Oct 20, 2014 · 5 minutes

"Is our work actually worth what we think it is?"

That quote comes from Marc Andreessen*, speaking to New York Magazine about whether content producers like musicians have received a raw deal in the new digital age. It echoes an epic screed posted last week by music industry analyst Bob Lefsetz, railing against "ignorant" artists who complain about low Spotify royalties. The crux of both arguments is that a collection of twelve or so songs on a flimsy disc was never worth $16, and it's time for artists to accept that in the post-piracy streaming era, a song just isn't worth what it used to be.

Meanwhile, streaming services are cutting prices to convince more customers to actually pay for music -- which is always good news for artists. Today, Spotify announced half-off discounts to family members of Premium paid subscribers. So if you don't want your husband's or wife's terrible music tastes invading your playlists, you can sign your spouse up for only $5.

Apple too reportedly wants to slash the cost of its revamped Beats Music in half to $5 for all subscribers. Its logic sounds simple enough, according to Re/Code: The most active iTunes customers spend about $60 a year on music, which amounts to $5 a month. Now it just needs to convince labels to agree to the price cut.

But will these discounts really turn more users of streaming services into paying customers, and thus increase payouts to labels and artists?

Maybe labels should just trust Apple on this one. After all, when iTunes first launched, the price point of $0.99 a song and Apple's 30% cut seemed outrageous to many musicians and record executives. But those same artists would kill to go back to the days of iTunes and digital downloading, which is being destroyed by streaming just as iTunes destroyed CDs.

Apple's payment calculus isn't so airtight, however. With access overtaking ownership, and free ad-supported models outpacing the adoption of paid plans, nobody knows what music should cost anymore, nor do they know what artists should receive for their work. A consumer who spends $60 a year to own a handful of albums on iTunes won't necessarily spend $60 a year for unlimited access to millions of songs. Yes, it sounds counterintuitive -- the second option is such a better deal! But when it comes to streaming, listeners just don't want to pay. After all, only one-fourth of Spotify users pay for the Premium subscriptions -- the rest would rather listen to an ad every three songs or watch 5 seconds of a pre-roll video on YouTube than part with their hard-earned cash.

And yet, tons of people drop well over $5 a month for video subscriptions like Netflix. Why is music so slow to follow?

I'm going to draw on Lefsetz here again who last week explained why consumer habits around video and music are so different. In short, unlike film and television where consumers have been accustomed to paying for subscriptions (like cable) or temporary access (like rentals) since long before the digital age, in music, consumers have only ever paid for ownership, not mere access. That's why it's easier to onboard paying customers for Netflix than it is to convince people to upgrade to paid streaming services -- and that will be a challenge whether you charge $5 a month or $10.

It's a shame too because, as I've written before, paying subscribers generate far more revenue per capita than free users whose streams are supported by advertisements. Granted, companies like Pandora are getting more creative with advertising, experimenting with things like sponsored stations. And there's an expectation from many I've talked to on the technology side of the music industry that ad revenue for streaming music is poised to increase considerably (I know they have to say that, but there are reasons to believe they're right). In any case, if there's more cash to go around, I doubt it will be because a ton of users started paying for subscriptions -- It will be because advertisers found smarter ways to leverage these platforms. And with Spotify still failing to achieve profitability despite paying 70 percent of its revenue to labels and other rights holders, I wonder how much of that increased ad revenue will really trickle down to artists.

But it all comes back to the original question: In a world of unfettered access, whether by legal means or otherwise, how do you price a good like music? How do you ensure compensation for the people who create the art, without whom Spotify and Pandora and record labels wouldn't exist? And then what is fair? I think most would agree that $15 CDs were far too expensive -- yet who are we to say? Consumers still paid for them, creating the most lucrative period in the history of the American music industry.

Lefsetz and Andreessen are right to say that free or extremely cheap streaming music is the new normal, and artists better get used to it. But while Andreessen suggests that bands play birthday parties and (in the ultimate irony) product launches for the very tech companies that are helping to screw them over, I have another suggestion: Don't let record labels dictate your financial destiny.

Labels are just as responsible for artist disenfranchisement as Spotify or Pandora -- After all, they've been doing it for decades now and are experts. So instead of giving up control and potential revenue streams to labels, follow the lead of musicians like Tycho, who by creating a self-sufficient team and building a fan base organically over a period of years, was able to set terms with his label from a more comfortable negotiating position. Also, musicians would be wise to explore direct artist-to-consumer sales platforms like Gumroad or patronage sites like Patreon which cut out the middlemen between creator and listener.

And finally, just because your music doesn't lend itself to the new business models of today, that doesn't mean the music isn't "worth" anything. Yes, artists must have realistic expectations, and they cannot remain blind to the prevailing technological and consumer trends in their industry. But don't believe entrepreneurs or VCs or record executives who say you don't deserve to be paid for your music. That's how people really get screwed.

[illustration by Brad Jonas]

  • Marc Andreessen is a personal investor in Pando