Get Ready to Pay More for Music

You can’t give people all the music they want for $9.99 per month.

That doesn’t generate enough cash to keep all the stakeholders happy. Somebody must get squeezed.

This is reposted from Ted Gioia’s Substack channel. He confirms the future trend we have been predicting here, especially about the streaming content business model. The bottom line is that streaming content is more expensive than buying content if artists are able to cut out the middleman. Digital technology with blockchain can do that.

Get Ready to Pay More for Music

I keep seeing cheery news stories about growth in the music business. But the numbers are misleading.

Highly misleading.

The growth is happening in all the worst places. Money is shifting from creative artists to technocrats, lawyers, and pencil pushers of all sorts.

If you play a guitar your career prospects suck. But if you’re a fund manager who owns song publishing rights, you can earn huge paychecks.

If you write songs, you may struggle to pay the rent. But if you’re a lawyer who specializes in song copyright lawsuits, you’re living in high style.
If you make music, you keep asking why it’s so tough. But if you’re a technocrat who streams music, you’re sitting pretty.
Is the music business really growing, if all the excess cash flow goes to to lawyers, fund managers, Silicon Valley overlords, and high-powered techies?

That’s like saying you’re healthy because the parasite sucking your lifeblood gets larger every day.

If you actually make the music, the industry isn’t healthy. Even if you’re just a music lover, things are looking ugly.

And it’s about to get a whole lot worse.

I’ve been warning for five years that the new economic model in the music business is broken. You can’t give people all the music they want for $9.99 per month.

That doesn’t generate enough cash to keep all the stakeholders happy. Somebody must get squeezed.

If you don’t grasp how broken the streaming model is—not just for music but also in Hollywood and other creative fields too—you won’t even understand the daily media news.

The broken economic model explains why writers in Hollywood are striking right now.
The broken economic model explains why writers are so fearful of AI—even demanding that the new contract prohibits AI-generated screenplays—and why musicians should be just as worried.
The broken economic model explains why Netflix has raised subscription prices sharply—even while reducing the range of film and TV options on its platform
The broken economic model explains why so many hot new artists are coming out of TikTok and social media, not traditional record labels.
The broken economic model explains why songwriters are selling their catalogs to investment groups.
The broken economic model explains why old music is killing new music in the marketplace.
I’ve been saying this for so long that I sound like a broken record (remember those?).

And how have things worked out for Spotify during those five years?

Check out all the red ink on the chart below. The company has never shown a profit, and results have worsened since listing on the stock exchange.

And now you’re going to pay a price for this. . . .

Physical vs. Digital Gold

I reprint the free portion of this Substack post by Ted Gioia. Emphasis in bold and my comments in red. The reliance on physical products reflects the market economics of controlling the supply and thus the price and profit margins. This is what the branding industry has flourished on. Digital content (music, blogs, books, videos) are given away virtually free in order to build an audience (peer network) that one can then sell higher margin goods and services to.

This makes perfect sense, given the economics of the digital world and how it augments the physical world. This is what Google and Facebook and LinkedIn and Apple and Amazon all do. The question then is how does the individual creator build, own, control, service, and monetize their peer networks? It’s kind of like a very valuable Rolodex file.

tuka is designed exactly for this need for users to create and monetize digital data value. It’s all about the data networks and the value they represent. The online world is slowly moving in tuka‘s direction, but to decentralize value creation will still require a blockchain platform.

……..

 

Half the people buying vinyl albums don’t own record players. They treat their albums like holy relics—too precious to use and merely for display among other true believers. [Yes, but that’s collecting, not listening.]

Readers were shocked when I recently reported that statistic. I was a little stunned myself. But those are the facts.

Of course, there’s a lot about the vinyl revival that defies logic. What other business relies on a 60-year-old storage technology? That would be like running my writing career with a teletype unit and mimeograph machine.

And it’s not just vinyl. Cassette tapes—a cursed format that always unraveled at the worst possible time—are hot again. Even 8-track tapes, a longtime target of ridicule and abuse, are selling for thousands of dollars.

Why are people buying this stuff?

A new research report from Andrew Thompson at Components, released earlier today, helps us understand the bigger picture. Thompson analyzed 47,703,022 Bandcamp sales—involving almost five million items. And what he learned was startling.

Success in the music business is all about selling physical objects.

This is an unexpected situation—and runs counter to everything we’ve been told.

The Internet supposedly killed physical music media more than two decades ago. After iTunes was launched in 2001, there was no looking back. At first the music industry pivoted to digital downloads, and then everybody in the business jumped on the streaming bandwagon.

But it’s now 2023, and streaming platforms still aren’t profitable. [They never will be unless they can find a way to monetize those user networks.] However, Bandcamp is—and now we know why.

It’s all about tangible items.

Consider this chart—which looks at the correlation between revenues on Bandcamp and an artist’s reliance on physical merchandise.

Source: Components

Vinyl helps drive this. But it is only just part of a larger story. Artists can sell everything from clothing to compact discs on Bandcamp. And, of course, they can sell digital tracks too.

But the numbers make clear that physical merchandise is the smart business model.

According to Andrew Thompson:

Why is Bandcamp profitable and Spotify not? The answer we arrived at was that Bandcamp provides a simple platform for complex transactions, while Spotify is a technically complicated platform for facilitating a single transaction in the form of the one-size-fits-all subscription.

AI and Creativity

This is a repost from Ted Gioia’s Substack. The use of AI for journalistic writing and editing will be a real threat to those livelihoods. Not so much for music or long-form books.

I Talk with an AI Music Historian

Maybe a chatbot can teach me a few things

Excerpt:

Ted: Okay, okay—that’s enough. Let’s try something else. You mentioned the blues earlier. If I want to learn more about the blues, where should I start?

AI Music Historian: The blues is a genre that has had a huge impact on modern music, influencing everything from rock and roll to hip-hop. Some of the most influential blues musicians of all time include:

  • Robert Johnson is often regarded as the king of the Delta Blues, a style of blues that originated in the Mississippi Delta region. His music is characterized by his intricate fingerpicking style and haunting, often melancholic lyrics. Other notable Delta Blues musicians include Charley Patton, Son House, and Bukka White.
  • Another important style of blues is the Chicago Blues, which emerged in the 1940s and 1950s. Some of the most famous Chicago Blues musicians include Muddy Waters, Howlin’ Wolf, and Willie Dixon. Chicago Blues is characterized by its use of amplified instruments and more band-oriented arrangements.
  • Some of the earliest recorded blues musicians include W.C. Handy, who is often referred to as the father of the blues, and Blind Lemon Jefferson, who was one of the most popular blues musicians of the 1920s. . . .

Ted: Alright already—and I agree with all that. But let’s shift gears again.

The Future Will Soon Be Here

I repost Ted Gioia’s Substack post here because I couldn’t have said it all better myself. As he outlines it,  this has been tuka‘s approach all along. The one thing he doesn’t address is the winner-take-all aspect of creative markets –  why all these YT revenues end up going to a few mass influencers or curators. Blockchain and tokenization are necessary tools to decentralize and distribute rewards for value created.

A Creator-Driven Culture is Coming—and Nobody Can Stop It

By Ted Gioia

“Victory is assured!”

I’m talking about victory for creative professionals—musicians, writers, visual artists, and others who have been squeezed by the digital economy.

You’re probably surprised. Some people think I’m the Dr. Doom of the music scene. And it’s true, I’ve made a lot of depressing predictions over the last few years, Even more depressing, many of these predictions have already come true.

I’ve told horror stories about musicians who lost their gigs during the pandemic, and also saw their music royalties collapse as the audience shifted to streaming. I’ve talked about journalists fired from downsizing newspapers. And filmmakers who can’t get funded to make a movie unless a Marvel superhero is named in the title .

But now I want to tell you the rest of the story. Because the next phase in the cycle is filled with good news.

Victory is assured.

Let’s start by looking at the music business, where the squeeze has been the worst.

Whenever I do a forecast, my first step is to follow the money. And the adage that money talks has never been truer than right now. Those dollars are telling an amazing and unexpected story. Word on the street is that record labels are offering far more attractive terms to musicians than ever before.

“Here’s my craziest prediction. In the future, single individuals will have more impact in launching new artists than major record labels or streaming platforms.”

In the old days, musicians were lucky to get 15% of revenues, but I’m now hearing increasingly about deals that give artists a 50% cut, and in some instances allow them to regain ownership of their master recordings at a future date. The music moguls are positively generous—and (as we shall see) for structural reasons in the business that aren’t going away.

And it’s not just major labels giving more money to musicians. Take a look at Bandcamp, which lets musicians collect almost 90% of revenues from vinyl sales. And I’m hearing constantly from techies and entrepreneurs who are working on similar artist-centric business models. We are only in the early innings of this new game, but the shift is already enough to force huge concessions from legacy music companies.

Artist-friendly platforms are the future of music. And other creative pursuits as well—my own platform, Substack, is also allowing creators to keep close to 90% of revenues. This has spurred a huge talent migration from old media, and not merely for writers—you can find almost every kind of creative professional on Substack, from cartoonists to photographers.

For 25 long, hard years, creative professionals have been told that you must give things away for free on the Internet. But not anymore. Alternative economic models are not only emerging, but are propelling the fastest-growing platforms in arts and entertainment.

This is not only shaking up highbrow and popular culture, but capturing the attention of the next generation of tech visionaries—which is why, in the last year or so, I’ve been constantly approached by startups asking me to evaluate their business plans. This is unprecedented. It simply didn’t happen before the pandemic. But not only are these entrepreneurs trying to figure out what artists want, but they’re actually relying on creator wealth maximization as the focal point for their businesses.

In general, these young techies are smarter than the folks running the music business right now. (That’s a subject I want to discuss at a later date—I call it my ‘idiot nephew theory’ of the music business. But it has to wait.) Of course, many of these entrepreneurs are dreamers who will never go anywhere. That’s always the case with entrepreneurs. But some will succeed, and in a meaningful way.

In fact, it’s inevitable—and for the simple reason that the old institutions have stopped investing in the future. The new guard will take over because the old guard got weak and lazy.

Why is all this happening? Let’s go back to look at the music situation, because this helps us understand the larger picture.

Record labels are getting more generous because they don’t have a choice. They destroyed their own power base and source of influence. They stopped investing in R&D and new consumer technologies back in the 1980s. Twenty years later, they stopped manufacturing and distributing physical albums—and even when vinyl took off, they were asleep at the wheel. Over the same time period, they lost their marketing skills, trusting more in payola and influence peddling of various sorts.

But that’s just a start. Over a fifty-year period, record labels relentlessly dumbed-down their A&R departments. They shut down their recording studios, and let musicians handle that themselves—often even encouraging artists to record entire albums at home. Then they let huge streaming platforms control the relationship with consumers. At every juncture, they opted to do less and less, until they were left doing almost nothing at all.

The music industry’s unstated dream was to exit every part of the business, except cashing the checks. But reality doesn’t work that way. If you don’t add value, those checks eventually start shrinking.

The simple fact is that the legacy music business is living off the past—and will continue to do so until the copyrights expire. For a few more years, they will collect royalties on old songs, and make money on reissues and archival material. They know themselves that they have lost control of the future of music. That’s why, if they have spare cash, they use it to buy up catalogs and publishing rights of music from back in the day. Their favorite artists are dead artists.

But this is not a long-term game. It’s a death wish.

The major labels would like to own the music stars of the future, but they won’t. They would like to act greedy and put the squeeze on the next generation, but they can’t. They simply don’t have the leverage. And never will again.

And who will win if record labels lose? You think it might be the streaming platforms? Think again—because that’s not going to happen. Spotify and Apple Music are even less interested than the major labels in nurturing talent and building the careers of young artists.

Here’s my craziest prediction. In the future, single individuals will have more impact in launching new artists than major record labels or streaming platforms.

Just consider this: There are now 36 different YouTube channels with 50 million or more subscribers—and they’re often run by a single ambitious person, maybe with a little bit of support help. In fact, there are now seven YouTube channels with more than 100 million subscribers. By comparison, the New York Times only has nine million subscribers.

“How could a Substack column outbid major media outlets for new talent? But not only can it happen, it will inevitably happen.”

Most people don’t stop and think about the implications of this. But just ponder what it means when some dude sitting in a basement has ten times as much reach and influence as the New York Times.

If you run one of these channels and have any skill in identifying talent, you can launch the next generation of stars.

And not just in music. This works for everything—comedy, dance, animation, you name it.

Consider the case of MrBeast. Many of you have no idea what I’m talking about, but you need to find out—because MrBeast (or people like him) are going to change popular culture, whether we like it or not. MrBeast, for a start, runs 18 YouTube channels with more than 200 million total subscribers. He now has his videos translated into four languages: Spanish, Portuguese, Hindi, and Russian.

What does he do? I’m no expert on MrBeast, but I’m told he’s a good dude, and gives away a lot of money—huge sums, to be blunt. And he can afford to do it, because YouTube channels are low-overhead operations with enormous cash generation potential.

Oh, I forgot to mention that MrBeast is looking to raise capital from financial investors. He claims that his business is worth $1.5 billion, and may sell 10% to get $150 million to fund his future plans.

I’m not even beginning to pretend that MrBeast will use this money to get into the music business. But he might. And if he doesn’t, someone else like him will.

MrBeast has got the cash to shake up the music business—and if he doesn’t, someone like him will
I note that MrBeast only ranks number five in YouTube channel subscriptions. There are other people like him, or will be soon, and they are much better equipped to launch a new music act than any of the major labels.

That’s why musicians can make more money when the distribution model shifts from bloated record labels with huge overhead to alternative web-based platforms. I expect that deals for artists on these web channels will be more like 50/50. MrBeast is known for his generosity, but even if he wasn’t, his business model is much more flexible than anything Sony or Universal Music could ever dream of. These new platforms can afford to offer better terms to creators, and almost certainly will—because if they don’t someone else will.


This didn’t take place during the first wave of YouTube channels, because these influencers (I hate the term, but it’s appropriate in this setting) were focused on making themselves into money-making stars. But the next phase of growth for these people is brand extension, and that’s going to turn them into talent scouts.

I’m focusing on YouTube channels here, but the same story could be told about podcasters—or any other individual with a lock on an audience in the tens of millions. Consider them as the equivalent of the Ed Sullivan Show in the old days. The host of this long-running TV show didn’t have much talent himself, but it hardly mattered—Ed Sullivan was the curator who introduced America to Elvis Presley, the Beatles, and other rising stars. That kind of thing will happen again, but via a web channel or alternative platform.

These individuals can do absolutely everything a record label currently does, and do it better—they can launch new stars, get them instant visibility and gigs, generate millions of views for new songs, attract endorsement deals, etc. The few things they can’t do in-house (for example, press vinyl records) can be easily outsourced.

The same thing will happen in publishing. I’m already seeing a few of the more popular Substack writers using their huge subscriber base to launch the careers of other writers. By my calculations, this can be even more profitable and impactful than a book contract with a New York publisher—benefiting both the sponsoring writer and the new talent.

In fact, I might move in this direction myself. It’s too early, but 2-3 years from now I might start scouting out talented young writers or podcasters and feature them here in The Honest Broker. Everything depends on subscription numbers, but it’s possible that I could pay better than the New York Times or the Wall Street Journal.

At first blush, this seems impossible. How could a Substack column outbid major media outlets for new talent? But not only can it happen, it will inevitably happen. It’s the same story as in music. The old guard has stopped defending its base business, and everything is either up for grabs now—or will be very soon.

Newspapers have lost enormous power over the last twenty years. They have lost subscribers. They have lost ad revenues. They have even, in many instances, lost credibility and respect. Up until now, this has hurt writers—who depended on the newspapers for assignments and pay checks. But we are now arriving at the point where the trend reverses.

And this reversal opens up huge opportunities and income potential for smarter, nimbler operators.

I could give many other examples. What I’m describing is also true for Hollywood movie studios, book publishing, and every other field where the old guard has become arteriosclerotic and inflexible.

Okay, let me summarize the whole thing in a diagram.

[Note: tuka is in the blue circle here.]

There’s an elegant irony here. The very same forces putting the squeeze on creators actually serve to accelerate the happy next phase.

This is one reason why I believe karma is at work in the universe. If you run a business that depends on creativity, you can’t punish the creators without consequences. Sometimes it takes a while for the cycle to play out, but it always plays out the same way.

There are many aspects of this story I haven’t covered here. There are all sorts of Web3 angles, and there’s also a story to be told about how platforms such as Spotify will pay a price for squeezing musicians to subsidize their entry into podcasting and other ancillary businesses. But we can look at those on another occasion.

For the time being, I just want you to keep your eyes on the prize. And remember—Victory is Assured!

The Decline of Music Journalism

This blog post article by Ted Gioia explores the extent to which all aspects of the creative industries have been disrupted by digital formats.

The Nostalgic Turn in Music Writing

Are music magazines contributing to the stagnancy of the current scene?

By Ted Gioia

My Comment below:

This reality reflects the change in risk-taking behavior across the creative industries (and I would include media news and entertainment) occasioned by the rise of the digital economy. Revenues and profit margins have been squeezed, even as markets have grown. This puts legacy publishers and distributors in an existential crisis to survive. The response has been to reduce the risk of not surviving by reverting to what worked in the past. In music, reselling the catalog is a low-risk endeavor that yields profits through very low marginal costs. Streaming is a short-term boon for publishers and a long-term disaster for innovative new artists (they now bear all the risk and little of the reward).

In media, it means giving the audience exactly what it wants based on past metrics. So, a cover article on Bruce Springsteen is a sure bet relative to some unknown underground artist or new artistic movement. This can only be rectified by rebalancing the market between creators and consumers (and probably eliminating many of the middlemen or at least only rewarding them for value-added).

Art has become a commodity, but true art can never be a commodity, so the road we are on would mean the death of art. However, I am optimistic that the creative spirit cannot and will not ever die. And, with the proper sustainable model, consumers will willingly pay for the real value in art.

Antitrust and Vampire Squids

The US government wants to break up Facebook. Good – it’s long overdue

The Guardian, December 11, 2020

This week the government filed a ground-breaking antitrust suit against Facebook, seeking to break up the corporation for monopolistic practices. The suit comes on the heels of a similar case against Google, as well as an aggressive Democrat-authored congressional report recommending taking apart not just Google and Facebook, but Apple and Amazon as well.

The evidence against Facebook seems overwhelming, with enforcers pointing to internal email conversations in which the CEO, Mark Zuckerberg, and his colleagues allegedly conspired to monopolize the social media space by buying rivals and stifling competitors. Proof of intent to violate antitrust law appears to be ample. Yet news articles covering the case describe it as “far from a slam dunk”, and competition law experts predict that enforcers will “face an uphill battle” in proving their claims.

Embedded in these muted words about the legal viability of the case is a political battle about the nature of economic power. Both antitrust suits are the result of a new movement of anti-monopoly scholars and advocates pushing to reform a heavily concentrated and misshapen American economy. Yet within the cocooned world of orthodox antitrust experts, there’s a suspicious lack of enthusiasm for breaking up Facebook, or any of the tech goliaths. Fiona Scott Morton, for instance, a former Obama enforcer and opinion leader at Yale, wrote last year that “break-ups are not a good solution to the economic harms created by large firms in this sector.” And last year the leading antitrust scholar Herb Hovenkamp argued that “breakup remedies are radical and they frequently have unintended consequences,” and warned that “Judges aren’t good at breaking up companies.”

In this formulation, break-ups are a legally difficult and flawed remedy, akin to amputating the leg of someone in need of a pedicure. Some politicians are still listening to these experts; Republican politicians have expressed skepticism at break-ups, but even the 2020 Democratic platform says that regulators should only consider breaking up corporations “as a last resort”. More than politicians, judges listen to these arguments, and rewrite antitrust law from the bench to make bringing monopolization cases and winning them – even when the evidence is overwhelming – far too expensive and difficult.

Such a situation is historically unusual. As the historian Richard John notes, America has a long history of breaking up big companies. Some of those broken-up entities include logging companies in Maine in the 1840s, Standard Oil in the 1910s, and AT&T in the 1980s. In fact, in 1961 the supreme court pronounced that breaking up companies has “been called the most important of antitrust remedies. It is simple, relatively easy to administer, and sure.”

So what explains this modern reluctance?

The standard account is that a group of libertarian law and economics scholars in and around the University of Chicago recentered antitrust in the 1970s. These men, led by Milton Friedman, Robert Bork and George Stigler, sought to attack the New Deal regulatory state, and free concentrated capital. Bork led the legal crusade against what he called the “militant ideology” of aggressive antitrust enforcers. His goal was to pull control of this area of law out of the hands of liberal legislative bodies and place it in the hands of highly technical conservative economists and lifetime-appointed judges who would listen to them. When Ronald Reagan became president, he radically narrowed antitrust, amounting to what Bork called a “revolution in a major American policy”.

But this is only part of the story. It fails to explain how, in 2004, Antonin Scalia convinced his fellow supreme court justices, including Stephen Breyer and Ruth Bader Ginsburg, to join him in a unanimous supreme court decision which undermined the ability to bring monopolization cases by holding that the “charging of monopoly prices is not only not unlawful, it is an important element of the free-market system.

The liberal justices were swayed by a different set of scholars, less-well known in the revolution that has produced today’s monopoly-heavy economy. These scholars challenged Bork-influenced libertarians over certain methodological questions but accepted the ideological contention that antitrust should be a technical area without broader democratic goals.

This group is led by Hovenkamp, an academic centrist technocrat, who is the most important antitrust thinker alive today, nicknamed the “dean of the antitrust bar”. His partnership with Lyndon Johnson’s antitrust chief Don Turner and Harvard scholar Phil Areeda on a key antitrust treatise set the stage for his intellectual dominance in the 1980s. Stephen Breyer, a liberal justice and an adherent of Hovenkamp, once noted that advocates would rather have “two paragraphs of [the] treatise on their side than three courts of appeals or four supreme court justices.” Breyer wasn’t understating the point; to date, Hovenkamp has been cited by our highest court in 38 different cases, far more often than Bork.

Hovenkamp is an intellectual historian by training, and his views on antitrust policy are situated in a misleading narrative. His research radically downplays the historical importance of legislative and social movements focused on the democratic need to control big business, and instead emphasizes the role economists and technocrats began to play in shaping the law during the Gilded Age. As part of this narrative, he peddles an incomplete account of the origin of the Sherman Antitrust Act of 1890, the most important piece of anti-monopoly legislation ever enacted by Congress. Hovenkamp argues that there is no evidence that the framers of the Sherman Act sought to curtail monopolies brought about as a result of “superior skill or industry”. According to Hovenkamp, US Congress – and by extension Americans in general – never had a problem with big corporations, or even monopolies; we just didn’t like it when those monopolies became predatory.

This elitist and technocratic framework glosses over our rich anti-monopoly tradition. Thomas Jefferson, James Madison and Frederick Douglass all opposed monopolies on political grounds, and state legislatures in the 19th century began breaking up companies almost as soon as they started issuing corporate charters. Senator Sherman himself explained that the purpose of the federal antitrust act was “to put an end to great aggregations of capital because of the helplessness of the individual before them.”

Judge Learned Hand, whose decisions in contract and corporate law are still read with reverence, laid out the basic federal antitrust framework which was endorsed by the supreme court in 1946 and 1968 and governed our economy for most of the 20th century. In mandating the breakup of the aluminum monopoly of Alcoa in 1945, Hand concluded that monopoly power, in and of itself, was illegal. He explained that the Sherman Act is a law prohibiting monopolies, full stop, no matter whether they are predatory. He pointed out that Congress updated the antitrust laws four times in the 20th century to hit back at courts who attempted to narrow them.

Antitrust theory is dominated by reactionary yet often wildly inconsistent thinkers. Hovenkamp, who for decades resisted any action to rein in large technology firms, argued a year ago that breaking up these giants would send the economy back to “the Stone Age”. This week, reversing his position, Hovenkamp conceded that breaking up Facebook is now warranted – revealing his entire school of thought as largely a reactionary force torn between bending to concentrated financial power and scandalous headlines of abusive market power.

It is encouraging that the government is seeking to break up Google and Facebook, and that policymakers are rejecting flawed legal theorizing. But the resistance to restoring our anti-monopoly tradition runs much deeper than Robert Bork and his rightwing legacy. As we’ve seen, it’s just as entrenched within the centrist academic and judicial citadels of well-meaning technocrats who carry a deeply ingrained fear of too much democratic influence over the economy.

Policymakers and judges are going to have to shake off the misleading narrative spun by the current antitrust establishment. Doing so is essential not only for supporting fair markets, but for preserving democracy itself.


Competition is essential, which requires open access to markets and transparency.