Laura: So if you think back to the early 2000s—and it’s kind of a dim memory, this age before streaming—the music industry was already struggling. The thing that people were worried about back then was that no one would pay for music at all in the future, that we’d all just be pirating and downloading illegally for free.
Alex: Here’s my memory: I went off to college, and in our dorm, all the dorms were connected on the same network, so everyone was sharing their music libraries. And I was like, “I don’t ever have to buy a record again.” This was in New York. It happened around the same time Tower Records closed here. And it was like, “Oh, I must’ve done that. I and my friends in the NYU dorm must be the people who did that.”
Laura: I remember taking my little box of CDs to college with me the first year. And then the second year I was just like, “Oh, I don’t need these anymore. I can play music without having this record collection.”
Alex: So you and I, our generation destroyed the industry until these beneficent streaming corporations came in to save it. That’s basically how we understand it happening?
Laura: That’s been the narrative that’s formed in my mind over the years. So I can’t understand how things went so badly wrong. I think that’s why we need to talk to another guest.
Alex: So we’re joined now by David Turner, who writes the newsletter Penny Fractions, which is about the music streaming business. A small disclaimer, before we get started: David works for SoundCloud, but he wants to be clear that his views are his alone and don’t represent those of his employer.
Hi David, thank you for joining us.
David Turner: Thanks for having me today.
Alex: As a layperson, if you’re interested in the music business, you maybe get the sense that it’s in trouble. You get the sense that artists are not able to make a living through their music anymore, and that everything has been upended by technological change. My question is: Is that accepted story of how the music industry fell apart true? And am I, the music consumer, responsible because in 1999 I downloaded Napster and started downloading Wilco albums? Did I set this all in motion?
David: No, you did not set this in motion doing this in 1999. The record industry overall right now is actually doing really, really well—profits are up and have been going upwards since around the mid-2010s. And what has been happening is that artists right now have been raising a lot of concerns about these new digital platforms and these new digital ways of payment. And artists are seeing that these platforms exist and are seemingly making a lot of money off their work, while artists are not seeing that return come in. The big issue with the record industry is the same as it’s always been—it’s the major labels. It’s major labels that have had control dating back to like the 1970s, the 1980s and the 1990s, when we used to have, at one point, six major labels, then five, then four, and now we only have three. So when you start looking at that, it becomes, to me, the much bigger issue, rather than its being an individual platform or individual consumer choice.
Alex: I think that’s worth highlighting, because I think people think the music industry is in trouble, but you’re saying the industry is doing fine. The industry is making money under current arrangements. It’s the artists—they’re the ones in trouble.
Laura: When I was growing up listening to music, there was this whole scare around people downloading stuff from Napster and teens getting prosecuted for, like, theft of intellectual property. And there was a sense that streaming services were going to save everyone from having to either be criminals or pay an inordinate amount of money to buy a CD. They were seen as this great savior, like iTunes was seen as actually providing a way to monetize music, Spotify was seen as a way of being able to access music and pay for it. What do you make of that narrative?
David: I find that narrative on its face laughable. Imagine an industry, a $10 billion-plus industry, that can be taken out by a teenager. That’s hilarious.
Laura: So what was piracy? How extensive was it?
David: To contextualize piracy a little bit better, internet access wasn’t rampant in the late 1990s—penetration was a little over 10 percent globally. The internet of the late 1990s was not great. You could barely get access to any music. So the idea that all of a sudden the introduction of slow downloads entirely cratered an industry is, to me, specious. And then, to be more serious, there have been a number of academic reports and academic research into this field, and it’s a wash as to whether piracy had a real impact on record industry sales.
Alex: Yeah, it’s funny when I’m thinking back. In my memory, I downloaded so much stuff. But then I go back to my favorite records that came out in 1998, 1999, 2000—I bought every single one of them. So in retrospect, I don’t even know what I was spending my family’s precious dial-up internet time downloading.
David: There’s sort of that intuitive sense of, I used to buy CDs, and music came on digital, I started downloading music, and that explains everything. But most people continued to buy CDs. Most people still listened to most music on the radio. There are all these other forms that didn’t go away when the internet introduced digital downloads.
Alex: I want to get into the economics of this, in the sense that we hear about these incredibly low rates that get paid out to artists per stream. How does the music industry currently make money? Where’s the money coming from, and who’s it going to?
David: The way the music industry makes money right now is mostly through streaming. Streaming accounts for, I think, 80, 85 percent of overall recording industry revenue. And most of that revenue can be attributed back to Spotify and Apple. Spotify has a lot of paying subscribers. They have tens of millions—over a hundred million—paying subscribers. And then a lot of it also comes to advertising. Apple also has subscribers, so they make a lot of money from that. And then a lot of it is just subsidized streams—Amazon, YouTube. We don’t really know if those are successful businesses within the Amazon or Alphabet portfolio. We just don’t know that. But the idea is that like 80 percent of that streaming revenue is mostly coming from tech companies. If you notice a trend here, the companies I’m mentioning, among those companies, Spotify is the only independent of those, not owned by a bigger tech company. And it’s also only had two profitable quarters in its more-than-a- decade of existence. So you can see that this isn’t actually a really sustainable or profitable business. But it’s one that is right now being mostly propped up, in Spotify’s case, by investors all across the globe, and finance, advertising, and even the major labels that previously had investment in the company. And then on the Apple/Amazon/ Alphabet side, we really don’t have a great sense. I assume that Tim Cook just sort of looks at the Apple Music costs and just shrugs his shoulders—“Whatever, this is fine.”
Alex: Then that money’s going, as you said, primarily to the major labels, right?
David: Yes. A majority of that money just goes straight into the major labels. So this is, again, nothing new. This is how things have basically been since around the 1990s, that major labels account for probably over two-thirds of that revenue. And then the rest of that goes through independent labels, mostly represented in the United States by Merlin, which is a big trade group that represents thousands of smaller independent labels. And then outside of those two buckets, there are actual independent self-distributed artists, or labels outside of Merlin. But those represent a tiny percentage of that revenue. It’s very, very small. At this point, a majority of the money being filtered through the major labels or indie labels.
Laura: Musicians have been complaining about their relationships with their labels for a very, very long time. Has streaming made it worse? Has it put musicians in an even worse position with relation to their labels? Or is it the same?
David: I actually think it’s fairly analogous. I don’t think it’s changed all that much. I mean, the deals certainly have changed. Major labels’ deals have gotten smarter to incorporate more things that artists do. The idea of a 360 deal is that you’re taking some part of touring, merch, and everything that an artist releases. That’s certainly been a newer innovation of the last 20 years. But overall, you can go back to the early twentieth century, when musicians, like blues musicians, were complaining about how record labels treat them. That’s not really any different. A good example is the rapper Silento, who had this song “Watch Me” from five years ago. He signed a five-album deal. He never put out an album. And that’s the kind of deal and classic situation that you would hear from artists certainly 20, 50, even 100 years ago. One interesting wrinkle with streaming—and this is a little bit in the weeds, but it is kind of odd to think about—is that the way that streaming works with artists payouts is that it’s done on a pro rata model. So when Drake puts out a new album, if he puts out a new album and he’s 5 percent of overall streaming that week, he makes 5 percent of the money—he gets 5 percent of the overall pot. So that means that if you put on an album that week that Drake did, you’re going to probably do worse, because all of the streams and revenue is divided out proportionately. So if you put out a new album on a week where there’s a big major release, that’s sucking up all the oxygen. You’re going to actually do worse. Every week, you’re competing against everyone else, because of the way that things are proportionately split out.
Alex: Say it’s the 1980s and you’re a college rock band and you sell 10,000 copies of every album that you put out. Ten thousand people are your fans. They buy your record. You’re not penalized for coming out the same week that “Thriller” comes out. But now you would make less money if the indie band had a release the same week as a giant pop star.
David: For indie musicians in particular, that is really odd, because traditionally, indie musicians would have no reason to care about the mainstream because they’re in their own economic bubble. Where now you do need to be a little concerned that, hey, Taylor Swift put out a new album. That’s probably when I shouldn’t put out my new album.
Alex: I didn’t even realize that part of it.
To some extent, I, as a guy in his mid-thirties, am nostalgic for the way music worked in the culture when I was younger. But as an economic enterprise, as a business, and as a thing where it’s like, well, artists put out albums, people buy albums and singles, and it’s played on the radio, we’re talking about a business model that got its start from a technology that’s not that old. The business model itself was basically just from the 1960s. We just were like, “This is how music works.” There was never any reason to think that was permanent.
David: That is a great point. There was no reason to think it was permanent. To go back to Napster, I think piracy represented such a radical break from the previous paradigm, and there was a lot of hysteria and a lot of concern about it. Whereas to me, if you go back to the 1990s, the really big concern was that there was a thing called Universal Music Group that was brought to us by Seagram.
Alex: Yeah, exactly.
David: That was the bigger cultural problem of the late 1990s in the recording industry.
Laura: Do you think that the focus on Spotify, and the focus right now on streaming as the villain of the music industry, has benefited all those other actors, because they’re so much more visible than Universal? You don’t hear people talking about the evils of the major labels in the way that you did when Prince was railing against his record label.
David: Yes, I do think the focus on streaming companies obscures the fact that this was a system mostly set up by the major labels. And that is a system that they’ve been pretty fine with. I always think about it like this on the exec side. If you’re a record executive in the 1970s, you had to sell records. You really did care how many records Michael Jackson or Bruce Springsteen sold, because if they didn’t sell records, how could you make money? Versus in the 2020s, if you’re a record exec at the high level, you don’t do anything. You just know that you have market share. As long as I’m above 25 percent of market share, which is honestly impossible not to have when there are only three labels, you’re good.
Laura: What do you think of artists’ efforts to try and change the current system? Is there any hope there?
David: Over the last couple years, there have been a number of groups that have risen up to speak for artists in ways I think are really exciting. There’s been the Union of Musicians and Allied Workers, and a couple others I know throughout the country. I support that. But I do not particularly care for the campaign that are just yelling at Spotify in particular, because I do think it mystifies and confuses the issue when you just look at Spotify and don’t look at any of the major labels or any of the other folks. And then I think also because of that, folks don’t realize just how confusing the industry is. A small example of this is that if you go to Spotify and listen to something on Spotify radio, for an artist, the money generated from that on the publishing side—i.e. who wrote the actual song—that is regulated by the United States government, by the contract royalty board. They decide how much money those artists are going to get paid out from that, it isn’t negotiated between labels or anything. And that copyright royalty board is a three-member board that actually has a lot of control over a number of different digital streaming payouts. No one talks about them. And what happened over the last couple of years is that they tried to up how much they were going to charge streaming services, and all the streaming services fought it. Basically, they were like, “We refuse to pay out for this.” And what’s happened now, it’s been caught in this legal limbo. So I would love it if there are more artists’ outcries over things the U.S. government already has legal say over, rather than trying to appeal to the hearts and minds of private interests.
Alex: It’s probably more effective to try to actually come up with a political solution than to just try to beg a private company to stop trying to take money for itself.
Laura: So it’s better for artists if streaming services and labels have to negotiate with this huge entity called the U.S. government than with this little person who is making some music on private contracts.
David: If hundreds of thousands of American artists were organized in a fashion to make demands of Spotify, I would love to see that. That would get stuff done very quickly. Hundreds of thousands of artists are not organized against Spotify. I’m going to suggest that we aim for that, but maybe try to figure out some other solutions along the way until we get there.