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Who turned off the music?

A report looks at the lackluster music industry in Hungary and seeks ways to reverse its decline. The country’s high VAT is singled out as one of the bigger problems.

The interior of the recently refurbished Liszt Ferenc Music Academy. (Photo: Tamás Thaler)

If Hungary’s ailing music business is ever to rise from its sickbed, there must be changes to the VAT burden on live concerts, better state sponsorship of music, new means of cashing in on live performances and downloads – and a realization that the great composers Kodály and Bartók are dead.

These are among the findings contained in a new report that looks at ways to reverse the decline of the HUF 30 billion Hungarian music industry. The ProArt 2015 report, commissioned by the ProArt Association, the main body representing the industry, contains an analysis of the obstacles to success for the industry, as well as recommendations for how to make improvements. It is the most serious single concerted effort to right an industry that has been adrift for some time.

The report puts forward six strategies for growth: Raising audience numbers; improving musicians’ incomes; increasing active interest in playing music among the population, especially among young people who make up future audiences; improving profitability in the recording sector; maintaining the efficiency of copyright execution; and increasing state funding.

“The key players of Hungary’s music business are small- or medium-sized firms, often run by a founder-and-CEO,” explains Dániel Antal, the music industry economist who produced the ProArt report. Antal tells the Budapest Business Journal that the market is small and decentralized, and thus private professional investors prevail. “Acquisitions or growth through subsidiaries has been impossible, partly due to the lack of transparency in the sector,” he says.

Hungary’s pool of musicians and new compositions is abundant even in European comparison, especially considering that, since the Iron Curtain was lifted, artists no longer have to face the state’s muzzle. These musicians need live gigs, as fully 65% of Hungarian musicians’ incomes come from live music, the report says, but it is getting harder for venues and audiences to afford live performances, and the number of musical concerts have dropped in every genre and segment, the report shows.

“A crucial problem is that ticket prices are hit by one of the highest VAT rates in the region, making live Hungarian gigs 15-30% more expensive to visit, which is uncompetitive regionally,” Antal explains.

State support sought

Hungary offsets its low number of live shows with a higher number of festivals than the European average. The chance to play at these festivals can help compensate musicians for some of the money they lose on lackluster ticket sales for one-off concerts. It is therefore helpful to the industry that the state budget will provide HUF 487 million to support festivals.

Musicians and other members of the industry say they would like to see more state backing. The industry is currently watching to see what kind of support will come out of a state-run program, which is named after prolific singer-songwriter Tamás Cseh and is meant to provide funding to help bands market themselves better. “Other areas where the state may have a legitimate role is addressing some of the social needs of retired artists or artists who could not legally earn a living from their art during the communist era due to censorship,” Antal says.

But he adds that the biggest help the state could give is a tax break in the form of a preferential VAT rate for the music sector, to make live music more affordable for audiences. Industry players say the state would benefit due to the new jobs this change would create.

While live shows are a vital source of income, sales of recordings are also important to the sector. The number of active consumers of musical products is estimated at about two million, and buyers have rapidly shifted towards digital and online platforms. The share of physical records (CDs) in purchases stood at 97% in 2012, dropped to 94% in 2013, and plunged to 65% in 2014, with digital sales growing fast, the report said.

Digital sales have only just started really taking off in Hungary and paid-for downloads are yet to become popular. YouTube and music streaming services such as Spotify or Deezer now offer their services in Hungary without the problem of unauthorized copying of content.

“These providers, along with their Hungarian equivalent, HallgassHazait, are marketing channels which make gains at the expense of TV and radio,” Antal says. “Hip-hop and some types of Roma party music have never been big on radio and fit nicely with the new digital marketing model.”

Recording and royalties

While making records is one of the costliest parts of the business, and it is very hard to draw investors there, some lucrative deals can be found with the cash that spirals off music to other industries, like tourism or catering. At the same time, records can help promote other sales, including live gigs and festival contracts, and musicians often see CD publishing as a necessary investment at the start of their career, too.

Meanwhile, CDs with nothing on them are helping the industry too. Artisjus, the main agency that collects fees for authoring rights and other royalties, is funded by several sources, including a monthly charge for bars that play recorded music and a levy on any data carriers, such as writable CDs, flash drives, memory cards – even cell phones.

The method for paying artists from the funds collected has recently come under fire from some members of the industry, who say the redistribution lacks transparency, but most players still agree this is an important source of revenue generation and some small compensation for illegal downloads. Collection societies like Artisjus need to increase efficiency and upgrade technology so that administration for big music users is as cheap and simple as possible, according to Antal.

As for the future supply of audiences and musical talent, that was one of the more surprising findings of the study. In a country where, about a century ago, composers Zoltán Kodály and Béla Bartók developed a sophisticated music education system, which was later supported by the state, there is less interest in music than might be expected. Data from the ProArt report shows that only 5% of Hungarian adults sang in the past 12 months and even fewer, 2.8%, played an instrument, compared to European averages of 12.5% and 8.1%, respectively. Along with indicating a reduced supply of musicians, it also indicates a limited interest in music. “This takes its toll on music consumption,” Antal warns.