Industry Plants are Rent Seekers

Industry plants are artists who pretend to have a natural success story but were promoted by industry insiders. This is seen in people such as Lil Nas X (who admitted on twitter to being a plant) who are instantly popular with no explanation. While sometimes just a conspiracy theory or insult, evidence shows many artists are “plants”. I was thinking about this the other day and realized how industry plants are a slight variation on the classic rent seeking model.

When I refer to the music industry, I refer to the 3 major record label companies who control of 80% of the market: Sony BMG, Universal Music Group, and Warner Music Group. With music streaming and advertising, large record labels can easily promote music and garner listens. Without a big label deal, it is almost impossible to overcome this congested market. Thus, a record label deal is equivalent to a tariff or license that gives an artist monopoly power. An obvious example is the artist Billie Eilish. Eilish was offered a deal with Interscope Records (owned by Universal Music Group) when she was very young and her very first song went Platinum. She was promoted by the record company, giving her essentially complete control over her target demographic. Her deal cost her money, but without it she would not have had anywhere near that level of popularity.

With so much competition, new artists sign deals that highly favor the record label: a cost of obtaining monopoly access to the market. To get a deal, artists are constantly . Plants hurt the industry because they crowd out competition and stifle more talented artists. Resources would be better allocated to allow multiple and more talented artists produce their music. A possible solution is regulation requiring record labels to explicitly state when they are paying for advertisements, similar to how political campaigns are regulated. This would make the industry more transparent and encourage independent artists (given the stigmatism around plants). However, for the near future it seems like industry plants and rent seeking is here to stay.

The blue section from 0 to Q_M and from P_E to P_M  represents the total profit that would be gained from monopoly control on a sector of the music market. This isn’t exactly the same as the traditional model because of the nature of the music industry. There isn’t a clear increase in prices, but the important thing is that there is less competition, so revenue and profit are increased. Additionally, it’s not a complete monopoly, but given the vast difference in popularity and revenue, it has many of the same characteristics. The light orange superimposed on top is an estimate of the cost of rent seeking which takes away from that profit. Included in that cost are the excessive royalties paid to the record company in order to receive a record deal in the first place. The yellow triangle represents the deadweight loss that is caused by the resources that are inefficiently allocated towards less talented artists.