In Part 1, Justin outlined the novel business model of music-streaming services.
The picture of the music industry painted so far is rather bleak—it’s difficult for an artist to earn money. Unless you are Taylor Swift. Swift’s music has been very well received by critics, and has smashed sales records all around the world. Swift’s incredible popularity has given her a great deal of negotiating power against record labels and distributors such as Spotify.
Let us entertain the (incorrect) proposition that all music in the world is separated into two markets. One market is ‘Taylor Swift’s music’; the other is ‘everything else’. The woe and suffering in the music industry is largely contained within the ‘everything else’ market, where consumers expect near-free music from countless artists. Swift’s music, however, has a je ne sais quoi and occupies a distinct market. Because Swift is the sole producer of ‘Taylor Swift’s music’ and demand for her music is very high, her market clears at a price substantially above ‘everything else’.
Those with some understanding of economics will determine that Taylor Swift is a monopolist—she is the sole producer of her music and can set the price of her music. Last year, she did exactly this by taking her music off Spotify. By setting a price higher than what Spotify was willing or able to pay, the markets didn’t clear and now Spotify (and many other streaming services) have a distinct lack of Taylor Swift’s tunes.
Enter Apple Music.
Apple Music is essentially just another streaming service. The main difference is the weight of the company behind it. Apple owns the iTunes Music Store, and itself has a near-monopoly on the sale of digital music. Such is Apple’s dominance in the music industry that it introduced a three-month free trial of Apple Music, under which rights holders would receive no compensation for music played during this period. Swift, predictably did not take too kindly to not being paid at all during this period, let alone being paid the rate that Spotify was offering.
“Three months is a long time to go unpaid, and it is unfair to ask anyone to work for nothing.”—Taylor Swift
Apple initially justified this by showcasing its higher overall pay out rate as a percentage of revenue—a massive 71.5% compared to Spotify’s 70%. After Swift’s huge audience denounced Apple, however, Apple’s VP of Music quickly capitulated and promised to pay rights holders out of its own pocket. After these events, Swift indicated that her music would finally return to streaming services—but only to Apple Music—thereby slighting every other music streaming service.
While Taylor Swift is often dismissed as nothing more than a pop princess, her market power is not to be underestimated. By her dominance in music, she has become the de facto benevolent dictator of the music industry. While she could certainly use her power for evil and for her own personal gain, she has leveraged her market power for the betterment of all artists.
Spotify revenue payout figures: https://www.spotifyartists.com/spotify-explained/
Swift’s op-ed detailing her opposition to streaming services: http://www.wsj.com/articles/for-taylor-swift-the-future-of-music-is-a-love-story-1404763219
The Open Music Model: http://dspace.mit.edu/handle/1721.1/8438
Taylor Swift’s market size: http://priceonomics.com/some-artists-are-big-in-america-some/
Swift’s initial opposition to Apple Music: http://taylorswift.tumblr.com/post/122071902085/to-apple-love-taylor
Eddy Cue (VP of Music) promising payouts in the trial period: https://twitter.com/cue/status/612824775220555776
Swift announcing the availability of her music on Apple Music: https://twitter.com/taylorswift13/status/614092816940167168