What’s Behind the Growth in Swedish Music Exports?

Preface by Richard Letts

Measured in royalty payments, Australia imports three times more music than it exports. This aligns it with most Western countries, of which few are known to have a positive balance of payments in music, including the USA, UK — and Sweden.

How did Sweden, population about 9.5 million, come by this success? This was a question that intrigued the Swedes too, so in 1999, they conducted a study. It found four reasons. Two were concerned with factors within the industry, and two depended upon the very broad provision of music education to young people, creating a discerning and demanding audience (and we know from other studies, a population very active in music-making), and the conditions for the creation of a highly expert music profession.

The key chapter in this study is Chapter 8, here translated by Knowledge Base editor Hans Hoegh-Guldberg.¹

The full report is appended. It has a summary in English.

Chapter 8 of Tuning In

Introduction

Nearly everybody working in the music industry have their own thoughts of how Sweden has come to have so many eminent musicians and composers. An analogy with sport suggests the importance of good examples — Björn Borg inspired a generation of tennis players and ABBA became the role model in music. But this doesn’t solve the problem, for where did ABBA get its own role models? Or were they geniuses who didn’t need them, or did they get them from abroad? Other reasons put forward for ABBA’s success are clever publishers and producers like Stikkan Andersson who predicted the future and acted.² Without Stikkan Andersson there might not have been any explosion in music exports to show in the Billboard lists.

Clearly individuals always play a role but the surrounding structures are also important. This chapter discusses some societal factors behind the music exports. Together they have high explanatory power. It is also shown that the conditions for fast music export growth were so good that if the individuals we consider important today hadn’t invaded the scene, others would have done so.

What explains the growth in music exports in Sweden should also explain the same phenomenon in other countries, or alternatively countries with different characteristics would not have great music exports. Comparisons with other countries with large music exports, in particular Denmark and Ireland, are highly relevant because they are small countries like Sweden and quite new in the music export area. It is also illustrative to compare countries that are like Sweden but do not have great music exports, such as Norway, Finland, the Netherlands, Belgium, Switzerland and Austria. What have Sweden, Denmark and Ireland got that the others don’t? An explanatory model must both account for growth and the lack thereof.

The Importance of Education

Education has a decisive role in starting evolutionary processes. In communities where basic education is bad economic growth is too, as shown by many World Bank studies. The breadth of an educational system is most often what is most important for community development. It pays for a community to invest in a deeper specialist education. Andrew Potter, chair of the British PRS (Performing Rights Society) says:

“Finally, a few words on the vital topic of music education: The success in recent decades of the British Music Industry has been underpinned by the fact that our music education provision has been the broadest and the best in the world.”

Music education is a system consisting of at least four parts. First, all children have a basic school education in music. Most have one hour’s music education per week from year 1 through most of primary school. This is as in other European countries and not special for Sweden.

The second link in the education system is the municipal music and culture schools (called music schools below). The first music schools were started in the 1940s but the great wave was during the 1960s and 1970s. Today 284 of Sweden’s 288 LGAs have a music school (several in the larger cities). The aim is that all children and youngsters who wish to learn an instrument shall be able to do so at little cost. In 1997 340,000 students participated, which is 30% of all primary school children. Only Denmark and Norway have similar musical education — otherwise Sweden is unique.Two recent news items (as at 2004) from Denmark indicate that the Danish music industry remains well supported. According to the first item, the music schools will as the only cultural institutions be secure when they become the exclusive responsibility of local government areas under a new structural reform being introduced. They can now no longer be saved away in favour of a kindergarten or roads in a LGA with inadequate funds. ‘We have fought for this for ten years and have not been able to convince the National Local Government Association’, says Ejvind Bitsch, chair of the organisation of music schools, DAMUSA.

The other news is that the Ministry for Culture has decided to provide 3.5 million Danish Kroner per annum up to 2008 to the work by Music Export Denmark (MXD) to promulgate professional music. MXD consists of Radio Denmark, The Venue Fund/Roskilde Festival, ROSA the Danish Rock Association, IFPI, and DUP (Danish Independent Record Companies). With a similar amount coming from MXD, there will be more than 7 million DKK available annually to promote Danish music exports. Musikerens e-nyt summer edition 22 July 2004. General Danish- and English-language reference to newsletter: http://www.musikeren.dk/servicenavigation/tilmeldnyhedsbrev.
Another potentially useful site is http://www.musiknet.dk/body_musikundervisning.html(comes up in Danish).
I was unsuccessful when looking in 2004 in finding anything useful on Norwegian musicschools on the internet. HHG

The third link in the musical education is made up of study associations (studieförbunden) which facilitate the completion of musical studies but can also help finance groups of musicians for instance through providing rehearsal space. Study associations derive from a popular movement special to Scandinavia. Despite their potential importance for music education they are not as important as the cultural schools and above all not many children and young people are included in the musical activity of the study associations.³

The fourth link is the higher music education. There are several senior music high schools, and higher education following. As well as the music high schools there are some folk high schools with music education. The Swedish higher-level musical education is well regarded, but most countries have similar institutions. Nothing here distinguishes Sweden from other countries.

What Andrew Potter refers to as the world’s best music education is education at the fourth level: vocational education and music at municipal school level [högskolanivå]. Great Britain has nothing like the municipal music schools but Potter recommends that PRS adopt a strategy for a municipal music education to enable every 11-year old to learn an instrument. For those countries that lack anything like the municipal music schools this becomes a very important ingredient in the build-up of pre-conditions for music exports.

What then have the music schools meant for the Swedish music export? A survey of all 286 schools in December 1998 resulted in responses from 160, over 50%. This may not be sufficient for final conclusions, but it is interesting to see what these 160 schools contributed. We can assume that since this is about half the schools it is also half the students and half the total cost. The municipal music education cost 1.3 billion kronor in 1996. The schools can be assumed to provide education at about 3,800 kronor per student.

The survey aimed at finding out what happens following the students’ municipal music education. How many go on to higher music education? How many become actual musicians? How many become internationally recognised? It’s hard to answer all questions. If there has been turnover of teaching staff maybe they don’t know. Also not all teachers track what their pupils do later in life (though more likely when narrow fields like guitar teaching are involved — they recognise their old students when presented in radio etc).

The answer is not precise but many music schools have done their own investigations of the effects of their education and some of these are preserved in the survey. Just under 6,000 have gone on to higher music education and 3,700 have become professional musicians. This does not provide a basis for determining what percentage goes on because the child’s time in the music school varies. Of the 170,000 that went to the 169 schools some have attended for 5-6 years, others only for one year. Those who are now professional musicians may have left music school five years ago, but others perhaps 15 years ago.

The survey responses show that many receive their first genuine contact with music education in the municipal music schools, and a great proportion of these undertake further studies to become professionals. Would they have done so anyway? Was it really the music school that caused them to choose musical life?

One way to answer this question is to ask the musicians themselves. Through interviews in music magazines and talking to a few musicians I have built a database of 54 musicians. They suggest four explanations to what played a role for becoming a musician. 46% said that their parents inspired the choice being themselves interested in music or practising musicians. 30% indicated that the municipal music school was important. Another 15% indicated that another hobby activity was important, for example a church choir. The rest thought there was no specific explanation but just chance.

The survey doesn’t reveal the whole truth. There are overlapping explanations. Some had parents who were musicians, and went to municipal music schools, and sang in choirs. The general conclusion is that the municipal music school must have played a very prominent role for Swedish music exports, as it has produced many young people who have received basic instrumental instruction, can read music, and can recognise a musical career.

The survey also explored what is important apart from instruments and song. Just under 20% of the music schools offer recording techniques, mixing, data knowledge and composition on their programs. Previous chapters have shown that these are the fastest growing parts of the music industry, and an aspect of the music schools’ programs that is likely to grow in importance.

For several years many local government areas (LGAs) have reduced their contributions to the music schools. Many schools have been forced to increase their fees, and there are long queues. Far from all secure a place. In 1998 40,000 were queuing to get in, while 340,000 obtained a place. It is gratifying, however, that the allocations since 1998 have increased in 110 LGAs, remained unchanged in 145 and were reduced in only 28 LGAs.

A Critical Mass of Businesses

On the premise that some musicians and composers will become rock stars, what is the best recipe for success? In an environment with a diversity of record companies and publishers, and many recording studies, availability of professional contract and copyright advice, success is more likely.

How does Sweden look compared with other countries — are there more businesses in the music industry here? Table 8.1 shows some possible comparisons; while the database is incomplete it depicts some important distinctions. The table is based on various forms of ‘Who’s Who’ in the music industry as published by industry organisations in each country. The second column shows how many businesses participated in MIDEM, the annual international music market in Cannes. Since this is the most important happening in the music industry it may be assumed that participation is related to the importance of the industry in each country.

Table 8.1 supports the hypothesis that countries with large music exports have a tight industry structure. Austria, Norway, France, Italy, Spain and Portugal exemplify countries which don’t have many music businesses. They don’t have large music exports either. Significant music exporting countries such as Denmark, Ireland and the UK have more businesses. There are, however, exceptions: Belgium, the Netherlands, Switzerland and Finland have many music businesses but are not known as great music exporters.

It is of course possible that that there are more businesses than shown here. Ireland, for instance, has more than 500 music businesses, but only 36 participate in MIDEM. The size of the businesses may also play a role. Perhaps some countries such as Germany or France have bigger businesses. The table is by no means conclusive, but taking other evidence into account it supports the evidence that Sweden is among the countries that have a relatively extensive representation of music businesses.

Within each link of the Swedish music industry there are great numbers of businesses and organisations. Three aspects in particular distinguish Sweden from other countries:

1. There is a large publishing industry with high turnover compared with other countries. With over 70 publishers and some 150 employed in the industry Sweden is one of the most “publisher-intense” countries in the world. Many businesses are newly established, and the industry has become internationalised during the past 20 years.
2. There is a strong technical production chain of businesses ranging from machinery for pressing CDs to the manufacture of CDs and recording studios. There are market leaders in each and every link of the chain, and most have grown up since the 1980s.
3. Some new record distributors are internationally expansive, whereas no businesses from other countries are expanding in Sweden or Norway.

Another important factor is the activities of international businesses in Sweden. It is hardly accidental that Sweden’s breakthrough into music exports has happened in conjunction with rapid structural transformation of the recording industry. The establishment of small ‘independent companies’ to search for talent, combined with various forms of cooperation with the international businesses which can cause rapid and large-scale production and distribution development has undoubtedly benefited the Swedish artists.

The question is whether artists like Emilia, Jennifer Brown, Meja, E-type and Jessica Folcker would have been better served by an industry structure in which companies like Sonet, Elektra and Metronom still dominated the Swedish music industry. Would they have been competitive with the multinationals on the export markets? Would they have launched Meja in Japan as effectively as Sony did? Artists such as Emilia and Eagle-Eye Cheery are good examples as they come from an independent Swedish company, Diesel. This business is itself an example of cooperation with the international corporations, as BMG, which launches the artists on the international market, are co-owners of Diesel.

It has been debated in the Swedish music industry whether it is suspect and regrettable that the international corporations are so strongly established in Sweden. It is extraordinary, however, that the expansion of the Swedish music exports coincides in time with these companies’ investments in Sweden. The establishment of the multinational corporations does not entirely explain the expansion of the music export but it is an important part of the explanation.

The multinationals have been skilful in their cooperation with smaller independent Swedish businesses, and have organised effective marketing, record production and distribution to other countries. The international corporations have scale advantages in the production and distribution links which surely make them more effective than medium-sized Swedish companies (which wouldn’t have been out-competed or bought up if that was not the case).

Networks and Cooperation

Individual participants need cooperation. There are many interest groups (interesseorganisationer) in the music industry. We easily counted 40 organisations of various types. They have many important functions, but an unspecified side effect is their contribution to lowering transaction costs within the industry. The concept of transaction costs is of central importance in economic theory for the understanding of industrial organisation. When different participants try to reach agreement about an economic transaction, costs result which relate to the transaction itself, for example information costs, time costs associated with negotiations, and not least costs caused by uncertainty about whether you can trust your partner.

If transaction costs are low the participants can concentrate more on the nucleus of their business, whether this is performance, composition, publishing, looking after royalty payments, or marketing. The existence of a rich network of common-interest and cooperative organisations makes it possible to rely to a high degree on market forces in the allocation of resources. The market transaction costs become relatively low at the same time as the advantages of market-economic solutions become acceptable in the sense that they provide clear guidance for resource allocation.

Does the Swedish music industry have more interest groups than other countries? It is difficult to give a clear answer. Anyhow, no country presents such a rich array of organisations in its documentation of musical life. Scotland and Norway both have information guides to the music industry which includes interest groups. But they have nothing like as many organisations as Sweden. It is interesting that most organisations are quite old, having existed since the 1950s or even earlier. This contrasts with music industry businesses which are mainly newly established. In other words, Sweden’s traditional popular-interest organisations have served as a good basis for the emergence of new music businesses.

A Knowledgeable Market

Compared with many countries in continental Europe Sweden is markedly orientated towards the west, especially the USA. The Swedish popular music culture is more Americanised than is the case in other Scandinavian countries. As England and the US are the largest export markets for music it is hardly a disadvantage that the domestic market encourages the musicians along the same lines as in those countries.

In addition, the domestic music market has well-educated listeners. As we saw above, during the past quarter century 340,000 children and young people have been educated in the music schools annually. An unusual number of people can read music and play music. An estimated 400,000 persons sing in choirs. Linguistic knowledge is also important. English is the natural language for Swedish pop, which is a precondition for international success. If ABBA had written its texts in Swedish we mightn’t have had any music exports.

It is appropriate again to refer back to the theory of industry organisation. To explain how businesses build international competitiveness many economists have pointed to the importance of having a knowledgeable market nearby, which place high demands on industry product. They speak about the importance of a ‘sophisticated’ domestic market. In the interaction between customers who make high demands, who are not easy to satisfy and where a multitude of businesses compete, a competitive productive pattern and goods and services emerge. Conversely, in an environment which is characterised by indifferent, ignorant and uninterested consumers the businesses become passive, and they make less effort to achieve development and innovation.

An Explanatory Music Export Model

Music export is a complex phenomenon and it is impossible to reduce an explanation to a few single factors. Many components interact such as education, organisation and market. In this it is similar to other industries and there is no reason to believe that it should be easier to explain the emergence of a strong and competitive music industry than it would be to explain any other aspect of economic growth.

There are many explanatory variables to keep in mind simultaneously. The various factors that work together are illustrated in Figure 8.1. We can test the argument by leaving out some of the explanatory variables. Is it plausible that Swedish music exports would have grown if there hadn’t been large emphasis on broad education for everybody? Hardly! Is it believable that exports would have grown if the businesses interested in this had not invested strongly in Sweden and captured talent to launch internationally? Hardly! And so forth.

What is the situation in the other countries? Table 8.2 doesn’t provide a full explanation but attempts to present some hypotheses for testing with two important reservations: (1) the relative positions of these countries as music exporters are not quite clear, and (2) the industry structures are not certain. I have indicated uncertainties with a dash, and when I dare judge the situation from the available empirical material I have written yes or no.

In two countries all the conditions for expansive music exports are in place: Sweden and Denmark. These countries have also experienced rapid music export expansion over many years. The UK has all the preconditions except the broad music education which the municipal music schools provide in Scandinavia. The disadvantage of being without them is more than offset by the advantage of being the birthplace of pop and having many strong businesses in all the links of the industry.

The Netherlands almost developed into a music export nation and has produced many good artists through the years. But the advantage hasn’t been properly maintained and in recent years the Dutch music industry seems to have stagnated. Our model suggests that two factors are lacking: a broad music education and a tradition of cooperation between businesses through strong interest organisations as in Denmark, Sweden and the UK.

Ireland also lacks some of the preconditions but has still succeeded in developing strong music exports. The proximity to the UK probably plays a role in explaining how they have managed to take advantage of the potent factors represented by a knowledgeable and fastidious public, new business ventures and a strong presence of international corporations. Ireland is the only country that has formulated an industry policy to attract investments into the music industry.

Summary

Going back to 1973, imagine that we have been asked to propose how Sweden can be developed into one of the foremost music exporting countries. The goal is for music exports to grow by 15% pa over the next 25 years. What should be our recommendations? We know the result after the analysis in this chapter, so here are some indicators of what we ought to have listed in 1973:

1. Stimulate multinationals to invest in Sweden
2. Make entry easy for new businesses into the music industry
3. Build a broad education system and ensure that everyone gains entry to music education at an early age
4. Encourage and stimulate participants to create interest groups
5. Develop the market, increase the demand for pop music, for instance through deregulation of radio and TV.

Author

Kim Forss, 1999. The translation of Chapter 8 of the government report Att ta sig ton (Tuning in) was essentially completed in 2004. It was added to the Knowledge Base on 29 July 2013 to facilitate general access, while acknowledging the age of the study in an era of great change in the international recording industry. Dr Forss’s study was commissioned by Expertgruppen för Studier i Offentlig Ekonomi (ESO, Expert Group on Public Economic Studies). The full copy of the report, with an English summary, was added on 12 January 2014.

Full Report

Att ta sig ton, by Kim Forss. With a summary in English.

Note on Transaction Costs

Selection and translation: Hans Hoegh-Guldberg (page references: Att ta sig ton)

REFERENCES TO ”TRANSAKTION” IN KIM FORSS’S TUNING IN (“ATT TA SIG TON”)

P 20: Industry cooperation and strong organisations lead to low transaction costs. There are remarkably many music associations catering for different interest groups, for example composers, music teachers, artists, guitar players, distributors and independent record companies. Economic theory points to the importance of the self-organising ability in society, i.e., that it develops a kit of organisations which spontaneously brings together people and facilitates organisations to undertake economic, political and cultural activities. There are a remarkably large number of such organisations in music, and it is natural that they contribute to the explanation of musical exports. P 68: In economic theory, the concept of transaction costs is central to the understanding of industrial organisation. When different agents have to agree on an economic transaction, costs occur which have to do with the transaction itself, such as information costs, time costs of negotiations, and not least uncertainty costs caused by whether you can rely on your partner. The transactions cost concept has proved useful in explaining differences in economic development, in growth between industries, and not least for different types of organisation.

One way for agents to reduce the transaction costs of markets is to look at all the services needed in their own organisation. If the initial transaction costs are high it can become a great competitive advantage to reduce them by “keeping them in-house” rather than having to buy them in a market. As well as being expensive, it ties up capital and one loses the efficiency that the market would otherwise supply.

Transaction costs can also be low because people rely on each other or there exists a culture of fairness, decency and thoughtfulness, and a functional legal system for conflict solving. Interest and cooperative organisations contribute to an environment of low transaction costs, and in that perspective it is interesting how rich the interest organisations are in the music sector.

A rich network of interest and cooperative organisations makes it possible to a great extent to rely on market forces for resource allocation. The market transaction costs become relatively low and at the same time the advantages of market economic solutions become possible, i.e., flexibility, cost efficiency and guiding signals for resource allocation. It is interesting that most interest and cooperative organisations are quite old. They have been around since the 1950s, and some are even older. This contrasts with firms in the music industry which are mainly newly established.

P 136: Networks and cooperation

Single agents need cooperation. In the music industry there is a large number of interest organisations. We easily got to about 40 organisations of different types. They have many important functions, but an unspoken side effect is that they contribute to a reduction of the transaction costs within the industry. In economic theory the concept of transaction costs is of central importance for the understanding of industrial organisation. When different actors have to agree on an economic transaction, costs occur that have to do with the transaction itself, such as information costs, time costs associated with negotiations, and not least a cost determined on uncertainty on whether you can rely on your partner.

When transaction costs are low, the actors can concentrate on the objectives of their business, whether this is performance, composition, publishing, look after royalty payments, or work on marketing. With a rich network of interest and cooperative organisations it becomes possible to a great extent to rely on market forces for resource allocation. The market transaction costs are relatively low at the same time as the advantages of market economic solutions are possible, i.e., clear guidelines for resource allocation. Does the Swedish music industry more interest organisations than other countries? It is difficult to give a clear answer. At least there is no country which in its documentation of musical life presents such as rich flora of organisations as Sweden. Norway and Scotland both have informative catalogues on the music industry and also refer to interest organisations. But neither has as many organisations as Sweden. It is interesting to note that most of the interest organisations mentioned above are quite old. They have been around since the 1950s and many are even older. This contrasts with music industry firms which are mainly newly established. In other words, there is a foundation of organisations established through people’s movement which have served as a good basis for the growth of new firms in the music sector.

Again, it is appropriate to refer back to the theory of industrial organisation. To explain how firms build international competitiveness many economists have pointed to the importance of having a knowledgeable market nearby, which demand high results of the industry’s products. They talk about the importance of a “sophisticated” home market. In the interaction between highly demanding customers who are difficult to satisfy and with a multitude of competing firms, competitive productive patterns and goods/services emerge. In contrast, in an environment of indifferent, ignorant and uninterested consumers the firms become passive, and less geared towards development and innovation. It is difficult or impossible to prove a hypothesis that Swedish listeners have strongly influenced the music export, but the argument is important in its own right and there are indications that it is correct. Countries with many internationally known artists have similar characteristics, such as Denmark and Ireland. Other countries with smaller pop music exports, such as Switzerland, Austria, Belgium and Norway on the other hand are less orientated abroad or Anglo-Saxon in a popular musical sense. There are many bits of the puzzle to fall into place for the music export to accelerate. Possibly the home market is less important now than when the pop music started to become exported. It is less customary for musicians to start their careers at home before becoming launched abroad.

Pp 139-142: A model to explain music exports

Music exports are a complex phenomenon and it is impossible to reduce an explanation to a few factors. Many interacting components are needed regarding education, organisation, and market. In this it is similar to other industries, and there is really no reason to think that it would be easier to explain the development of a strong and competitive music industry than explain any other aspect of economic growth.

are many explanatory variables to keep in mind simultaneously, and since some will be left out the others may not explain how the growth accelerates. The various factors are illustrated in Fig 8.1. The argument may be tested by leaving out some of the explanatory variables. Is it likely that the Swedish music exports would have grown without the great investment in education for all interested persons? Hardly! Is it possible that the music exports would have increased without the international companies investing strongly in Sweden and capturing talents to launch internationally? Hardly!

How does it look in the other countries discussed above? Table 8.2 puts together the information I have on the various factors. It is not a complete explanation but should be seen as a number of hypotheses that can be tested. Two important reservations: (1) the relative position of the countries as exporters of music is not quite clear; (2) the industry structure is not quite clear. When I don’t know I have shown a “-“; when I dare make a judgment based on the available empirical material, I mark it yes or no.

Two countries have all the preconditions for expansive music exports: Sweden and Denmark. These countries have also experienced a quick expansion of their music exports over many years. The UK has all the preconditions except the broad music education that the municipal music schools provide in Scandinavia. The disadvantage of missing it is more than compensated by it being the birthplace of pop music, and having many and strong firms throughout the industry.

The Netherlands have been a borderline case developing into a nation of music exports and have had many good artists through the years. But it hasn’t been sustained, and it appears that the music exports from there have stagnated. In the model there seems to be two missing factors: (1) a broad music education and (2) the tradition of firms working together in strong interest organisations that is found in Denmark, Sweden and the UK.

Ireland also lacks some of the preconditions but has still become a strong music exporting nation. The proximity to the UK probably plays a big role in the explanation of how it has still succeeded in taking advantage of the strong factors of having a knowledgeable and fastidious public, of new firms, and the strong presence of international firms. Ireland is the only country that has formulated an industry policy to attract investments into the music industry.