Crypto Won’t Fix Music Streaming: A Lesson From History
Artists are getting fed up with Big Tech streaming services. They get paid too little. This tweet is exemplary
Or this one. Or I’ve seen this chart a few times too. And some think — including RAC, who wrote the above tweet — that crypto (a.k.a. “Web3”) can correct this wrong. “With web3 platforms, artists will be able to set customizable rates… whether it be $0.05 to listen once or $10 to listen in perpetuity”. That was how a a recent Bankless article titled “Crypto Will Fix The Music Industry” put it. It went on, “[Web3] can finally give content scarcity on the internet”.
Wait, what? Who wants more scarcity of internet content? The internet was all about bringing content abundance. And we did it! I can stream essentially anything, whenever, wherever. I do not want to go back to the 90’s of paying $12.99 per album, or even the 2000’s when we paid $0.99 / song on iTunes. I don’t even want to pay $0.01 per stream either. I just don’t want to think about it. Can you imagine if on Spotify every song cost a different amount to stream? Sharing playlists would become a nightmare. Every song would need a price tag, so people could eliminate the expensive ones from a playlist. Or the party dance floor just stops, because someone forgot to top up their Spotify account. Madness. No fan would want this.
History Lesson: Musicians Tried This Before
There was another time, not too long ago, when musicians were also fearful and fed up with how a new technology was devaluing their work and big corporations were exploiting them. It was 1942, the popular record industry was only 20 years old, and the ecosystem of record labels, producers, and artists was just starting to take shape. Musicians weren’t quite sure what to make of recordings, but they got paid to make them just like any other concert performance, so they took the gigs.
You have to realize, in 1942 the mental model for music recording was completely flipped from today. Back then, you thought of the record as trying to be a faithful representation of the concert. Record producers would more or less just get a band together, stick a microphone in the middle of the room, and have them play their songs. Under that model, you can see why musicians would get scared that records would hurt concert sales. Today, of course, it’s the reverse. People go to concerts, expecting them to sound like the record. And if you don’t have a record, how could you possibly get anyone to go to your concert?
Anyway, eventually the musicians union — yes there was musicians union, filled with loads of New York talent — became too afraid that records would diminish concert sales, and demanded on-going royalty payments on recordings. The record labels weren’t too keen on that. So the musicians organized a boycott. No union musicians would record anything at all.
The ban ended up lasting 2 years. But before it even got started, the record companies got pretty scared so they asked FDR to step in and prevent it. Just imagining the modern equivalent is comical. It would be like Bruno Mars and Billie Eilish getting together to say, “no more records until Spotify pays us more!” And then Spotify being like, “Umm, hey Biden, can you force Billie Eilish to make another record?”
FDR never ended up intervening, but it turned out the record companies had less to fear than they thought. The ban didn’t work. Billboard magazine noted 14 months into it that “[the ban] has proven a ghastly failure because it has failed to bring the diskers [record companies] to their knees”.
In fact, the “diskers” made as much money as ever! It turned out demand for music didn’t stop because of the ban, and so the record companies started getting creative. They did reissues of old hits, and recorded non-union no-name musicians (“hilbillies” as they were called back then), and the records sold pretty well! They even recorded a capella albums (vocals only) because the ban only applied to musicians, meaning instrumentalists, and not vocalists.
But this couldn’t go on forever. The union lifted the ban in 1944. Another ban went into effect in 1948, that time only for a year, and eventually the union and the record companies reached an agreement, with pseudo-royalties [1].
By the end, the only people really hurt by the ban were musicians. I see two big takeaways that are relevant for today:
- The public always wants music, and they’ll buy/consume whatever is most available, even if isn’t from their favorite artists.
- There will always be musicians who would rather get exposure than optimize their revenue.
What this means is if individuals stop streaming on Spotify, and start only selling pay-per-stream songs through the blockchain, most people likely just won’t listen to them. And Spotify certainly won’t start paying them more. There’s just so much other good music out there. So all that would end up happening is the artist closing themselves off to new discovery, which in turn makes it harder for them to sell out concerts, sell merch or find their “100 true fans”.
Misplaced Anger: Spotify Isn’t The Problem
The truth is, Spotify isn’t the bad guy. Neither is Google Music, or Apple Music or any of the streaming services. They are a reflection, not a cause, of the real problem musicians face which is a virtually infinite supply of recordings and cheap global distribution. Trying to “fix” the relationship between streaming companies and artists is like seeing a zit in the mirror, and deciding you should put make-up on the glass.
What’s funny is the issue is actually really similar to the newspaper industry who is always getting mad at Google for taking “their” ad revenue. Even the newspaper industry response has been similar. Australia is proposing to force Google to pay for showing news stories in its search results. When Ben Thompson wrote an article on this Australian law, he said “this is what happens when you don’t understand how your own business works: you create a myth wherein Google and Facebook decimated the news business, when in reality they came along years after the business… had been decimated by the Internet.”
Nailed it. Musicians can get mad at Spotify, but the recorded music business got decimated a long time ago, well before Spotify showed up. For both news and music, computers brought the cost of production to near zero, and the internet brought cost of distribution to near zero. Further, it turns out that for both news and music there’s way more talented people with interesting things to say than we thought. The result is orders of magnitude more supply, while demand has only grown with population. So the price we’re willing to pay went through the floor. Spotify is just reflecting that new equilibrium.
What Is Web3 Good For?
The truth is, you don’t need Web3 to opt out of streaming. It’s trivial today to start your own label, keep your music off of Spotify, and sell direct to your customers (just like it’s trivial for news outlets to ask Google not to index them). You can make much more money this way, but it’s hard, because you’re competing against an ocean of content. Maybe Taylor Swift can pull it off, but the 99% of musicians would be shooting themselves in the foot. Discovery for new artists is much more important than revenue. As the industry saying goes, “Music isn’t your product. It’s your marketing.”
Once your marketing is out there, musicians really make money from touring and merch. And Web3 wont’ help with touring, but it can help a lot by enabling digital merch. Through NFT’s, this will create an entirely new revenue stream for artists, and I think it could be massive. Stay tuned for another article on exactly that.
[1] — What they actually ended up agreeing on was the labels would put a portion of record sales into a central fund, which the union would use to pay musicians who played special free gigs at say, a school. So it wasn’t really royalties at all, but it was musicians being able to basically get extra gigs from record sales.
