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The Stream: Music Without a Container

A common complaint among collectors of recorded music is that they've had to buy the same music over and over again in different formats. First the vinyl, then the cassette, then the CD, and now the digital files. Somehow the consumer believes he is buying the “music” and not the mechanical means to play the recording.

The cost of producing and distributing physical containers for music recordings has played a large part in what consumers have paid for recorded music. As the cost of producing these containers goes down, the price of recorded music remains the same. The theory is that these expanded margins allow the record labels to invest in new and undiscovered musical talent. That rarely happens anymore, the capital is deployed into other kinds of investments. It's no longer considered a good investment to develop talent.

The cut-of-the-pie taken by non-musicians is enormous, even as the risk taken by the record companies gets less and less over time. All of the risk has been shifted to the musicians. If they show up with a built-in audience ready to buy product, then there's a contract waiting for them to sign. This is true in the publishing world as well.

The issue lost in all these calculations over the cost of producing and distributing various containers for recorded music is: what is the value of the music itself? Since, for the most part, all CDs are the same price, can we assume that all music has identical value? In this model, the differential in artist compensation is based on the number of units sold. Sell a lot of records, make a lot of money. Or as it sometimes plays out: take an advance on future units sold; don't sell enough units; end up owing money to the record company; work without compensation to pay off the debt.

If you want to understand how power and morality works in business arrangements, simply ask who is taking risk and who is being compensated for it. Imagine a business where an artist is asked to take most of the risk, but isn't compensated when the risk pays off. Reducing risk and increasing profit is business as usual for corporations.

The digital file download was the last remnant of the music container. The file was downloaded and actually existed on some device. Cloud-based services parked your files in a location where network-connected devices could access the full library without specific files being physically present.

The music streaming services have done away with the container altogether. You don't even get the files. The consumer only gets access to the stream. Since the cost of the container is no longer and issue, the price of the service is lower. If you look at it from the pure consumer perspective, it's a bargain. Let's say you're big music fan and you buy two or three CDs, or album downloads, a month. For the cost of one download, you have access to a huge library of recorded music streams. For the cost of 12 album downloads a year, you get access to all popular recorded music all year long. It's pretty obvious that the economics favor a mass migration to the streaming services, and that movement is backed up by industry stats.

We're familiar with the old story about musicians who were paid a flat fee to record a set of songs. Some of those songs were turned into vinyl records that became hits. The record company took in all the profits for record sales, and the musicians had signed away their right to a piece of the action. Over time that model was adjusted to give artists some compensation for record sales. But what happens when nothing is actually sold anymore? No music is sold, streaming service revenue is based on monthly subscriber payments. Turns out the value of an individual stream of a song is a tiny fraction of a penny. That's what the artist receives each time the consumer streams a song.

For the consumer, the risk of buying an unknown album becomes zero with a music streaming service. Since nothing is bought or sold, the consumer can take a bite and if it doesn't taste good, it can just be put back on the shelf. This lack of real investment changes the whole dynamics of new music discovery. (And by the way, streaming is NOT a discovery method prior to purchase. It replaces purchase.)

Ask any investor whether it makes sense to take uncompensated risk. This is the question musicians need to ask themselves. By releasing their new music to the streaming services, they've effectively eliminated any possibility of selling physical CDs or downloads. If sales of recordings is a significant part of a musician's annual income, streaming will quickly eliminate that income category.

Working outside the music industry system used to be considered big risk. It was a risk that limited the upside of sales and popularity because big distribution only existed through the system. Even the “independent” and “alternative” categories have ended up inside the thing they're supposed to be independent of, and alternative to. Since the streaming services take sales out of the picture, all that's left is the promise of the possibility of popularity. But like the risk, it's uncompensated popularity.

Musicians are already taking risks. A risk is an investment, and musicians need to figure out where they can be fairly compensated for the risks they're taking. Music consumers need to understand that they're part of a whole ecosystem. The idea that the world owes consumers free music forever is childish and self-centered. If you don't value music enough to pay for it, then you really don't value music much at all. Do you think fair-trade coffee is a good idea? How about clothes that aren't made in a sweatshop? How about seafood that isn't the product of slave labor? How about fair-trade music? Does that sound good to you?

 

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