EconSouth (Second Quarter 2004)

Economy Stays in Tune


From Hank and Patsy to Garth and Reba, country music has been an important part of Nashville’s economy. Though confronted with creative and economic challenges, the industry remains a key to the city’s vitality.

Night after night, A-list session players jam in Nashville’s downtown honky tonks in exchange for tips, free drinks, and a long shot at country music stardom.

Throngs of revelers come from all over the world to enjoy some twang and spend some money in the city’s Lower Broadway area. But this neon-lit nightlife is only a small segment of the area’s deep-rooted and diversified music industry. While music is one of Nashville’s largest industries, it is generally considered the second or third most important in the area behind health care and perhaps book publishing. (Columbia/HCA Healthcare Corp. has its headquarters there and employs more than 8,000, and the area is home to many religious and other types of publishing houses.)

Music’s contribution to the Nashville economy comes in various forms. The Country Music Hall of Fame, which epitomizes Nashville’s self-anointment as “Music City,” chronicles the lives of music legends such as Hank Williams and Patsy Cline. Located downtown in a $37 million building that opened in 2001, the Country Music Hall of Fame drew some 295,000 visitors last year.

Another of Nashville’s music-related attractions is Gaylord’s Opryland Resort and Convention Center. With 2,800 rooms, Opryland is the largest convention center and hotel complex under one roof outside of Las Vegas.

Some 80 percent of Opryland’s guests are business travelers attending conventions at the resort. But Opryland also relies on the pilgrimages of country music fans to help keep its rooms booked. One of the resort’s amenities is the Grand Ole Opry. At the Opry’s current location and at its previous home, downtown’s historic Ryman Auditorium, many of country music’s biggest talents have regularly performed for 75 years.

Music’s reverberations are widespread
The commercial heart of Nashville’s music industry is Music Row, an area of about 10 square blocks near downtown. A few major record companies such as Sony and BMG have offices on Music Row, and other music-related businesses are clustered in this area of commercially zoned houses and a few high-rise offices.

Not too far from Music Row, Belmont University has an enrollment of about 3,700 students, including nearly 1,500 music and music business majors. More than 600 faculty and staff are employed at Belmont.

For more on music:
See “Music Industry Varies Across the Southeast

“Music is a huge deal on our campus,” said Bob Fisher, the university’s president, who adds that Belmont students are attracted by the university’s music program, and many go on to become music performers, technicians, or executives in Nashville.

In Murfreesboro, a few miles outside Nashville, Middle Tennessee State University also offers music programs that help to make the area attractive to faculty and students with musical talent and industry knowledge.

In addition to the direct economic boost the music industry provides to Nashville, Music Row makes an intangible contribution. Fisher points to music business executives who are known for their professionalism and marketing savvy; he believes they have a lot to offer the city’s larger business community. As the incoming head of the Nashville Chamber of Commerce, Fisher is in a position to do more to leverage the efforts of local music industry talent in attracting new businesses to Nashville and to compete economically in the region.

Fisher is one of many people in Nashville who value an effort to quantify the music industry’s economic impact. Because the music industry is so diverse and fragmented, defining exactly how many dollars it generates in Nashville is not simple. And it’s even more difficult to measure the employment impact of the industry on the area economy.

One commonly cited estimate is that music contributes about $3 billion annually to the Nashville economy. But Terry Clements, director of visitor development for the Nashville Convention and Visitors Bureau, said he isn’t sure whether that number is current or well-grounded. “What we know about the music business is mostly anecdotal,” he added.

The “strange and wonderful” flow of money
Nashville’s music industry is highly organized. Professional organizations such as the Country Music Association have substantial payrolls, and other groups give voice to session players, makeup artists, and others who depend on music dollars.

A plethora of businesses in Nashville rely on the music industry. Dozens of law firms and accounting firms derive the bulk of their revenue from music clients. Booking agents, public relations consultants, caterers, and hair stylists gravitate to the area to serve the same client base. Countless employers in food service and hospitality also count on music income, either directly or indirectly.

But ultimately it’s the rich base of music talent that distinguishes Nashville. The area is home to an estimated 10,000 songwriters, including many who have become wealthy writing material performed by big names. Performance-rights companies track and collect money for songwriters, and their presence further boosts the Nashville economy. One such company—Broadcast Music Inc. (BMI), led by Nashville music industry veteran Frances Preston—employs about 450 people on Music Row.

As for the songwriters themselves, many have the impressive balance sheets that accompany impressive credentials, but they may not pass ordinary credit approval procedures for mortgages and other loans because their incomes have unconventional sources. Given this repository of unconventionally wealthy residents, banks in Nashville have developed special services for songwriters and other music businesses.

Nashville bankers manage risk and perform due diligence like bankers anywhere else. But they’ve made a point of understanding the economics of the music business. “We believe you shouldn’t have to come into a bank and explain how you make a living,” said Brian Williams, a senior vice president with SunTrust in Nashville who specializes in serving music industry clients in Nashville, Atlanta, and Miami.

Photo courtesy of William Smith
Nashville extends its welcome to numerous bands such as the Alabama Gravy Soppers, shown here playing at The Station Inn. The city is a magnet to aspiring country-music performers seeking their shot at stardom.

A growing but often unseen segment of the music industry supports concerts and live performances. Every time country star George Strait or any other musician with a Nashville-based office performs for a paying audience anywhere in the country, money from ticket sales comes back to the area. A big part of the gate goes to the star, but much of the money gets spread around to musicians, grips, secretaries, and anyone else with a job that supports the show. This field employs about 2,600 people and pumps $300 million annually into the Nashville economy, said Tony Conway, president of Buddy Lee Attractions.

“Money in the music business flows in strange and wonderful ways,” Williams added.

Recording studios provide another line of work in Nashville, but that business has been tough in recent years. Because of technological advancements in recording equipment, artists are now able to achieve high production values at lower costs, and some local businesses that sell recording time have been unable to remain profitable. The result is a Music Row dotted with vacancy signs.

Moving past the country music slump
Whatever the genre, the music business has never been the most stable line of work. Success can disappear as quickly as it happens, depending on volatile record sales and trends in popular culture.

Money poured into Nashville in the early 1980s during the country music craze ignited by the hit movie Urban Cowboy. In the mid-1990s, when Garth Brooks and other “hat acts” frequently topped popular music charts, country music enjoyed huge crossover popularity, and with big sales came money the likes of which Nashville had never seen.

During the peak years about a decade ago, most industry observers believe that Nashville’s music industry expanded too rapidly, an overbuilding similar in some respects to what occurred in California’s Silicon Valley during the dot-com economy of the late 1990s.

Country music remains popular, but sales have fallen 48 percent from their 1995 peak, according to Bill Wade, a Columbia, Tenn.-based economist with Energy & Water Economics. Wade has tracked the impact of country music on Nashville’s economy. Declining record sales can be partially attributed to the spread of digital music files in MP3 format. But Wade said the drop in sales of country music, compared with other genres, has been particularly steep.

Wade and others blame the decline on a consolidated country music radio business controlled by a handful of executives who reside outside Nashville. They argue that these impresarios neglect new talent in favor of tried and true names. “This strategy has led to huge wealth for a few entities, but a weaker country music industry and a weaker Nashville economy,” Wade wrote in an article titled “Stranglehold on the Airwaves Is Choking Country Music.” “Vacant office space translates to closed restaurants, fewer tourist dollars—even lower billings for accountants and lawyers.”

The Nashville music industry experienced another setback when the Opryland amusement park closed in 1998; the space has since been converted into a retail and entertainment area called Opry Mills. Because many local performers earned steady money performing at the old park, they lost a source of income, and some of the talent drifted elsewhere.

Redefining Nashville for the future
Like the protagonist of many a country song, Music Row is no stranger to hard times. Nashville music executives remain optimistic that their industry will change with the times and reach new heights with the next boom. They cite the emergence of new recording labels such as Broken Bow and the opportunities presented by satellite radio and digital music distribution as reasons for optimism. “It’s starting to turn around,” said Harry Warner, an assistant vice president at BMI. “We have a lot of new blood in Nashville, and things are changing for the better.”

Despite tough times in the recording business, Music Row real estate values have increased as nonmusic businesses have moved into the area and expanded, said Dane Bryant, a Music Row property owner. “The music business is still hanging in there, and we’re seeing more accountants and lawyers move in,” he added.

Money in the music business flows in strange and wonderful ways.
Brian Williams
Senior Vice President
Suntrust Banks Inc.

There is also talk by civic leaders in Nashville about diversifying the Music City “brand.” The idea is to package middle Tennessee as a scenic and affordable place to live and work where there happens to be great music but also much more.

“The message is, we’re not just about cowboy boots,” added John Bridges, director of cultural affairs for the Nashville Mayor’s Office of Economic and Community Development. “It’s about quality of life and culture.”

To illustrate his point, Bridges cites a new $120 million performance hall downtown that’s being built for the Nashville Symphony Orchestra. This project will bring the area’s classical audience downtown, according to Bridges, where they will mingle with people who wear jeans, leather, and cowboy hats. The hoped-for result: a more diverse and vibrant music scene and an economic shot in the arm for the city.

But Nashville has a lot invested in country music, and its music history affords it a powerful advantage when it comes to the competitive business of attracting tourist dollars. “Music has so much to do with our self-image, not just our economic image,” said Paula Lovell, owner of a Nashville-based public relations firm and a former chairman of the Federal Reserve Bank of Atlanta’s board of directors. “It’s not only an economic draw; it defines a huge piece of who we are.”

People from all over the world come to Nashville just to drive past the homes of the stars and walk in the footsteps of the legends. And there are plenty of people who choose the city as a vacation destination because of the famous country music stars who regularly perform there.

Nashville derived $2.9 billion and some 44,000 jobs from tourism and hospitality in 2003, and music provided a significant boost to the tourism dollar, said Clements. “If we didn’t have music,” he added, “we’d just be another city out there trying to establish an identity.”


Music Industry Varies
Across the Southeast

Photo courtesy of New Orleans Tourism Marketing Corp.

Music talent knows no boundaries. But musicians from the Southeast have made more than their share of gold and platinum hits, and their contribution to economic growth in certain parts of the region is considerable and continues to grow.

Southerners were instrumental in the development of country, gospel, jazz, rhythm and blues and, more recently, rap, hip-hop, and the Latin genres frequently found topping the charts.

The Southern region encompassing the Mississippi River valley, according to music historian Bill C. Malone, “has played a central and defining role in American musical history as an inspiration for songwriters, as a source of styles, and as the birthplace of many of the nation’s greatest musicians.”

The popular music produced by Southern artists that resonates around the world causes a lot of money to flow into the region. Over the years, a significant number of businesses have formed in the Southeast with the aim of serving and capitalizing on music success.

Music businesses tap into diverse streams of revenue, including concert ticket sales, CD sales, radio, television, endorsements, and publishing rights. But with sales of recorded music faltering in recent years, moneymaking formulas have evolved. Now, Internet distribution and cellphone ringtones are part of the industry calculus.

The business of music broadcasting and distribution has become increasingly consolidated in media centers such as New York. But the Southeast has carved out a role as a source of much of the world’s commercial music.

The impact of the music industry on the Southeast varies widely depending on the market. In some parts in the region, music is a huge draw that significantly boosts the local economy. For instance, in Rutherford County, Tenn. (a county with some 200,000 residents), the Uncle Dave Macon Days Festival each year draws around 40,000 visitors over a weekend and has an estimated economic impact of $1 million.

Visions of lonesome pines, lazy rivers and smoky mountains have long enraptured America’s lyricists and delighted audiences with images of a land where time moves slowly, life is simple, and people hold clear values and love to make music.
Bill C. Malone, Music Historian

Few would question that the music industry, valued at $47.6 billion by Music Week magazine, influences business conditions and the overall economy in key markets throughout the region. One reason for the size of the industry in the Southeast is the stylistic diversity it encompasses, with several regions within the Southeast becoming practically synonymous with important musical genres.

Hip-hop, rap put Atlanta on music industry map
As the home of OutKast and other top artists frequently perched atop the music charts, Atlanta has emerged as a required destination for rap and hip-hop talent scouts. The city’s reputation as an incubator and now a magnet for musical talent is underscored by the success of locally based producers such as Jermaine Dupree and Dallas Austin. These impresarios have built lucrative businesses that have expanded from music startup operations into broad-based entertainment ventures with large payrolls.

Atlanta bustles with various businesses that strive to capitalize on one of the world’s fastest-growing and best-selling musical genres. The area is home to some 300 music recording studios, including Patchwerk, which was started by Atlanta Falcons lineman Bob Whitfield. Located in an old warehouse near the Georgia Tech campus, Patchwerk is a $4 million state-of-the-art facility where Ludacris and other popular musicians have made hit recordings.

A 2003 study commissioned by the State of Georgia placed the statewide economic impact of the music industry at $989.5 million, with approximately $1.9 billion in gross sales and about 8,900 jobs created. Marcus Thomas, coauthor of the report and coordinator of the Music Management Program at Georgia State University, said the economic impact of music is statewide and includes all kinds of music, from rap to country to classical.

Latin flair leads growth for Miami music industry
Miami is widely viewed as the most important foothold for marketing and promoting Latin music in the United States.

Miami is a longstanding host of the Latin Grammy Awards show, which pumps an estimated $35 million into the local economy, according to Neil Crilly, executive director of the Florida Chapter of the Recording Academy. Most international recording labels have their Latin music operations for the United States based in south Florida. And this year Miami will for the first time host the high-profile MTV Video Music Awards.

In recent years, a new generation of musicians has discovered Miami. Among the celebrities who have purchased homes there are film and recording star Jennifer Lopez and hip-hop performer Missy Elliot.

Given a regular influx of musical talent, Miami has been able to sustain a solid base of recording studios, many of which charge higher rates during the winter months. Among the most famous is Criteria Recording Studio, which opened in 1958 and recorded work by Aretha Franklin in the 1960s, Fleetwood Mac in the 1970s, and, more recently, the alternative rock group Collective Soul.

Outside of Miami, many new talents have been discovered on the large number of performance stages at Disney World and other nearby resorts in and around Orlando. A leading example of someone who has capitalized on central Florida music talent is Lou Pearlman, who discovered *NSYNC and the Backstreet Boys.

Music history a draw for New Orleans tourism
Louisiana’s musical heritage is a key part of the story told by local officials as they seek to boost the state’s largest industry—tourism.

“New Orleans is the wellspring of American music,” said Steve Picou, assistant director of the Louisiana Music Commission, who notes that New Orleans was home to the nation’s first opera in addition to music legends ranging from Louis Armstrong to Fats Domino.

This colorful legacy supports the local economy every spring, when New Orleans hosts the New Orleans Jazz and Heritage Festival. Some 300,000 people attend the festival, with many of the visitors from outside the state. They are attracted by the quality of the performances and diversity of musical genres, from gospel to rock to locally created zydeco and Cajun. The estimated economic impact, according to Picou, is more than $200 million.


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