Technology has delivered for the music industry

Every year, Spotify Wrapped triggers a myriad of complaints about the current state of the music industry. Most of these complaints are built on false assertions.

The “music industry” is not that old and has never really settled into a specific long-term structure

Recording artist has only been an occupation since the 1940s. The radio era only started in the 1920s. Modern amplification became common, enabling concerts as we know them today, in the 1960s. Vinyl only dominated for 30 years, the CD for 15, the cassette for less than 10. Reel-to-reel recording dominated for about 40 years. The grand piano, invented in the 1880s, dominated for just 70 years, while the electric guitar dominated for 30. Hip Hop is 50 years old, not that new compared to all of the above.

My point here is two fold:

• Modern music history has always been volatile thanks to new technology.
• Our modern conception of the music industry is pretty new and most of the specific things listed above are not some ancient heritage to protect. Streaming has been a thing for over 20 years now, with Spotify dominating for 17 years, longer than the CD and cassette eras.

Many huge and old artists hate streaming for self-interested reasons

Consider the potential self-interest of the loudest voices here. The music industry has given humanity immeasurable joy. But, it’s never been an open, welcoming, or kind industry. For the big labels and even individual popular artists to be as dominant as they are, they must gate keep the industry from new entrants. Fifty years ago you had very little chance of breaking out without heavy support and endorsement from the dominant players. Technology has consistently and dramatically lowered the cost of being a recording artist. Today, even the biggest artists are “bedroom artists” and anybody can blow up over night. Music may be more commoditised than ever, but commodities are easier to produce.

The winners of the previous paradigm always hate the new one. Banjo players hated the emergence of the electric guitar (Fender created a special guitar just for banjo players making the transition). Rockstars were generally pretty critical of hip hop and electronic music.

Consumer willingness dictates streaming prices

Spotify allegedly passes 70% of income on to rights holders. That is actually a terrible gross margin for a tech company, and it’s locked in by contracts. The margin on a CD in the 2000s was around 50%. Warner Music Group reported a 46% gross margin in 2022, while Spotify reported about 25%. Non-hardware public tech companies should achieve at least 80% (so if anyone should be passing more revenue to artists, it’s probably the labels).

Before streaming, people typically bought four new CDs per year (if you care a lot about this issue, you probably bought more). So they went from a personal budget for music of about $60 a year, to what is now closer to $150 ($12/mo for twelve months).Also note that many of Spotify’s users are free users on the ad-supported tier.

So, for artists to make more from Spotify, consumers will need to pay a lot more, which they are clearly not willing to do. If you want your favourite indie band to earn 10x the revenue per stream that they currently do, you’ll need to pay something like $120 per month. I would argue that unlimited to access to the entirety of recorded music history is worth that much, but most consumers are not willing to pay that.

Music technology has delivered on its promises

Consumers get more for less, rights holders get a bigger piece of the pie, and an amazing new acquisition/advertising channel. Musicians can make music more cheaply, and release it independently more easily.

So why is nobody happy? Maybe the labels are scamming artists. That’s potentially true. Or, maybe we’re disappointed because the modern system reveals specifically how little we value music as a collective.

Music lovers assume everybody loves music as much as they do, but the reality is, most people have a few albums (now songs) they frequently go back to, and are happy enough with curated playlists (or radio) as background noise the rest of the time.

It’s great when passionate, talented artists earn a great living from their work. More artists do that today than ever before. But the reality is, if you can’t convince an extremely large group of people to listen, or a much smaller but still large group to occasionally see you perform live, you won’t make a great living. You’ve gotta make a product people actually want, and this is a disappointing for people who do it out of passion.