and social justice.

Individual Benefits

Patrons of live music making in Australia revealed through statements the value of their satisfaction with their purchases to be worth 10.4 billion dollars.

The extent to which non-consumers identify a level of well-being with having live music making in Australia, even though they may are not actually engaging with it, is commended a direction for future research.

Commercial Benefits

When the physical artefacts of live music making are exploited by human endeavour, a significant suite of commercial benefits accrue. Our analysis reveals the change in final demand of 5.0 billion dollars brought about by the live music expenditure of consumers (Direct Costs) increases output in the Australian economy by 9.7 billion dollars. This enables 1.2 billion dollars in profits for producers across a wide range of industries.

The efficiency with which this process occurs is known as productivity. The financial return that live music dependent enterprises receive on their investments of capital, labour, energy, materials and services is therefore estimated to be 12.7 per cent.

Of more interest is a relatively under-explored and un-quantified benefit: the productivity benefits consumers of live music receive, enabling them to be more effective and efficient in their chosen employment. In this report, it is conservatively estimated that consumers enjoyed 884.3 million dollars in net productivity benefits as a result of their engagement with and consumption of live music. Although accrued by individuals, this benefit was actually realised by their employers, and as such is represented here as a commercial benefit.

Therefore, the sum of benefits returned to businesses as a result of live music making in Australia in 2014 was estimated to be 2.1 billion dollars.

Input / output modelling

The value of expenditure associated with live music making in Australia can be understood in two contexts. Firstly, the amounts spent by individuals, businesses or government on live music making in Australia reveal a value that the community perceives in the activity. Secondly, expenditure on live music making creates a change in final demand that has an economic impact on employment, output and gross national product. The economic impact includes the impact on intermediate goods and the compensation of employees.

Analysis of the total impact, including indirect effects, is based on an understanding that industries, and individual companies within these industries, do not exist in a vacuum, but use each other’s products to produce their own. Thus, an increase in demand for one industry’s products leads to increases in the demand of other ‘linked’ industries.

An input / output (I/O) representation of the economy is comprised of a set of industries which are linked by these I/O or intermediate relationships and by the final demand for each industry’s output. The model used in this report is the Australian Regional Input-Output Matrix (RIOM) model.

Broadly speaking, I/O modelling examines how different industries interact to produce final demand. For example, a grain farmer (as part of the Agriculture industry) may sell some of his or her grain to a brewer (part of the Manufacturing industry), who uses it as an ingredient in his or her beer. This company in turn sells some of its output to a liquor wholesaler (part of the Wholesale Trade industry), who sells some of it to a live music festival, who passes it on to a patron.

The same 50 grams of grain has been sold several times, but only the last transaction represents final demand. Thus, the inputs required by one industry form part of the demand for the products of another.

There are two major types of I/O models: open and closed models. In open models, the labour and wages of employees and the gross operating surplus of companies are treated as primary inputs in the production of goods and services. Therefore, if you want to produce more widgets, you must employ more widget makers. This type of model captures the direct and indirect effects of changes in demand in one industry on the other industries in the economy.

By contrast, RIOM is a closed model that includes the household sector as a separate industry. This enables the consideration of induced effects of changes in demand. Induced impacts reflect the changes in consumer spending resulting from changes in economic activity and therefore in employment. The household sector is considered as an ‘industry’ whose outputs are labour, and whose inputs consist of consumer spending—if you create more employment, you also create an increase in demand from the household sector for consumer goods like food, accommodation, entertainment and so on.

RIOM applies the ABS Australian 2008-09 transaction tables (ABS, 2012) in conjunction with demand and employment information for each Australian State and Territory to model the impact of changes in demand on these regional economies, estimating changes in their output, employment and gross state product.

The transaction tables used in the model identify 57 industries across 17 industry sectors. For expenditure allocated to each industry sector, a unique multiplier impact is calculated estimating the impact on gross supply, output, gross state product (following the value-added method), employment, wages, imports and taxation. The Leontief multiplier is given here as:

(1-XC)-1E – ΔO

LME = vector of live music expenditure
ΔO = change in total output
X = transaction table of intermediate demand
C = table of induced consumption demand

As previously noted, the producers and consumers of live music making in Australia spent at least 5.0 billion dollars in 2014. This figure represents final demand in five main industry categories:

  • Accommodation and Food Services
  • Communication services
  • Creative and performing arts
  • Retail Trade, and
  • Road transport.

The expenditure on live music making in Australia has an economic impact that includes a combination of increased output by industries directly subject to increased live music related demand, increased output by suppliers to those industries and their suppliers, as well as increased output by all industries that have a role in supplying the demand of increased expenditure by households generated by increased wages.

Changes in employment and gross state product (GSP) are proportional to changes in output following the constant return to scale assumption inherent in I/O models. A number of the assumptions that underpin the analysis are disclosed here:

  • The motivating expenditure for the analysis is the estimated expenditure in 2014. Unless explicitly stated and adjusted for, all data is sourced from that period.
  • Financial multipliers are calculated using the Australian Regional Input-Output Matrix (RIOM) model. This model is derived from the 2008-09 Australian Input-Output Table adjusted for each State and Territory’s demand and employment data. Financial multipliers are assumed to be consistent between 2014 and 2008-09.
  • Employment impacts are estimated using RIOM, with expenditure adjusted for CPI movement between 2008-09 and 2014.
  • Live music activities were fully-realised within Australia in 2014.
  • Impacts are calculated based on direct, indirect (intermediate inputs) and household consumption effects. Increases in gross operating surplus or taxation revenue are not assumed to directly result in increased expenditure in the Australian economy (the government sector is not closed).
  • Where demand results in importation of goods or services from outside of Australia (interstate or overseas) no further impact is assumed on the economy.

An in-depth explanation of the RIOM modelling method can be found at Appendix 3.

The estimated economic impact of direct live music making in Australia related and motivated expenditure is shown in Table 4a. The total expenditures used to motivate the analysis are shown in column A and sum to just under 5.0 billion dollars.

In RIOM each type of expenditure is allocated to a specific industry sector for the determination of economic impact. It is estimated that the impact of this expenditure is to increase output in the Australian economy by 9.7 million dollars (column B). This includes the production of intermediate goods as well as imports of 1.9 billion dollars.

The Gross Value Added (GVA) to the Australian economy is therefore 4.4 billion dollars, or 1.1 % of Australia’s Gross Domestic Product (GDP) of 396.8 billion dollars (ABS, 2014a). This figure is broadly consistent with similar research in Iceland, valuing the contributions that live music making to GDP at approximately 1.2 per cent (Einarsson, 2005). In the UK, official government estimates place the GVA of the creative industries (of which music is a part) at 5.2 per cent of GDP (Department of Culture, Media and Sport, 2014).

Table 4a: The economic impact of live music making in Australia, 2014 ($million) Part 1

table4a

Australian firms also enjoy a net commercial benefit that is attributable to live music making. Known as the producers’ surplus, this is an economic measure of the difference between the amount that a producer of a good receives and the minimum amount that he or she would be willing to accept for the good. The difference, or surplus amount, is the benefit that the producer receives for selling the good in the market. An alternative, if theoretically imperfect, description of this is net profit.

As material inputs are already allowed for, and the assumption is that the infrastructure would exist regardless of live music making, if GVA is discounted by the cost of labour and taxes (Table 4b Columns G and H) we are left with a theoretical surplus to firms of 1.2 billion dollars (Table 4a, Column D).

In equilibrium, this surplus represents the fair return to providers of capital sufficient to cover the cost of investment and the opportunity cost of the use of land or buildings for other purposes. It should be noted that this is fundamentally a short-run concept in competitive markets. In the long-run, economic profits (profits in excess of the cost of capital) would generate new entrants that reduce profitability to normal.

Note that the nature of the modelling means that this 1.2 billion dollars is distributed amongst all Australian firms who contribute intermediate or final goods and/or services that are consumed as a result of live music making in Australia, and not just live music producers.

Productivity Benefits

A review of the productivity literature reveals that there are many different measures of productivity. The choice between the measures depends either on the purpose of the productivity measurement and/or the amount of data that is available (OECD, 2001). In this report, two distinct expressions of productivity enabled by live music making in Australia are identified.

The first is a traditional measure of input productivity. This is the financial return to producers that live music making in Australia generates on the investments of capital, labour, energy, materials and services. It is estimated in the previous section that this was equal to 1.2 billion dollars in 2014, or a return of 12.7 per cent on the 9.7 billion dollars invested in total. To avoid double counting, however, we only report this figure once.

Of more interest is a relatively under-explored and un-quantified benefit: the productivity benefits live music making in Australia deliver to individuals, enabling them to be more effective and efficient in their work. This is the second dimension explored in the following estimation of a productivity premium.

The Productivity Premium

Productivity is often defined as the ratio of a volume measure of output to a volume measure of input. In other words, if a business purchases a quantity of paint, brushes and canvases for $X amount of dollars to produce a work of art to sell for $Y amount of dollars, then the difference (or relationship) between X and Y is productivity.

Links between music and increased productivity in the workplace have been observed for some time (Blood & Ferriss, 1993; Huang & Shih, 2011; Newman Jr, Hunt, & Rhodes, 1966). Music is often used as a mood manipulator by advertisers and retailers (North et al., 1999), and people frequently use music for ‘emotional self-regulation’ (DeNora, 2000). Active engagement with music has been shown to increase positive perceptions of self, which in turn leads to greater motivation, manifesting in turn in enhanced self-perceptions of ability, self-efficacy and aspirations (Hallam, 2005, 2010).

An important question overlooked by the productivity literature is, “How does act of engaging with an activity (for example, live music) change and/or enhance a consumer’s productivity?” In other words, if I attend a concert to satisfy what are essentially my leisure (or well-being) needs; to what extent is that satisfaction observable in my work performance? Does my employer receive a consequent productivity bonus?

Although not quantified in existing literature, a productivity premium associated with live music is intuitive and observable. As noted above, survey respondents routinely linked their live music consumption with a greater sense optimism and inspiration as well as improved and self-efficacy. These might reasonably translate into greater motivation and effectiveness at work. With no previous studies to assist in this regard, we applied an iteration of the contingent valuation method (CVM).

Live music consumers were surveyed about the relationship between their attendance and immediately subsequent work performance. Respondents were asked, “To what extent do you think your live music interest impacts—positively or negatively—on your work performance?” As a follow up, they were asked to quantify this impact (in percentage terms).

A total of 81.2 per cent of respondents felt that live music consumption had an average 11.6 per cent positive impact on their productivity; whereas 3.3 per cent felt that it had an average 3.9 per cent negative impact. Although previous studies have suggested that the productivity impact of attendance at live events can last over 12.3 working hours (or one-and-a-half working days) (Muller et al., 2014), we have conservatively assumed that the productivity multiplier for live music attendance is one working day.

Productivity premium = ŵ x mp x v x r
ŵ = median hourly wage
mp = productivity multiplier
v = number of live music attendances
r = discount rate

Thus the extent to which attendance live music making in Australia improved the productivity of individuals in 2014 (a benefit enjoyed by their employers) is estimated to be 884.3 million dollars.

This is the sum of positive impacts of 1.3 billion dollars and negative impacts of 436.3 million dollars. The negative impacts are noted here as a dis-benefit—rather than a cost—as they are not an input into live music making, but a negative outcome.

There is much need for additional research in this regard. For example, the conservative assumption is made that consumers only receive an increase in productivity from live music making in Australia through attendance at gigs; however, it is also likely that those who don’t attend events but take advantage of the live music culture may also experience productivity benefits. Further empirical research into the effects of live music on productivity would thus be well received.

Civic Benefits

For the purposes of this study, a civic benefit is a contribution made by having live music making in Australia that would otherwise have to be provided (presumably by the state) if the same community-wide standard of living were to be enjoyed. In other words, it typically represents a cost avoided by government.

Input / output modelling

Two instances of civic benefit are easily and immediately identified.As shown in Table 4b, the expenditure associated with live music making is estimated to generate in the order of 64,747 jobs, 37,652 of which are full-time. This is a benefit of 2.2 billion dollars directly returned to households, with an equivalent welfare cost avoided by government.It is also observed that the estimate of taxes generated by live music-related or motivated expenditure is 950.6 million dollars.

Note that the taxation receipts may not be directly proportional to the relevant investment of each tier of government. Nevertheless, as it is unlikely that the live music industry receives an equivalent quantum of re-investment from government; it could be argued that the direct tax returns from live music making are used to finance other policy and social investments, such as hospitals and schools.

Civic benefits acknowledged by not quantified by this study include the significant levels of volunteering that occur within live music making in Australia, as well as the costs potentially avoided by our civil systems of health, criminal and social justice.

Screen Shot 2015-08-11 at 1.08.45 pm

 

Other civic benefits

There are a number of formal systems of care that are paid for by society through taxes and personal expenditure. These include all private and public, recurrent and capital expenditure on health, criminal and social justice. The discussion on Capital describes how these are realised through live music. Our survey of producers also revealed significant levels of volunteering in the live music community; the replacement cost of that labour being another that effectively subsidises the activity and is avoided by the community.

Furthermore, every time that Australia is internationally associated with a live music event or activity, event or individual, it ‘brands’ the country—all be it temporarily—in the wider public consciousness. Such links are known to influence related purchase behaviour (Balabanis & Diamantopoulos, 2011; Kang & Yang, 2010). For regions or the nation as a whole, this means that people make tourism, export or even migration decisions that are founded on the strong and positive associations they have with the live music brand.

Research conducted by Dobos (2011) for Tourism Tasmania, for example, found that Art and Island Culture was a key factor in motivating and attracting tourists. As a significant player in the nation’s cultural economy, it is reasonable to suggest that live music has a prominent role to play in this associative dynamic.

Philosophers from Aristotle to Dworkin (2006) have also argued that a robust democracy depends on the active participation of its citizens. The logic has been that for a government to be truly representative, as many constituents as possible must be connected and contributing to the social discourse. Putnam (2000) proposes that social capital is the mechanism that facilitates this, and research in this field strongly connects Arts participation—of which live music is a notable subset—with a willingness to vote and engage in formal political membership (ISSP, 2001).

At a more fundamental level, live music and its expressions are regularly used as a ‘meeting point’ in water-cooler discourse. The shared recognition of the characters and symbols in live music facilitates conversation and acts as a focal point for social debate, which in turn informs policy. It is further acknowledged that live music can act as a gateway for those marginalised to either contribute toward a political cause, draw strength from, or generate ideas that bring about political change (Caruso, 2005).

Due to the scope of this report, an attempt has not been made to locate and assign an economic value to these additional live music benefits; no doubt many more could also be identified. This is recommended as a direction for future research.

Individual Benefits

When consumers engage with live music through the purchase of a good or service they are assumed to derive some benefit from the decision. A rational economic framework imposes the assumption that decision-makers are acting to maximise utility in some fashion and do not intentionally make decisions that reduce this. Therefore, for each act of participation or consumption, there is assumed to be a gross benefit (or gross consumer surplus) attached to that action or consumption.

At the very least, the gross benefit is equal to their expenditure on the items concerned. The revealed preference framework can therefore be applied to identify the minimum benefits associated with consumer expenditure. In this case, this is the 5.0 billion dollars households spend on tickets, food and beverages, and other activity motivated purchases. Yet how much would consumers be willing to pay above and beyond this amount for the full set of benefits that might accrue from their live music experience?

Determining the benefits to individuals associated with their engagement involves adding their revealed preferences to the contingent value of their of live music consumption. In this section it is found that consumers recognise a well-being surplus of 10.4 billion dollars that was directly attributable to having live music making in Australia in 2014.

The extent to which non-consumers identify a level of satisfaction with having live music making in the community is recommended as a direction for future research.

Use value

It is argued that the places where transactions occur (markets) are a social good because the exchange will only occur when both buyer and seller perceive value in their end of the deal. For the vendor, this means making a profit that exceeds their costs of production. This profit is also known as the producers’ surplus, and its value is estimated in the Commercial Benefits section of this report. For the purchaser, though, value means achieving a ‘bargain’, in that they would have been willing to pay more than they actually did for the article to satisfy their need. The welfare of both parties is thus improved, and goods and services that do not meet this twin threshold are naturally selected out of the market.

Thus the net consumer surplus is the net benefit or additional utility an individual receives in excess of the cost associated with an activity or act of consumption. In many cases, consumer surplus is an important benefit in calculating the net costs or benefits of an activity, for it allows us to arrive at a use value of a product or service. The use value (or value-in-use) is what a person would be willing to pay for their purchase / consumption of a good or service, and includes the ultimate satisfaction (or utility) they derive from it. As such, it is the sum of the purchase (or market) price and consumer surplus.

It is known from the survey of live music consumers that the market price for live music related goods and services consumed in Australia in 2014 was 5.0 billion dollars. Figure 11 shows that market price is the sum of the producer’s surplus and the cost of supply.

figure11

Survey respondents were then asked if they would be hypothetically willing to pay (WTP) to support live music; and, if so, what the value this contribution might be worth over 12 months. WTP is essentially a quantification of an individual’s satisfaction with an entity, in this case live music.

However, there was evidence to suggest some respondents to the live music survey misrepresented their preferences in reporting their WTP. Of the 1488 survey respondents, 19 reported a WTP greater than their annual income; four of which reported WTP in excess of 1010 dollars. Without controlling for misrepresented preferences analysis, results will overestimate the real WTP of consumers of live music.

To control for respondents attempting to influence analysis results, as well as the potential bias of our sample, WTP was capped at 10 per cent of an individual’s reported annual income. Although WTP should not be confused with an individual’s capacity to pay (as it is a measure of gross satisfaction), this allowed for WTP to vary within cohorts while removing the influence of misrepresented preferences. Capping WTP in this way affected 120 responses, or 8.1 per cent of the sample.

This methodology resulted in a conservative estimate of average user WTP at 938.07 dollars, or approximately 18 dollars per week, with a standard error of 52.14 dollars and a 95 per cent probability that the true average WTP lies in the interval 763.27 dollars to 1,112.87 dollars. Among the 30.3 percent of the population aged 15 years and over who attended a live music event in 2014 (ABS, 2010a), this allows for a gross national consumer surplus of 5.4 billion dollars, or 108.8% of their actual expenditure (not including shadow costs).

The gross value-in-use of live music making in Australia, being the sum of market price and consumer surplus, is therefore estimated to be 10.4 billion dollars.

A Cautionary Note

Expressions of willingness to pay essentially measure satisfaction, and should not be confused with a desire on the part of consumers to pay more. In terms of value, increasing prices would result in a zero sum for current live music patrons, as the consumers’ surplus would be converted into producers’ surplus for no net gain.

Even though it is also known that ticket prices of live events are relatively inelastic; anecdotally, at least, non-consumers are highly price sensitive. Therefore, non-users would be alienated by price rises that were not linked to new value, and this would reflect in their adjusted WTP. As it is assumed that the greatest community benefit can be realised by converting non-consumers of live music into patrons, deliberating exploiting the presently high levels of the community’s WTP—by either increasing prices or withdrawing subsidies—is likely to be counter-productive.

Non-use value

To this point, the methods described have exclusively considered the value that purchasers or consumers of live music might ascribe to their use. It is also recognised, however, that non-users (the other 70 per cent) might value live music, even if they do not purchase or otherwise engage with it.

The concept of non-use value is often used in economics as means of locating the benefits of environmental resources which are difficult to quantify through the market (Hanemann, 1993). In terms of this project, the non-use value of live music making comes from individuals who do not directly engage with the activity, but who recognise its benefits against possible alternatives.

Why, then, might someone place a value on something they never use? There are four alternative responses to this conundrum recognised in the academic literature:

  • Option value—reservation of the right to use the resource at some time in the future (Brookshire, Eubanks, & Randall, 1983; Weisbrod, 1964)
  • Bequest value—maintenance of a resource for future generations (McConnell, 1983; Walsh, Loomis, & Gillman, 1984)
  • Existence value—the satisfaction people receive from knowing that something exists (Edwards, 1992; Larson, 1993), and
  • Altruistic value—appreciation of the right of others to use the resource (McConnell, 1997; Milgrom, 1993).

To this, a fifth category of non-use value can be added that is an intuitive extension of how people assign value to public goods. This is the value placed on individual willingness to pay for maintaining an asset or resource that is used exclusively by others to create a benefit that is enjoyed by the whole community. In this study it is designated as shared value.

To illustrate shared value: I may be willing to pay to enable a live music festival in my home town—even though I have no intention of attending it—because I know it will create trade and employment opportunities for others, promote social inclusion, and beautify the streetscape.

This is distinct from option value, as I may have no intention of ever attending the festival; and bequest value, as the festival may only be a one-off event. To some extent shared value may clarify existence value; although, the satisfaction that people get from seeing an endangered species preserved in the wild may not be a shared value at all, as the species is designated to never be a consumable resource. In the same way, altruism implies no benefit to the donor; whereas, shared value recognises the internalising of a real (albeit indirect) welfare return.

It is beyond the scope of this research to quantify the non-use value of live-music making in Australia. Nevertheless, numerous studies in this space suggest that the non-use value of otherwise valuable public goods is anywhere between 5-50 per cent of its use value for individuals. This would suggest a theoretical minimum in the live music context of 600 million dollars of non-use value; although, we stop short of asserting that here.

So What?

The particular benefits that individuals and the community receive from live music making in Australia are not unique. Viewed in isolation, they may not even be that efficient. For example, people might equally improve their social capital by going to church; and, as a ‘luxury’ purchase, the relative inelasticity ticket prices might be seen as justification for increasing the tax revenue gained from such events. Perhaps then users (and potentially non-users) are valuing the ability of live music to originally combine and distribute these otherwise discrete contributions to welfare.

Well controlled WTP studies suggest that the easier it is to replace a benefit, the less people are willing to pay for its preservation. In this case, there are a number of competing leisure alternatives in Australia. Although a comparative WTP study with these options has not been performed here, the fact that the community of users are theoretically willing to defend live music making to the extent described is an original and significant finding.