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An Economist's Reply to Taylor Swift


MrKnobs
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Good stuff, article in its entirety is here: http://www.huffingtonpost.com/frederick-chen/dear-taylor-dont-hate-the-freemium_b_7649920.html

 

Freemium is not why record sales are dropping and people aren't buying CDs anymore. If artists feel that their work is not being properly valued in the marketplace because some streaming companies are giving music away for free, well, that's because music became highly accessible to people when we ushered in the digital age. And if you want to make money off of distributing music to people nowadays, you have to make the price low enough given how cheap it is for people to get music elsewhere.

 

In fact, freemium is a rational market response to the easy accessibility of music in the digital age. Rather than devaluing artists' work, streaming companies with a freemium pricing model are, first, generating revenue from music -- the artists certainly aren't getting any money from music piracy -- and, second, generating more revenue by applying the principle of price discrimination. And, guess what? The bigger the streaming companies' pie is, the more pie artists can get from them.

 

Yes, it seems really unfair for the artists that the price of consuming recorded music has plummeted in recent years. But that's what happens when there is ease of access to a product. We don't pay for the air we breathe, and that's because it's hard to limit our access to it.

 

Ms. Swift, to go back to what you wrote in the Wall Street Journal, I agree with you wholeheartedly that music is important -- and I don't believe music has become less important these days -- but, because of how easily accessible it is now, music is no longer rare.

 

Terry D.

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Great find, Terry. But he seems to be missing a major point when he says:

 

"Yes, it seems really unfair for the artists that the price of consuming recorded music has plummeted in recent years. But that's what happens when there is ease of access to a product. We don't pay for the air we breathe, and that's because it's hard to limit our access to it."

 

The only reason for the ease of access is illegal copying/downloading of material, so commercial services are not competing with other commercial services, they're competing with illegal services. Imagine if you could steal a TV just by walking into a store...what would that do to the price of TVs? Eventually, TV manufacturers would realize they couldn't make money, and stop making them. They wouldn't bother fighting the "ease of access."

 

The devaluation started by Napster was accelerated when MP3 players came out that could store thousands and thousands of songs. People wanted to fill up those hard drives, but didn't want to have to pay for them. iTunes helped, but of course, a torrent was just a click away from iTunes. So while Spotify and Apple Music are addressing "ease of access" by trying to give a consumer experience that's superior than downloading from a torrent, it's still very hard to compete with free.

 

In my address at the New Music Seminar yesterday I talked a lot about the experience music delivers these days, and whether that experience is as rich as when music sold for more - with vinyl you received artwork like those gatefold covers, a physical thing you could hold in your hands, the knowledge that vinyl "died" just a little more every time you played it (adding a certain poignancy), and because turntables didn't fit in portable phones :), most people listened over speakers and could feel actual air move...and a lot of them listened with friends. I think the above reasons have more to do with the revived interest in vinyl than sound quality of vinyl per se.

 

The only way the value of music will go up again is if musicians and companies figure out a way to provide an experience that merits paying more. I don't have any killer ideas along those lines but I've been thinking about it a lot.

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Ah, you're so right Craig... When I was a teen playing in garage bands, we'd all congregate at the house of whoever got the latest new record. I remember sitting in a guy named Jim Estep's house, in the bedroom he shared with his brother Joe...with about ten other people, because Jim had just gotten a copy of The Beatles "White Album".

It was a social thing. The vinyl, the album cover passed back and forth again and again. The comments on the tracks, the oohs and ahhs...

The ritual remained even after cassette recorders became cheaper. Even though the social circles changed, the ritual remained. Of course..then the piracy began..Making cassette copies of other peoples albums. But still...If I really loved an album..I'd buy it.

 

CD's changed everything. The album art was too small to really engage you. Nobody wanted a cassette copy of a CD.."Didn't sound good enough". The social end of it changed. Everybody (Except me) is listening to music on their phones. And there is SO MUCH MUSIC..SO MANY GENRES...Anybody with a computer..Hell with a phone..can make music. (Matter of opinion).

 

The market is flooded with musical options. I don't think music, at least the music business, can ever reach the heights it achieved in the 70's, 80's....I just don't see it happening. Those who are compelled to create, will create...and the rest of us can only hope we can catch their product floating down the stream.

 

Edited by AlamoJoe
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Ah' date=' you're [i']so right Craig...[/i] When I was a teen playing in garage bands, we'd all congregate at the house of whoever got the latest new record. I remember sitting in a guy named Jim Estep's house, in the bedroom he shared with his brother Joe...with about ten other people, because Jim had just gotten a copy of The Beatles "White Album".

It was a social thing. The vinyl, the album cover passed back and forth again and again. The comments on the tracks, the oohs and ahhs...

The ritual remained even after cassette recorders became cheaper. Even though the social circles changed, the ritual remained. Of course..then the piracy began..Making cassette copies of other peoples albums. But still...If I really loved an album..I'd buy it.

 

CD's changed everything. The album art was too small to really engage you. Nobody wanted a cassette copy of a CD.."Didn't sound good enough". The social end of it changed. Everybody (Except me) is listening to music on their phones. And there is SO MUCH MUSIC..SO MANY GENRES...Anybody with a computer..Hell with a phone..can make music. (Matter of opinion).

 

The market is flooded with musical options. I don't think music, at least the music business, can ever reach the heights it achieved in the 70's, 80's....I just don't see it happening. Those who are compelled to create, will create...and the rest of us can only hope we can catch their product floating down the stream.

[bold added]

 

You say what? A copy of a CD made on a good recorder was the only way of getting a decent cassette copy of an album. You could make a copy of vinyl but the quality of mass produced vinyl was super low by the time the 80s got rolling. You'd buy a new slice of vinyl, pop it out and it would already have pops and surface noise from the heavily stepped on recycled vinyl the majors used. I decided to stop buying vinyl when I paid top dollar for an ambient record from Eno and the record noise from his private label release was louder than the music.

 

And forget about those 64x overspeed commercial tape dubs -- I'll take 128kbps mp3s ANY DAY over commercial cassette releases. At least the mp3 wouldn't have all that flutter.

 

 

PS.. Not absolutely everyone is listening on cans. ;) I'll use them when I walk down to the bank sometimes or if I know I'm going to be waiting somewhere (although in that case, it's more likely I'll be watching an old movie or Life of Riley rerun rather than listening to music). Sometimes I'll use them on a super hot night when all the windows are open and I'm watching TV late at night when others in my closely packed neighborhood are trying to sleep. And, of course, while overdubbing (the speakers-out-of-phase trick makes my head feel like it's going to implode).

 

BUT... in discussing subscription streaming with people on Google Plus (or whatever it's called now -- mostly there because I use Google's subscription streaming and it ties in there) I noted that very few seemed to use subscription streaming on their desktops but, rather, most seemed to be using mobiles and, presumably headphones. I strongly suspect it's because most folks still have throwaway speakers attached to their computers (the number of people who come into Gearslutz asking if they can mix on their computer speakers is sometimes stunning -- 'Most people listen on s----y little speakers like mine, so why can't I mix on them?') while even most crappy earbuds sound better. (Except for some Sony 'buds I bought on the spur at Target. Insultingly bad, considering the nontrivial cost.)

Edited by blue2blue
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Great find, Terry. But he seems to be missing a major point when he says:

 

"Yes, it seems really unfair for the artists that the price of consuming recorded music has plummeted in recent years. But that's what happens when there is ease of access to a product. We don't pay for the air we breathe, and that's because it's hard to limit our access to it."

 

The only reason for the ease of access is illegal copying/downloading of material, so commercial services are not competing with other commercial services, they're competing with illegal services. Imagine if you could steal a TV just by walking into a store...what would that do to the price of TVs? Eventually, TV manufacturers would realize they couldn't make money, and stop making them. They wouldn't bother fighting the "ease of access."

 

The devaluation started by Napster was accelerated when MP3 players came out that could store thousands and thousands of songs. People wanted to fill up those hard drives, but didn't want to have to pay for them. iTunes helped, but of course, a torrent was just a click away from iTunes. So while Spotify and Apple Music are addressing "ease of access" by trying to give a consumer experience that's superior than downloading from a torrent, it's still very hard to compete with free.

 

In my address at the New Music Seminar yesterday I talked a lot about the experience music delivers these days, and whether that experience is as rich as when music sold for more - with vinyl you received artwork like those gatefold covers, a physical thing you could hold in your hands, the knowledge that vinyl "died" just a little more every time you played it (adding a certain poignancy), and because turntables didn't fit in portable phones smile.png, most people listened over speakers and could feel actual air move...and a lot of them listened with friends. I think the above reasons have more to do with the revived interest in vinyl than sound quality of vinyl per se.

 

The only way the value of music will go up again is if musicians and companies figure out a way to provide an experience that merits paying more. I don't have any killer ideas along those lines but I've been thinking about it a lot.

Transistor radios, single side earphones, 12 gram tone arm 300-6000 Hz teen 'hi fis,' AM radios in cars.. that's how most of my peers listened when I was the loneliest teen audiophile in OC, CA. wink.png

Edited by blue2blue
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Transistor radios, single side earphones, 12 gram tone arm 300-6000 Hz teen 'hi fis,' AM radios in cars.. that's how most of my peers listened when I was the loneliest teen audiophile in OC, CA. wink.png

 

Yup, the experience...sneaking a transistor radio under your pillow at night to hear top 40...AM radios in cars, cruising down the road with music blasting...

 

I had a very cool experience driving across Texas when doing a seminar tour with Ken Valentine from Peavey. I called it the "Buddy Holly Tour" because it started in Lubbock and ended in Clovis. I bought a Buddy Holly's greatest hits CD and at one point, in the middle of the night under a starry Texas sky, we parked the car by the side of the road, cranked up the CD, and contemplated the vastness of the Texas plains and the awe-inspiring simplicity of Buddy Holly's music. Music is at its best when taken with an experience :)

 

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Craig, you're certainly right that we're where we're at now is due to the ease of stealing digital music. And right, the author of that article didn't mention that underlying cause. However he did refer to it tacitly with this phrase:

 

if you want to make money off of distributing music to people nowadays, you have to make the price low enough given how cheap it is for people to get music elsewhere.

 

Unfortunately that number is nearly zero (not quite zero since some people have ethics, some are lazy, some are clueless, etc) since music on any medium can be copied in high quality. If you can hear it on your computer speakers, you can save a copy.

 

But... his article was reality based. Given the current situation - including the stealing - what is the best economic approach to selling music? And as the airlines, movie theater and everyone else have figured out....

 

If some people are willing to pay a lot for something, then make them pay lot; for those who aren't willing to pay a lot, charge them a lower price, or make them buy something else. This principle--known as "price discrimination" -- is why when we go to the movies, the price we pay depends on which age group we fall into; why if you are the type of consumer who likes to collect and use coupons, you will pay a lower price for the goods for which you have coupons compared to someone who can't be bothered with them.

 

Terry D.

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Here's another thought (just thinking out loud).

 

Most musicians get exploited by the record companies. The Ms.Swift, Beatles, Zeppelin, Jacko, and the others who get rich at this are the exceptions rather than the rules.

 

The number of one-hit or one-CD wonders who ended up making next to nothing on their records outnumber the ones who made a profit perhaps by the upper 90th percentile (just a guess).

 

When Motown was courting our band back in the late 1960s, out of their proposed royalties came inflated recording costs, inflated production costs, inflated distribution costs and inflated promotion costs. More money per record went to the publishing company (Motown) and Motown wanted at least half the songwriting credits, even if they didn't write a note. Our lawyers and managers figured it would take over a million copies sold to break even. In the late 1960s, selling a million LPs the first time out was almost an impossible feat. Our lawyers asked for another penny per record, and Motown went with another group.

 

For the majority of artists, selling records is a way to promote ticket sales for live performances, and nothing more. Back in those days, you could gig as a headliner for 10 years with one number one record on Billboard. First with the first run concerts, then the show lounges/cruise ships, and then dwindling down to the smaller theaters and towns. And if your hit was big enough, but they time your run wore out, it was time for the oldies circuit. So a performer could make a lot of money while never making a penny on his/her/their record.

 

For the few who make big money on recordings, I'm happy for you. But for the majority, it ain't gonna happen, never has, never will.

 

Personally, I wish the lawyers and our manager would have taken the final offer from Motown. We would have probably made no money on the record (most likely), or broke out to become megastars. Either case we would have had a name to insure better booking money for a long time.

 

Insights and incites by Notes

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...which means songwriters really get the shaft, because they can't go out and play concerts.

 

 

That's a valid point. (Of course unless they are a singer/songwriter.)

 

Although ASCAP does collect money from most of the venues I've played in for my entire life, I suspect that the royalties for the songs I have played have not been distributed fairly to the songwriters that composed them. After all, nobody was out there making a list of what got played that night.

 

Songwriters making money off recordings is a blink of an eye in the history of songwriting. Things change, and we don't always like the way they change. The record industry is dying, and we aren't going to bring it back any more than we are going to stop rap, disco, or bring "the big bands" back.

 

Did Gershwin, Porter, Ellington, Cahn, Cohan, Berlin, Joplin, and the ones before way back to Bach make their money on record sales?

 

I make my own backing tracks, and prefer to do so with the sheet music (and my ears) or a fake book (and my ears). I like to have the music because I want to know what the intent of the song was. Sometimes extended chords are difficult to hear, especially when the comp instruments are buried in the mix. And if I decide to substitute a chord, I want to know what the original one was and just what I'm going to be doing to the song by subbing. The songwriters are making royalties from the sheets and books I buy - but I realize not everybody prefers the music.

 

I was a kickstarter donor to "The Wrecking Crew" movie and Denny Tedesco was very fair about paying songwriter royalties to the clips he used. Getting the rights to use them was a big, long lasting effort in the making of that film.

 

I see songwriter credits on the movies I rent, Amazon sells a lot of music books, I can purchase royalty paid, downloadable sheet music on the Internet, I'm sure TV pays the songwriters for the songs they play. Of course, that's only a proverbial drop in the bucket compared to what they used to make.

 

I thought about making MIDI sequences and selling them mail order and on the Internet back in the 1990s. I wanted to do it legally with full compensation to the publishers and songwriters. You wouldn't believe the red tape. I went to Harry Fox and directly to publishers, some denied. Some took years. Some wanted advance of 5,000 copies before I sold one. I gave the idea up.

 

I sell aftermarket styles for Band-in-a-Box (advertised in EM when you were editor right up to 2015). I wanted to do songs with melodies, again paying royalties. Again the red tape and up-front minimum payments discouraged the idea.

 

It's up to the songwriters to figure out how to make money in the post record era. I wish I had the answer. If I did, I'd go into the consulting business.

 

Notes

Edited by Notes_Norton
Added a bit.
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Seems to me this economist is replying to something that wasn't even said. Swift's letter addressed the matter of Apple not paying royalties during a free trial period, which is different from any issue with the general "freemium" business model isn't it?

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Seems to me this economist is replying to something that wasn't even said. Swift's letter addressed the matter of Apple not paying royalties during a free trial period' date=' which is different from any issue with the general "freemium" business model isn't it?[/quote']

 

It's exactly about that. The author is saying that from the vendor's point of view, freemium may make business sense as they can recoup their generosity other ways (ads was given as an example). His thesis is that artists should ask for what THEY want to be paid and leave the decisions on how to market and sell up to the vendor. A smart artist (according to the article) wouldn't concern themselves with the details of selling, focusing instead on making music and getting paid for it. The presumption is that Apple or Spotify or whoever is doing everything they believe necessary to maximize their profit - even if that happens by giving away tracks, having a free trial period, and using the advertising model. Remember TV before cable? Ads paid for everything, the viewer wasn't charged.

 

Now, if Ms Swift is not happy with how much she's getting paid per sale (I for one don't know that amount) then that IS her business. If the two parties can't negotiate a deal, then Ms Swift is welcome to sell it elsewhere and the vendor who passed on her price my have missed out on an opportunity.

 

Let's go back to Craig's point about if TVs were stolen and free like music is now. If that ever happened, and couldn't be stopped (as seems to be the case with music theft), then TVs would either disappear off the shelves OR only the TVs that had some sort of chip inside them would be able to receive broadcasts - much like software with dongles is now.

 

In every case what we're talking about is reality, not how things should be. If you can't stop something from being stolen, you either have to find another way to charge for it or you'll just have to stop making it.

 

That, I believe, is the point of the article.

 

Terry D.

Edited by MrKnobs
Bolded some text to better respond to veracohr's comment
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