Contents
The music sector defined, by HHG
- How the concept originated
- The current state of the model
- Satellite accounting and cultural activity
- Cultural capital and long-term growth
Estimating the value of the music sector, by HHG
- Music sector versus music industry
- The initial estimate (1984-85)
- Updating the estimate to 2005-06
- Comparison with other industries
For a summary of the estimation process, see statistics. However, it is strongly recommended that readers peruse the full paper below.
By Hans Hoegh-Guldberg (Economic Strategies)
Last updated: 30 October 2007
How the concept originated
The report which inspired MCA’s knowledge-base project visualised the creation of a model measuring the economic importance of the music sector along two streams: performance and support, ultimately adding all net contributions from music-related activities into a gross value of music or “Music GDP” (see chart below or click for larger version here). From the music creators and performers at the apex, the first stream takes in live performances, the recording industry, and other use or creation of recorded or ‘mediated’ music. The primary beneficiaries of the support of educational, organisational, commercial and other services are the music creators and performers but other flows directly benefit live and recorded music performances.
The current state of the model
The right-hand sidebar reflects the various components of the music sector. If you scroll up to the top from where you are reading this, you will note the following logical sequence on the performance side (it is further described on the main performance page):
- Creators: primarily composers and songwriters
- Indigenous and other groups straddling musical genres
- Live performance venues and audiences, including community music and festivals
- Musical genres (details in sidebar)
- Recorded music performance (industries listed in sidebar).
The support section highlights music education and then lists a range of activities alphabetically as shown in the sidebar under “Support”.
Numerical analysis is mainly confined to the statistics section, except for the occasional illustrative table in the narrative performance and support sections.
The music sector model, as illustrated, incorporates the music industry, which may be defined as comprising all or most of the performance stream plus areas like distribution, production of instruments and equipment, overseas trade in music goods and services, and royalty flows. There is no problem with that. We just see music-making through live and mediated performance, however created, as the key, and anything that helps sell or produce it or remunerate the creators and performers, and protect and advance their position, as support.
The main virtue of the music sector model is that it attempts to include everything that makes music in Australia successful economically, socially and culturally, and that naturally includes music education and the other elements shown in the model.
Satellite accounting and cultural activity
Since 1993, so-called satellite accounts have been developed for activities that overlap the conventional industry classes used in national accounting. The purpose is to focus on a certain field or aspect of economic and social life in the context of the conventional national accounts.
Satellite accounts use a two-way table or matrix having the conventional industry classification along the left-hand side and columns showing the total gross value added by each conventional industry, the contribution made by the activities under consideration, and the rest which is not due to those activities.
Satellite accounting originated in the United Nations Statistics Division and resulted in the publication of the 1993 System of National Accounts or SNA, which has since been continually updated. The last chapter, 21, introduces the satellite accounts. The development of input-output tables, using more detailed industry classifications than those in the published satellite accounts to trace the monetary flows between industries, has made it possible to measure the influence of particular activities on each of the conventionally classified industries in the national accounting framework.
For instance, it was calculated that tourism contributed 41.7% of the factor income of the accommodation, cafés and restaurants industry in Queensland in 2003-04, compared with 14.1% for cultural and recreational services and slightly lower percentages for transport and storage and retail sales. In contrast, the direct contribution of tourism to mining, public utilities and other industries was nil or close to nil. The overall contribution of tourism to total factor income in Queensland was 4.7%. (Factor income is related to gross value-added by an industry, in that both exclude net indirect taxes which together with the total GVA define the GDP.)
Tourism was the first subject to be taken up by several countries for satellite accounting purposes. The World Tourism Organization in 2000 issued a recommended framework for tourism satellite accounts in cooperation with the OECD, which was adopted by the UN Statistics Division. Many countries have adopted the framework including Australia, which has issued annual tourism satellite accounts since 1998-99. The Queensland Office of Economic and Statistical Research (OESR) has published two publications, including the one quoted in the previous paragraph. The other is a set of regional tourism satellite accounts for 1998-99, which seems to be a unique effort (The Contribution of International and Domestic Visitor Expenditure to the Queensland Regional Economies: 1998-99, Brisbane 2002.)
Other Australian satellite accounts have been developed for non-profit institutions, information and communication technology, and, less successfully because unduly limited in scope, for the environment. The latter only takes land, subsoil assets such as minerals, and native standing timber into account. “Environmental assets such as atmospheric and terrestrial ecosystems are outside the scope of economic assets as they do not have an identifiable owner who can derive an economic benefit from their use. This is not to suggest that these assets are of no value. On the contrary, many of them are essential to life itself. However, even if they fell within the definition of an economic asset, the valuation techniques available to measure such assets tend to be arbitrary and controversial.”
With climate change rapidly becoming recognised as a major threat, this view needs to be revised. Other proven techniques could be applied to a satellite account model. Scenario planning, for instance, considers a range of possible credible futures, each of which could be fitted with plausible and generally agreed measures of the impact of damaged atmospheric, terrestial and marine ecosystems even if these values cannot be verified by conventional economic analysis.
Similar considerations apply to cultural pursuits, as discussed in a forthcoming paper on cultural capital and the need to sustain it.
Other countries have developed preliminary satellite accounts in other areas, including a household satellite account to measure the economic value of unpaid work by households in the UK (including volunteering). Both this and the Australian work on non-profit institutions (showing culture and recreation to account for 23% of the total value) have potential relevance for the understanding of the music sector, given the large proportion of participants working on a voluntary or lowly-paid basis.
It is important to note, however, that these accounts go beyond the conventional concept of national accounts which do not place values on unpaid voluntary and household work. In this, they differ from satellite accounting concepts such as tourism GDP which are based on conventional national accounting principles.
The tourism satellite accounts provide the potentially best model for a cultural satellite account to follow. As noted above, it is based entirely on economic values, which if the recommendations of the statistical framework report were to be followed would provide the first essential measure of the importance of the music sector. Getting a handle on the importance of volunteering and the work of non-profit institutions would add to the understanding of the social and cultural importance of the music sector – but further down the road. There may also be other ways to quantify the socio-cultural importance of musical activity, especially once we have developed a ‘music GDP’ at the core.
Satellite accounts have been alleged to lead to double counting of the country’s economic product. Clearly, this is not so. No one could seriously suggest, in the case of the tourism satellite accounts, that they constitute an addition to the economic product measured by the conventional national accounts. The tables in the tourism satellite accounts are set out clearly to indicate the proportion of a given industry group that benefits from tourism. Tourism, and cultural activities likewise, is not an industry in the normal national accounting sense, but a range of activities which influences the conventional industries to a greater or lesser extent. That’s what this approach is all about, and why it is important to ensure that the goal of a reliable measure of ‘music GDP’ gets securely on the radar.
Cultural capital and long-term growth
The economic model underestimates the true importance of the music sector by ignoring the social and cultural factors that provide a healthy music sector with further economic activity in the medium and long term. The published statistical framework report discusses this in some detail.
Another paper on this section of the knowledge base takes this further: Cultural capital as an independent economic force on the ‘cultural capital’ page. It discusses the need, based on economic theory, to nurture the national cultural capital stock in the interest of economic growth as well as general social and cultural development. Dick Letts’ paper in the international trade and promotion section, International free trade and the issues for music and music copyright, is also very relevant, exploring the importance of cultural diversity in an era of international trade agreements, notably the current Australia-United States Free Trade Agreement (AUSFTA).
Estimating the value of the music sector
By Hans Hoegh-Guldberg (Economic Strategies).
Last revised: 10 June 2007
Music sector versus music industry
There is an important difference between the music industry and the music sector. The former concentrates on particular industries, notably recording; the latter aims at identifying the music content of a wide range of activities and industries along two activity streams: performance and support (see chart – larger version here)). The model evolved as a pivotal part of the Hoegh-Guldberg and Letts study commissioned to develop a statistical framework for the music sector.
The model is under constant scrutiny as it attempts to cover the full spectrum of the music sector and aims at eventually developing a comprehensive measure of gross value added through musical activities, and what we have called a “Music GDP”. Since musical activities overlap existing industry patterns, it would be of a similar nature to the satellite GDP accounts developed over the past several years for tourism (see the previous paper on this page).
Very few studies have emerged anywhere in the world to define the music sector in comprehensive detail. It was done, however, in a pioneering report for the Australia Council’s Music Board in the mid-1980s (Hans Hoegh-Guldberg, The Australian Music Industry (1987)). It is appropriate to note that the person mainly responsible for defining the brief in 1985 was the then Music Board director, Richard Letts. A long-term intellectual partnership was born in that year, culminating in the current Music in Australia Knowledge Base.
One of the most important statements in the report reads (p 4): “The musician, singer, composer and music teacher is at the core of the industry”, helping to make it a true music sector rather than a music industry study. Notably, educators were recognised as part of the core, while the Hoegh-Guldberg and Letts report in 2005 regards them as crucial support for the core performers and creators of music - basically the same point of view.
The Music Board brief for the 1980s study specified that the music industry (or what we would now call the music sector) should cover not only the supply of goods but also live and mediated performances, broadcasting and television, music education and support organisations, among others. Even music therapy, then a relatively new discipline in Australia, was specified as an activity to be investigated.
The initial estimate (1984-85)
The year-long research for the report resulted in an estimated economic value of $1.545 billion for the music sector in 1984-85, equivalent to 0.7% of GDP according to the statistics then current (it is still of that relative magnitude according to the latest annual national accounts). Actually, the correct concept for comparison is gross value added at basic prices (GVA), which excludes indirect taxes net of subsidies. The estimate was equivalent to 0.77% of GVA, which comprised 89% of GDP in 1984-85 with indirect taxes less subsidies making up the remaining 11%. (1)
The statistics section contains details of the estimation procedures, to which readers are referred. The first step was to update the 1984-85 estimate from the Music Board report. The main source was the most recent annual national accounts (2005-06), and associated supplementary tables available at no charge from the ABS website. The estimate is $3.26 billion at 2005-06 prices.
Updating the estimate to 2005-06
Assuming the estimated value of the music sector has remained at 0.77% of total GVA, the equivalent measure for 2005-06 is $6.82 billion, based on an aggregate GVA of $886 billion (the GDP was $966 billion for the year).
So the music sector would have increased by about 108% over 21 years, from $3.3 billion to 6.8 billion at 2005-06 prices, simply by holding its share of the total economy. But is it reasonable to assume that the share has remained constant? Further, did the original study manage to measure all possible parts of the music sector as the concept was defined in 2005 by Hoegh-Guldberg and Letts? Though the 1987 report tackles a surprisingly wide field of different music sector activities, this is unlikely. Even today there are serious difficulties associated with establishing the true economic value of important areas such as music education, research, publications and libraries, not to mention music in the community and the music content of industries other than recording.
Neither question posed in the preceding paragraph is easy to answer. Concerning the former, industry product statistics in the national accounts suggest that the share in total economic activity of the cultural and recreational services industry group has remained reasonably constant: between 1974-75 and 2005-06 the long-term trend was 3.28% per annum, marginally below total GVA (3.36%) and marginally higher than total GDP (3.21% pa). However, the industry group has fluctuated quite widely, and it is impossible to ascertain whether it has lost share of total GVA over the past two decades. At first glance, it seems to have lost share based on a point-to-point measurement of 2005-06 relative to 1984-85, but it appears to have been abnormally above the long-term trend level in that year, suggesting that this particular comparison is spurious.
More importantly, however, music has an impact on many different conventional industries and industry groups, not just the culture and recreation group where music in fact is likely to be less than dominant among many artistic and recreational activities. Bearing in mind that the ultimate measure of a music GDP (via a music GVA) is in the nature of a satellite national account, musical activities contribute to numerous other conventional industries – a fact that will be clear from a look at the music sector chart. Apart from the cultural and recreational services industry group, music is an important element of manufacturing, retail and wholesale trade (recordings and other manufactured and imported music-related goods), education, communications (such as broadcasting and television), and many other industries.
As far as the second question is concerned, did the original study in 1987 cover all possible activities in the music sector? It would be expecting too much of a study conducted more than twenty years ago to have achieved something for which there is now a recommended five-year statistical collection plan to find the answer. So we may expect the coverage of the 1987 study to be incomplete, despite it being the most comprehensive to date.
In view of the above, and other evidence of the growth of creative activities, the estimate of $6.8 billion for 2005-06 is probably conservative. Furthermore, music has the advantage that it is not only a major part of the creative arts, but it is also increasingly in a position to take advantage of modern communications and digital technology. The existing national creative industries strategy puts digital technology in the high seat but sees music as being particularly well-placed to take advantage of technological progress.
The ABS publication quoted in this note includes a table showing the standard list of industries whose GVA is quoted in the national accounts. Here are a few examples from the table (converted to 2005-06 dollars assuming a uniform 5% increase in the price index from 2004-05):
- Forestry and fishing $2.5 billion
- Electricity $13.9 billion
- Gas $1.4 billion
- Water supply, sewerage and draining services $6.3 billion
- Manufacturing: textiles, footware, clothing and leather $2.7 billion
- Wood and paper products $7.1 billion
- Printing, publishing and recorded media $11.3 billion
- Non-metallic mineral products $5.5 billion
- Cultural and recreational services $14.3 billion
All these industries are considered sufficiently important in terms of domestic supply and role in international trade to warrant a separate place in the nation’s official accounts. The estimated contribution of the music sector to the national economy is larger than some, smaller than some of the quoted industries. It too has an important role in meeting domestic demand and increasingly in earning foreign currency – let alone its role as a cultural activity feeding Australia’s future social and economic potential.
(1) The published satellite accounts for tourism and other activities include GDP as well as GVA equivalents, making it potentially possible to measure not only a “music GVA” but a “music GDP” within the satellite national accounting framework.
