Streaming and the music market

David Byrne has started quite some chattering online after his recent article at The Guardian about how artists make no money anymore because of Spotify and other streaming services. While Spotify pays 70% out to music owners, most of that money are going to the labels that actually own the copyrights of most artists today. But that’s just scratching the surface of what really is happening today in the music industry.

Argument 1: Paying $10 per month for unlimited music is too little money to ask to be able to supports artists.

Answer: $10 is actually the right price. Twenty years ago, before the Internet, most people would put aside anywhere between $50 and $100 per year for music. This is about the same price Spotify/GooglePlay/RDIO are asking consumers today to pay for music too. Nothing has changed in terms of “how much a consumer is paying for music”. If anything, $10 is a well averaged amount that a middle-income Western family can afford. You must understand that “normal” people don’t spend money on individual records when they’re balancing their spreadsheet at the end of their year. They call that expense “music”, as if it’s a single product/purchase. As such, the music industry must price that product as if one unit.

Argument 2: Yeah, but back then you’d get only 5-10 albums for that amount of money.

Answer: Indeed. But consider why terrestrial radio was so popular before the Internet. And also consider why the consumer would get a 2nd, a 3rd, or a 10th album in the same year. The answer is: variety. People wanted variety, but they couldn’t afford it. Hence, they were listening to more radio, since there was no other way out to the situation for them. Today, we don’t have the limitation of having to pay for physical media. The internet has plenty of bandwidth and connectivity. If the labels were to push people to go back to physical media, that would be like putting artificial limits on the market (since technology has found a way around the limitations and added expense of physical media). Artificial limits and their market never survive.

Argument 3: Yeah, but profits out of Spotify are minuscule.

Answer: Indeed. This is because of #2 answer above: variety. Variety that’s now available! Since the explosion of the Indie music in the last 5 years, more and more people are listening to different artists than what the major labels want them to listen to. As such, the profits are spread thin towards the “long tail”. So back in the olden days, you’d get about 300-400 pop artists get all the money (along the major labels behind them), with the small indie musician community only making money out of gigs. Now that is so easy for indies to join the same services as the major artists, the listening habits of the consumers are all over the place. As such, everyone earns pennies at the end. As for the major pop artists, most of the Spotify money are going to their labels, not to them. It’s not Spotify’s fault for having these artists signed all their rights away for a record contract! Spotify actually pays out 70% to copyright holders as I mentioned, which is an industry standard.

Argument 4: Well, I make more money when I sell via iTunes.

Answer: Yes, because you sell individual tracks/albums. But people want variety, and they want it for that “magic” amount of money they spend on music every year. Which is about $100 per year, as explained. When people are going for the iTunes model, they only afford to listen to about 10-15 artists. But when they go with unlimited streaming, they open up to many more artists and music. Their horizons are expanded, and they have the true variety they always wanted. Basically, the iTunes model creates just 500 mega stars that take most of the money, while Spotify creates no stars, but every artist gets to be listened to eventually (even if no one makes any money anymore via it). Which one is better: the rich oligarchy of the 0.1%, or democratization of music where music is made purely out of love for it (since no money is being earned anymore)? Besides, if you don’t want to have your music streamed, you have every right to remove it from all these streaming services. Oh, you don’t have that right? Well, nobody forced you to sign evil contracts with labels that take away your rights!

Argument 5: How are artists are going to live then?

Answer: With a real job. Music will only be the labor of love, rather than the labor for bread. For the few that might be so good that people want to see live, they might be able to scrap by while still in their 20s, while they’re still cool. Then, reality will kick in for them too.

Argument 6: Spotify exists just so people don’t torrent as much.

Answer: It’s one of the reasons why the major labels allowed unlimited streaming. But it’s not the only reason. Unlimited streaming for a fee is a natural progression of the music industry. Labels are blaming torrents for their demise, but in reality, it’s the Indies who destroyed them.

Argument 7: The indies? Why?

Answer: In the olden days, to make an LP, CD or cassette pressing and recording was a very expensive deal. It pushed artists to sign some very unfavorable contracts. But since 2000, and especially after 2005, there’s no need for any of that anymore. Anyone with a $300 computer and $200 equipment can create, record, and distribute music. This is revolutionary. This has made the industry explode with CD releases. There were about 5000 yearly releases in the ’80s, and we’re at 150,000 per year today. And I can assure you, that’s not because of population explosion, but rather, artist explosion — artists who found cheap ways to produce and share their work. The fast computers, the cheap apps, and the Internet, made all this possible. Labels are blaming torrents, but in reality, they simply became irrelevant. Now, there’s true choice on music.

Argument 8: And is this a good thing?

Answer: It depends on your intention. If you only care about the music industry and making a buck, then it’s bad news. If you care about music itself, then it’s the best news since classical music sprang to existence. These bedroom musicians that are everywhere today are experimenting in ways never could before. As such, they’re creating brand new types of sounds and music almost every year. “Chillwave” was the first genre that had no physical birth place for example, it was a sound that was spread and evolved via the Internet.

Argument 9: Does this mean that the music industry is toast?

Answer: Yes. It means that music is now free to experience, and not bound to major labels who create banal music and promote it as if they’re brainwashing the masses. Spotify simply becomes a centralized music service in that case, and not a means to get rich. If someone wants to make some money out of their music, then gigs is the only way to do so. Labels must be left out, since they’re redundant right now. If artists want to go pro, they should create their own music videos, take care of their social presence online, hire a PR firm, and do lots of gigs.

Argument 10: But it’s so sad to see it go away.

Answer: Nostalgia and feeling bad for having bought all these records in the past won’t change the reality of things. See it the other way: in my town, in the building where Tower Records were housed (SELLING music), now a guitar shop has opened instead (CREATING music). It’s societal evolution, and only good things can come out of more creation! Humans are creator beings!

7 Comments »

Sam wrote on October 23rd, 2013 at 5:44 AM PST:

Nice article! Every time I read one of these that shows the rational side of the argument I’m glad that there are some level minded people out there who can see past the emotional BS. I’m tired of fan shaming over doing things the legal way, it’s about the lowest an artist can go, and a real showing of their greed. It baffles me that an artist can berate their fans who have happily chosen to listen in a way that DOES earn them some money (over pirating), and then demonize them for doing it. They should be glad for spotify, and youtube, and deezer and torch music and all the rest that pay out royalties, and they should be THANKING their fans for their support!


Andrew wrote on October 24th, 2013 at 9:12 AM PST:

Eugenia, what you’re describing is the destruction of markets for music and the loss of economic opportunity and justice for future generations of talented musicians, composers and songwriters.

Telling them to “get a real job” is not a nice thing to do: it is insulting. Be honest, you are telling people they must adjust to a poorer and less fair world. In the world you describe and advocate, musicians will lose their ability to trade their exclusive property rights, and will be exploited – which means they will be unable to fulfil their talents as they can in a healthy rights market.

There is *nothing* fair about this, and certainly *nothing* inevitable. Calling this “societal evolution” is simply a post facto justification. It can be used to justify slavery or living in caves.

Let me flesh out some of your guesses with real numbers. In the era of physical sound recording sales, under 50 per cent of the adult population bought recorded music. The rest were happy with “free” music from public performance of recordings on the radio, shopping malls, restaurants, etc. But this music was not free, it was being paid for and ultimately the musician got paid. There is no reason this needs to stop, except for lack of courage and imagination from us, and people who invest in talent!

Here’s a thought experiment.

Recorded music will continue to be made in your future world – it’s just that *everyone* in the chain will benefit (Google, your ISP) from it *except* the creator.

The answer to the many complaints about Spotify is to increase the money going into the pools. This will create better Spotifys in the future. People willingly pay for music they love. Unless they can steal it, of course.


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Eugenia wrote on October 24th, 2013 at 11:47 AM PST:

> the destruction of markets for music

Yes, but only for consumer markets.

> and the loss of economic opportunity and justice for future generations of talented musicians, composers and songwriters.

Technology makes some professions to become obsolete. But since music is art, it can continue living. Just without the financial gain from consumers.

>Telling them to “get a real job” is not a nice thing to do: it is insulting.

It’s reality. If reality is insulting, then this is too.

>Be honest, you are telling people they must adjust to a poorer and less fair world.

Poorer? Not necessarily. Musicians can have great professions too. I know quite a few ex-BeOS engineers who are/were also musicians, for example. For some reason, Be was hiring a lot of artistic minded engineers, without consciously knowing it. These people make more money out of software than music.

>In the world you describe and advocate, musicians will lose their ability to trade their exclusive property rights,

NO. This happens *today*, not in the world I describe. In the world I describe, no one signs their copyrights away to labels or other entities.

> and will be exploited – which means they will be unable to fulfil their talents as they can in a healthy rights market.

You mean, a musician needs to buy a song for $1 million dollars from Max Martin in order to fulfill their talent? Or could they simply record at home? The people who need a studio and a sound engineer, are the people who aren’t even real musicians.

>Calling this “societal evolution” is simply a post facto justification. It can be used to justify slavery or living in caves.

Your opinion, not mine.

> happy with “free” music from public performance of recordings on the radio, shopping malls, restaurants, etc. But this music was not free, it was being paid for and ultimately the musician got paid.

Who said anything that this particular commercial usage needs to be removed? It’s personal usage of music that I see it becoming available via a token fee, NOT its commercial usage. Artists STILL can get money out of restaurants, malls, commercial radio etc.

> it’s just that *everyone* in the chain will benefit (Google, your ISP) from it *except* the creator.

This is true for many other things.

>The answer to the many complaints about Spotify is to increase the money going into the pools. This will create better Spotifys in the future. People willingly pay for music they love. Unless they can steal it, of course.

This won’t work for the reasons I explained on #1. $120 per year is the amount of money people spend for music in a year, be it via Spotify, or via buying records. If you try to make the Spotify fee higher, people will go back to torrent, not because they want to, but because they won’t be able to afford music anymore.

Musicians must give up trying to make money out of normal consumers, NOT because consumers don’t pay the amount of money they can pay for music per year (they do), but because of the LONG TAIL. That’s what’s killing them, NOT the Spotify fee which is fair. But the indies. It’s unavoidable, because of all the thousands of album releases per year, BECAUSE technology made it so easy to record/release.

Heck, let’s say that Spotify increases fees, as you suggested as a solution. Instead of $10 per month, people now pay $50 per month. Fair?

Ok, so in that case, the major musicians will now make $10 per month instead of their usual $2 per month, while the majority in the long tail will now make $0.50 instead of $0.10! How does this change ANYTHING? It doesn’t! Nobody can live on $10 per month, or $0.50. That’s because there are so many musicians, that no matter how high you put the price on Spotify, you STILL can’t generate enough money for all participating/listened-to artists, BECAUSE the number of releases/indies is going up FASTER than inflation/pricing! It’s the long tail that money’s going to that’s killing the payout, NOT the Spotify price! There are TOO MANY musicians now, and people are LISTENING to them, because they want variety! And so this means that even Lady Gaga can now only make $10 per month from Spotify! There’s no way around it!

Do you understand my argument now? Your solution doesn’t scale! There’s no way to make money out of unlimited streaming, and yet, that’s what the market *wants*. As such, you must understand that making money out of consumers for music is DONE. It’s history. It doesn’t work anymore BECAUSE of the number of musicians available, BECAUSE of how easy it is to put a record together. That part of the “profession” has been comoditized and there’s no way back, because the only way to go back, would be to stop people from making album releases!

The “problem” (which is not really a problem, it’s evolution), is the amount of music available today, NOT that the consumers don’t pay enough. Consumers still pay as much as they always did for music.

Gigs, commercial usage, bundled artwork might be the only ways to make a buck, and that, only for the few good artists that are the top. Well, not much different than how’s today, really.


Andrew wrote on October 25th, 2013 at 1:50 AM PST:

You originally wrote:

Q. How are artists are going to live then? A. With a real job. Music will only be the labor of love, rather than the labor for bread.

I think you’re partly agreeing with me, in so much as you do acknowledge the *consequences* of your vision. So we’re agreed that destroying rights-based markets means:

- the people who most deserve reward, creators, will be poorer. You actually tell them to be happy with this, I don’t. We disagree there.

- creators will have *Fewer* choices: charity, state sponsorship, private sponsorship, advertising industry will still exist.

- less specialisation will be possible. Eg, you say a musician must learn to tweet and do marketing all day must by themselves, like in the Middle Ages.

- in turn, the destruction of specialist support talent follows. Talented specialist middlemen like producers, agents, editors, brilliant marketing people are great for artists, it means they can spend more time doign what we want them to do – creating. But when money flows, they also deserve to paid. In a market they can be paid, in your post-market world, they cannot.

- Overall: there will be fewer opportunities for talent to flourish. “They must get day jobs”

Now we’re agreed that the world will looks something like that, we can make ethical judgments on whether this is a good thing. You’re happy with this world, I am less so. It is not a fairer world, it is a less fair world.

Do you understand my argument now? Your solution doesn’t scale!

Rights-based markets scale until people a) stop making music to sell or b) people stop willingly “buying”. The abundance and availability of material is quite irrelevant. Ie:

BECAUSE the number of releases/indies is going up FASTER than inflation/pricing!

This is just silly, Eugenie, if you think about it. Supply, not demand, sets the price. A hot new hit single by a popular artist (eg, Adele) is very valuable indeed, for that short period of time when it becomes available. It is not affected by the quantity of other material. Somebody who loves the new Adele single may want to buy it, irrespective of how many folk singles were released that day. The price is affected by other factors, of course.

Please study the economics and learn about substitutable & non-substitutable goods.

Similarly, the number of people making music doesn’t affect the price. The spending power and habits of consumers affect the price.

You have a very strongly felt view that creators (not just musicians) will get poorer but it seems to be based on a false premise. Won’t future generations thanks us for working for a better world?


Andrew wrote on October 25th, 2013 at 1:54 AM PST:

Your commenting system does not allow corrections. I should have written:

“Demand, not supply, sets the price.”

So music competes with gym clubs, movie theatres, games for a part of a consumer’s wallet. The quantity of music in the music market does not affect the price.

Of course, you can steal music and pay nothing: while it is harder to steal a gym session, steal a trip to a movie, or steal a game.


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Eugenia wrote on October 25th, 2013 at 7:24 AM PST:

>“Demand, not supply, sets the price.”

This is true. The problem is that demand for the big pop stars has gone down, and instead, that demand has spread all over the indie market. That’s my point, that supply also plays a role.

Fewer people listen to Adele today, as per your example, as they would 20 years ago. Simply because consumers have more choice now.

Besides, you never replied to my argument that even if you quadruple the Spotify price, artists STILL don’t make enough money out of it! So I just don’t see the point of being against Spotify. What you’d need in this case is simply banning streaming services. And that’s like going back to Middle Ages.


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Eugenia wrote on October 25th, 2013 at 9:25 AM PST:

Here’s an interesting story about Zoe Keating, who removed her latest album from Spotify. She obviously makes more money via direct sales than streaming. When including gigs/licensing, she makes about $200k per year, before tax. But this includes NO label in the midst of it all, she sells directly! And even if Spotify was to increase its price, she would still make no real money out of it.

However, even Keating says that Spotify is simply a convenient way to listen to music, and that she herself doesn’t buy all the music she streams. She only buys what she really, really likes. So she says, she can’t expect that everyone’s who’s a casual listener to always buy her music.

But that’s the key. For casual listeners, $120 per year is the right price to pay. For these people, who are the majority, the current state of affairs with Spotify is what they want. For artists to make some money they might have to be removed from streaming services completely AND ditch their labels (or only include their old albums, as a type of advertisement — as some already have done so).


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