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Working Paper No. 12-04

The Importance of Quality: How Music Festivals Achieved Commercial Success
Scott Hiller
October 2012


Despite the existence of a number of famous American music festivals in the 20th century there was no major annual production until the early 2000s. This paper examines what characteristics are important to current commercially successful music festivals when making hiring decisions. This decision is similar to other industries such as professional athletics and online video services including Amazon Prime and Netflix, all forced to make input decisions that are suboptimal from a pure demand perspective because of a range of costs. A model of customer demand motivates the empirical analysis and provides an explanation for why festivals hire bands at varied levels of success and quality. The empirical analysis utilizes characteristics important to the negotiation between festival and the band as input in order to determine what is necessary for the festival to attract consumers, as well as what input substitutions must be made to establish profitability. Results show that music festivals are more likely to hire inexperienced bands of higher quality as inputs over experienced successful bands in order to take advantage of the lower costs, a practice which is likely extended to other industries.

JEL classification: L15, L82, D84
Keywords: Input quality, product characteristics, music industry, entertainment industry, expectations, bundling