So, Diary, explain to me… please… because I really don’t understand it…
Why would any professional musician right now want to put their music on Spotify?
Taylor Swift has just removed her entire catalogue from the music screaming service, to much internet hububbery. And earlier in the year there was a similar hubbub when a Grammy-nominated artist shared his royalty statements.
There is more and more talk about how streaming is the inevitable future of the music industry. And many of my friends use Spotify and love it. But I can’t for the life of me see how the business model adds up.
And I’m not saying it doesn’t, or couldn’t. I’m just saying that I can’t see it. And if anyone fancies explaining it to me I’ll be happy to hop on board the streaming train.
Here’s how it looks like to me:
Let’s imagine there’s a cinema, and it’s doing its market research. Good, sensible market research to find out its customers actually want.
The cinema asks the cinema audience: What do you like to eat before seeing a film? Popcorn, right? Everyone loves popcorn! That’s what cinema’s all about, yeah?
And the audience says: Er… no, not really. I find it a bit sickly.
The cinema says: Really? That is interesting. We thought everyone loved popcorn. So what would you rather eat?
The audience says: For a film? Ice cream.
Cinema: Really? Ice cream? A surprising choice. Well, we’ll note that down. Any particular type of ice cream? Cornettos? Magnums? Ice cream Snickers?
Audience: Ben & Jerrys. If you sold Ben & Jerrys that would be awesome!
Cinema: Well, we’ll see what we can do! And how would you like to eat your ice cream? In a cone, presumably?
Audience: Actually no. In a tub – less sticky in the dark.
Cinema: Of course! (Write that down… ‘less sticky in the dark’….)
And that’s perfectly sensible. But it’s the next round of questioning where things go wrong.
Cinema: Okay, so we know what you’d like to eat, and how you’d like to eat it. Now… how much, in an ideal world, would you like to pay for it?
Audience: How… do you mean?
Cinema: Well, all things being equal, if it was your choice, if you could decide how much to pay for a tub of ice cream, how much would you pay?
Audience: Er… Ideally? In a perfect world? Well, I wouldn’t pay anything. It would be free ice cream.
Cinema: Free ice cream? Interesting… yes, that is interesting. Free ice cream. You’re sure? You really wouldn’t rather pay anything?
Audience: Not if it was totally my choice, no.
And so the cinema then asks the Ben & Jerrys company to serve ice cream at a Ben & Jerrys stand in the foyer of their cinema. And they ask them to give the ice cream away for free.
And both Ben and Jerry say: Hold on? You want us to give our product away for free?
And the cinema says: Well, yes. And I’m sorry – I mean I know it’s not ideal for you. But this is clearly how the industry is going. Everybody, and I mean everybody, that we asked said that they would rather have their ice cream for free. When we tested it, the stalls giving ice cream away for free shifted vastly more units than the paid option. I mean… you can cling to the past if you like, but you’ll just be swimming against the tide of business history. You’ll be an ice man trying to sell blocks of ice to suburban families that now all have refrigerators…
The most fundamental law of business: Cash Flow
I think that all the talk about the ideal product for the consumer is missing the point. Because the most fundamental law of business is that if you cannot afford to produce your product — if your costs are always greater than your sales returns — you will go out of business.
Giving the product away for free might well be a ‘great way to get yourself out there’… but at some point a professional musician needs to make enough money to pay not only their business costs (travel, studio hire, insurance, etc) but their living costs too (food, heating, rent, childcare, etc).
(Apropos of nothing: that old joke we used to hear in bands at school. ‘What’s the difference between a professional guitarist and a 12 inch deep pan pizza? Answer: the deep pan pizza can feed a family of four.)
Why it’s a bit more complicated than that
Okay, so I deliberately simplified the issue. It is, after all, an analogy. There are many ways in which the streaming situation is different from my cinema ice cream stand.
First and foremost, the streaming services are not asking people to give their music away for free. Or at least not all of it all of the time. Artists get paid, albeit a negligible amount. But it’s all about a system of scale: if enough subscribers pay for a service like Spotify then all of those subscription fees add up, and then there’s enough to pay artists the same as they would get from downloads.
Music piracy through peer-to-peer file sharing is almost impossible to regulate. Even YouTube can’t keep up with the music illegally shared on it. And research does seem to suggest that many consumers of music would rather ‘rent’ their music than own it and have it clogging up their hard drive. So whatever professional musicians use as a business model needs to take this into account.
So let me amend my analogy a little.
This cinema exists in a utopian island, where there are no rules. There are laws and police forces and other very uncool things on the mainland, but they can’t reach this island. And because of this, lots of people have recently flocked to the island, thrilled at the prospect of a real democracy, without The Man interfering.
There is an ice cream factory on the island. That’s how awesome this island is. And there’s no rules or laws, so in the middle of the night lots of people just break in and steal pots and pots of ice cream. It’s basically the perfect island. Free ice cream.
And so the cinema approaches the ice cream factory and says: Look. You’re haemorrhaging money here. Your stock is being stolen and there’s no way you can stop it. But we believe people are fundamentally moral, and will pay you if make it easier for them than stealing. If you give away your ice cream in our cinema foyer, for free, at a time and place when people actually want it, we will pay you a small cut of our cinema ticket sales. And the lure of free ice cream should increase our sales by a factor of 10, maybe more. And when that happens we will be able to pay you as much as you would get if people weren’t nicking it.
The ice cream factory isn’t exactly thrilled by this offer. To them it smacks of ‘Look, I don’t have the money on me as such… but I’m expecting a huge postal order from my uncle in Fiji. As soon as I get it I’ll pay you back!’ It relies on putting a huge amount of trust in just one organisation, in the hope that by working for them for almost nothing you will make them enough money that they will one day decide to pay you. (And let’s pretend that on this island the cinema has the same reputation for honesty and fair dealing that the music business has.)
But in the absence of practical alternatives, the ice cream factory take the offer. At least it’s some money, which is better than nothing. And maybe the cinema is right: maybe it’ll do them some good to ‘get their name out there’. Maybe they can generate more sales for the cinema, and the cinema will pay them more.
But that basic law of business still exists. If producers can’t afford to produce, they will stop producing. And in any declining industry, it’s the producers of luxury goods that will go first. The ultra-cheapskates will usually end up being the only ones in the game.
The ice cream factory finally gets its statements, and is shocked to see how little money it’s making per ice cream tub given away. The money doesn’t cover the cost of the ice cream ingredients, the factory staff, the factory equipment, the building rent and maintenance, the packaging, the health and safety tests and quality control. They try to soldier on, but eventually the staff get downsized. And finally the owners — seeing that no amount of effort is ever going to give them the freedom to expand their business or even really feed their kids — lose heart and give up. And they get other jobs.
So instead the cinema becomes stocked with cheaply produced ice cream, made by a company that doesn’t really specialise in it but sees it as a good promotional opportunity for their main product: a milk chocolate bar aimed at kids and made mainly out of corn syrup. And the audience doesn’t really like the ice cream, and fewer and fewer people take it, even for free. But people get used to it, and get used to grumbling about it, and forget there was ever another option.
The cinema notices a drop in their ticket sales, as the tackiness of the ice cream starts to give the audience a dim view of the cinema in general. But the cinema is philosophical: there must be plenty of artisan ice cream makers out there who would jump at the opportunity to put the spotlight on their product. If they can just keep finding these artisans then the cinema can give them a platform, and the artisans can make the audience develop a taste for their great ice cream, to the point where they can charge actual money for it. And then the artisans will move on, and set up their own shops, and the cinema will bring in new undiscovered talent…
And so long as the cinema can keep this up it can get big enough to be able to pay the artisans properly. And then you will have a durable system in which Everyone Is Happy.
Just then, everyone stops going to the cinema and starts watching films on Netflix.
And outside the cinema there are indeed many little artisan ice cream producers, who don’t care about business and money and just make ice cream for the love of it. But however much time they spend making ice cream, they still need to pay the bills, so they have day jobs. Which means they don’t have the time to package the ice cream, transport the ice cream to somewhere you can buy it (before it gets stolen) and then actually let you know that their ice cream even exists.
Which means that unless you’re the kind of ice cream aficionado with the time to wander round every cottage on the island looking for ice cream… you’ll never get to taste the good stuff.
And a final thought: one of the joys of being alive is seeing the ‘utterly impossible’ of yesteryear happen before our very eyes today. The idea that you could carry around an object in your pocket that could take a huge colour photograph and send it through the air to someone on the other side of the world in seconds… 100 years ago would have seemed unquestionably impossible. And not just impossible then, but impossible ever.
You can never predict what will be possible tomorrow.
And it’s not totally impossible that one day they might figure out a way to curb music piracy again.
And what that would do to music, and how much people consider it’s worth… would be very interesting!