The Impact of Economic Uncertainty and Inflation on the Music Industry

The music industry has always been known for its glamour and grandeur, but no industry is bulletproof in an economic downturn. For consumer-focused businesses that rely on people being willing to spend money, an increase in inflation means a spike in the cost of goods and services across the board.

For a music industry still reeling from the global crises of the past five years, the lack of live performances for almost a year of that time, and a generally slow recovery, further uncertainty has been just another pressure on the industry. It has created a need for greater innovation and improved accessibility to reach a market of customers with less money to spend and even less appetite to splurge on non-essential purchases.

Starting with an important clarification, increased inflation is defined as the rise in prices of goods and services, which reduces the purchasing power of money. For instance, in the United States, inflation rates have risen significantly since 2021, reaching a 30-year high of 6.2% in October 2021 and remaining within that range ever since. This surge in inflation has caused many businesses to reconsider their pricing strategies, and the music industry is no exception.

The Direct Effects of Economic Uncertainty on the Music Industry

The lack of confidence in the future of the economy, usually as a result of political instability, natural disasters, or a global pandemic often stifles markets focused on commercialized, non-essential spending the most.

It’s impossible not to mention the COVID-19 pandemic, which had a profound impact on the music industry in particular. While album sales are important, the migration of fans to major, digital platforms has meant artists can’t solely rely on physical record sales for a stable income.

Merchandising, live concerts, and festivals are vital to artists both to bring in cash, but also to extend the reach of their brand further.

With emergency legislation in place, many of those live performances had to be canceled, postponed, or limited in size, leading to significant losses in revenue. Additionally, the unclear duration of the pandemic’s effects (combined with other more recent geopolitical pressures) like the cautious recovery plans of many countries, meant that future revenue patterns for music businesses have continued to be unpredictable for some time, too.

For an industry that relies on investment, and a culture of ‘spending money to make money’ on things like advertising and global touring, trying to figure out consumer behavior over time has made it difficult to access capital in general.

Predicting Market Behavior in Unpredictable Times

The key to investing in any industry is predicting, at least with some confidence, future market behavior. Many investors start with the economic calendar, which can be a valuable tool in at least offering visibility and foresight of consumer spending. The economic calendar provides a schedule of significant events that are likely to impact the movement of individual securities or markets, including quarterly consumer surveys, interest rate announcements, and historic industry analysis reports.

These events help investors to predict market trends and make informed decisions about when to buy or sell securities. Right now, those calendars have indicated consumers are more deliberate about what they spend. However, trends like increased spending on luxury goods amongst millennials suggest they are turning to short-term gratification spending, where long-term goals like homeowning are increasingly less likely. What we’ve seen in the music industry is a focus on building stronger, organic audiences on platforms like TikTok and Instagram.

Humanizing artists, and the success of the deeply ‘relatable’ celebrity – exemplified by media like Lewis Capaldi’s raw, well-received Netflix documentary – is a concept that many businesses within the music industry now understand well. It doesn’t rely on significant spending to improve brand visibility, rather it focuses on making connections to individual fans with easy-to-access media on popular platforms.

Adapting to the Times

At the back of a concert venue
Photo by Robert Bye via Unsplash

The music industry has been significantly impacted by recent economic uncertainties and rising inflation rates and is evolving in response to a need to be smarter in how they reach audiences.

Businesses in the industry are re-evaluating their marketing strategies and business models. While we can turn to the fundamentals and economics of a market to predict how consumers might behave, it’s the more profound shift in how artists present themselves – ultimately as people, not just performers – which seem to be the major response to the economic uncertainty that has proven to work for musicians.

Bong Mines Entertainment