Alfred Marshall, the economist, wrote in 1947 that changes in technology and trade meant that “the operations in which a man exceptionally favoured by genius and good luck can take part are so extensive as to enable him to amass a large fortune with a rapidity hitherto unknown”.
Robert Galbraith is a man exceptionally favoured by genius but it was only when Galbraith was revealed this week to be the nom de plume of a woman called J.K. Rowling that his supposed debut novel, The Cuckoo’s Calling, ascended the bestseller list with rapidity. As Marshall noted of the phenomenon of the superstar, a big name makes a big difference.
It also makes a big difference to be Thom Yorke of Radiohead, as opposed to the mass of smaller, less famous acts that can be heard on Spotify and other streaming services. Radiohead has boycotted Spotify in protest that, as Nigel Godrich, their producer, complained: “Small labels and artists can’t even keep their lights on” from the royalties they receive.
It wasn’t supposed to be like this. The distribution power exercised by major record labels and big book publishers in the physical world was supposed to give way to democracy in the digital era. Chris Anderson, the author and entrepreneur, argued in 2006 that the "long tail" of lesser-selling works of commerce and art could come to rival big hits in profitability, if not sales.
There are few signs of it so far. The floodgates have opened, and some self-published authors, such as E.L. James of Fifty Shades of Grey fame, and singers not signed to labels, such as Swedish artist Nomy, have leapt from the pool of obscure acts to become stars. But the stars still take most of the pie and, if anything, their slice of the profits seems to be growing.
“We used to operate on the 80/20 rule,” says Jonny Geller, joint chief executive of UK literary and talent agency Curtis Brown, citing the Pareto principle that 80 per cent of sales came from 20 per cent of contributors – in this case authors. “Now, it’s more like 96 to four.”
Sherwin Rosen, the economist who coined the term “superstar economics”, ended his 1981 paper on the rising returns to sports stars, artists and even big-name lawyers and doctors with the question: “What changes in the future will be wrought by cable, video cassettes and home computers?” The answer is: an even more pronounced shift towards inequality.
The Rowling case is a perfect test of superstar economics versus the long tail, since we now know the sales of precisely the same work, produced by two different authors. The result is startling: The Cuckoo’s Calling sold only about 450 copies in UK hardback under Galbraith’s name after it was published in April but quickly became the top seller on Amazon once it was known to be a Rowling novel.
This raises the question of whether talent is the driving force in superstar economics, as Marshall had it, or brand recognition. By definition, The Cuckoo’s Calling was not written by a more talented author simply because the author’s name changed. The superstar is someone whose name is sufficient to cut through the increasing clutter of rivals and newcomers.
Kate Mills, fiction editor at Orion Publishing in the UK, admitted on Twitter that she turned down The Cuckoo’s Calling when it was submitted because “new crime novels are so hard to launch right now”. She might wish she had had a crystal ball but she was right. Although it gained some good reviews and sold as many in various formats including audiobook, as the first Harry Potter book did in a similar period when Ms Rowling was still unknown, it was a slow burn.
The decline of book chains such as Barnes & Noble and Borders makes it harder for publishers to exercise distribution power by pushing their favoured titles through marketing incentives. Rather than broadening their range, it has made them warier of taking risks on new authors on whom they will probably lose money. As their margins shrink and they face more competition, they rely more heavily on stars.
Indeed, there is less of a need for publishers to experiment. In a world of mass self-publishing, they can wait to find out what works – Fifty Shades of Grey being a prime example – before they sign up an author (the erotic trilogy topped the New York Times best-seller list as an e-book before landing a lucrative deal with Random House). The industry is bifurcating into the self-published minor leagues and the major leagues to which only those who have already proved themselves are recruited.
Music labels and book publishers traditionally used their privileged position to act like venture capitalists – making a number of bets on new acts, knowing that only a few would succeed. In their own way, they levelled out the payments to stars and unknowns by experimentally over-investing in innovative startups.
The digital era is less protected. Mr Godrich believes Spotify’s royalties to minor artists are “just not right” – it pays a tiny amount each time a song is streamed so a band has to be very popular before it makes much money. But the way in which it splits the royalty pool is arguably fairer than in the old world, because each artist is rewarded on actual performance.
Mr Anderson believed the 80/20 rule would “lose its bite” in the digital world because sales would be allocated more evenly between hits and niche products, and artists could make a bigger profit on fewer sales as distribution costs fell. In practice, the outcome is highly meritocratic and extremely unequal.
It is early to declare, in the words of internet entrepreneur David Galbraith (no relation to Robert), that “the long tail is wrong”. But superstar economics are thriving – just ask Ms Rowling.
Copyright The Financial Times 2013.