FREE MUSIC: From Piracy to Streaming, where it all went wrong…
As more and more artists begin to speak about the faults of the current music industry landscape. It leads to a question?
“Where did it go wrong?”.
It surely can’t just be the new technology and streaming companies as the scapegoats…is it the labels? Are they to blame? Do we blame the consumers?
How did music become “FREE”?
The digital age shifted music consumption and consumer behavior.
Beginning with the explosive growth of piracy platforms like Napster. Launched in 1999, Napster quickly amassed 70 million users by enabling free file sharing, which led to a significant decline in traditional music sales. The global music industry, which peaked simultaneously at $25.2 billion in 1999, saw a dramatic fall as piracy became rampant.
This era of free access to music reshaped consumer expectations. Creating a demand for more accessible and affordable music solutions. Enter Spotify in 2008, a game-changer that shifted the industry from ownership to access. Unlike the zero marginal cost of piracy, Spotify introduced a subscription model, where users pay a recurring fee for unlimited streaming; this model offered legal and convenient access to vast music libraries, addressing piracy while providing fair compensation to artists.
However, despite the apparent solution to piracy at the time, the streaming model has its own set of challenges. The per-stream payouts are minimal, raising concerns about fair compensation for artists. Many artists have spoken out about the negative externalities of streaming, citing the low payouts as insufficient to sustain their careers. The shift to streaming has thus increased the marginal cost of music for consumers who now pay regularly for access, unlike the one-time cost of purchasing albums or the zero cost of pirated music.
As we have seen more and more artists begin to speak up such as James Blake, Kanye West, Taylor Swift- there is clearly an issue with the industry and it is a question that will remain on people’s minds until there is a solution that truly puts the artists at the forefront.
Marginal Cost Theory and Negative Externalities on Artists
To investigate this further, I will bring in marginal cost theory and the assumption of the externalities of the streaming model to the artists. Assuming that the monthly living wage is $1500 for an average citizen in the G20 of countries, we will then work out how much artists lose monthly.
Negative Externalities for artists arise from the disparity between the low marginal cost of streaming and the revenue generated per stream. The formula for calculating total revenue from streaming can be simplified as:
With typical payouts ranging from $0.003 to $0.005 per stream, a million streams would yield only $3,000 to $5,000, which is insufficient for many artists to sustain their careers. As aforementioned high-profile artists like Taylor Swift have publicly criticized streaming platforms, bringing attention to the financial struggles in the current landscape. Now imagine the effect on more niche artists with even lower stream numbers and payouts coincidentally.
Average Payout to Artist:
Assuming that the payout pool is $40 million dollars with a million artists on an average streaming platform, then the average payout per artist would be $40.
Negative Externality Per Artist:
If we subtract that $40 dollars to the assumed fair monthly income of $1500 dollars then artists are effectively losing $1460 dollars per month.
NE Per artist=$1500-$40=$1460
Based on this we can see that artists are on average effectively making nothing from streaming services, and are losing $1460 monthly, which is effectively all of their suggested deserved income.
Now we bring in how we got here? As mentioned before, piracy and other developments led to the value exchange of music changing drastically. Effectively, meaning that for the artist releasing music was cheaper than a CD.On the other hand, the “user” or “consumer”, got access to an unlimited catalog of music for the price they used to buy 1 CD or vinyl in the past.
Marginal Cost (MC) refers to the cost of producing one additional unit of a good or service. In the context of digital music:
- For Consumers: The marginal cost of streaming an additional song is effectively zero, as once a subscription is paid, listening to more songs does not incur extra costs.
- For Streaming Platforms: The marginal cost of providing one more stream is also near zero, involving minimal additional expenses for server and bandwidth usage.
Conclusion
Interpreting the numbers above, we see that the average streaming platform has a marginal cost of next to zero for each additional stream of a song, however, they are still incapable of paying the artists fairly which is a huge injustice.
As streaming services continue to evolve, the balance between fair artist compensation and affordable consumer access remains a critical issue. So how did music become FREE?
A combination of piracy, the transition to streaming, and the proceeding top-down distribution methods have created an environment that hurts artists.
The rise of conscious consumerism highlights a growing demand for ethical consumption.
Therefore, solutions have to adjust and innovate in ways that benefit both artists and listeners to avoid becoming synchronistic to the state of time. The journey from Napster to Spotify illustrates the profound impact of digital technology on the music industry, underscoring an ongoing value war in the music industry between the distributors, listeners, and the consumers with the artists who are at the core of the discussed creations being left out of the decision tree. Effectively the journey from Napster to the major streaming platforms is one that has a new chapter and dawn being slowly etched into the linings of the next chapter…what will that be? Ask around you…
