Last year, Taylor Swift took a stance against the rapid rise in music-streaming services and pulled her immensely popular albums from Spotify, signalling that streaming music services weren’t sustainable for artists.
At the heart of the issue is the business model of music-streaming services. Major players like Spotify, Rdio and Pandora compensate rights holders by paying them an amount each time their songs are played by a listener. Spotify, by its own admission, pays rights holders less than a cent per stream. To this paltry income, add increasing music piracy and rapidly declining sales of albums and singles, and it’s quite understandable that Swift would be concerned about the future of music—particularly for artists.
“Valuable things should be paid for. It is my opinion that music should not be free.”—Taylor Swift
Unfortunately for Swift, the marginal cost of producing copies of existing music is zero. As such, it is implied that the market price of music should be zero. Indeed, while music obviously holds some form of value, piracy and the ease of duplicating music have strengthened the perception of music having no price.
This is where streaming services step in. Streaming sites don’t actually make music available for purchase. Yet they charge a fee—around $12 a month in Australia—based on the Open Music Model. The OMM determined that the current market-clearing price is approximately US$9, closely mirroring the price currently charged in Australia (accounting for the exchange rate and taxes). In the long run, the OMM suggests a price of US$5 a month, indicating that music will have even less value in the future.
While the lucrative heyday of music may be over, is it right to assume that the decline in revenue for artists is correlated with the emergence of streaming services?
After the music industry experienced a surge upon the release of the iTunes Music Store (generally regarded as the first successful digital music sales platform), advancements in file sharing technologies soon after meant that more and more sales were being lost to piracy.
Yet music-streaming, claim its proponents, provides consumers with numerous unique benefits such that it is a substitute for music piracy. Music-streaming offers a better music experience (greater ease of use, for example) at an acceptable price, thereby giving artists a small slice of the pie rather than no pie at all. Record labels and artists have reacted to this shifting trend, by garnering artist revenue not directly from music sales, but from merchandise and concert ticket sales, which were previously considered auxiliary sources of revenue.
What does any of this have to do with Taylor Swift?
Find out in Part 2.