The New York Times is not exactly known as the protector of big business. However, its recent article and accompanying videos on Internet radio takes the recording industry narrative as fact when in reality it’s a self-serving fiction. The article title tells it all: Grappling with a ‘Culture of Free’ in Napster’s Aftermath.
The recording industry has managed to oversee a 50% revenue decline in purchased music and it is looking for a scapegoat. The narrative that the New York Times bought was that consumers have been conditioned by Napster to get content for free and now they won’t buy music anymore. The result: musicians struggling to make ends meet.
What’s really beneath the surface of this well-crafted facade? Recording industry executives have less control and aren’t making as much money as they would like. Artists have more access to audiences, music distribution and revenue sources than ever before. Not all artists will make it, but more will have a chance and the market will decide their fate. There will be more competition so it will be harder, but at least it won’t be a half dozen radio executives determining whether a musician has a career. Audiences will decide.
Contrary to the article’s headline, the Internet radio industry does not provide music for free. Maybe this is just bad headline writing or maybe it is only intended to drive clicks. But the article does state that Internet Radio does pay the recording industry for content. They use the modifier “some” in front of money to emphasize the recording industry executives’ disappointment that they are no longer printing money with high-priced CD sales. There are only two revenue-free sources of music today: piracy and broadcast radio. Neither of these music distribution channels is addressed.
Publishers and Consumers Are Paying for Music Access
Let’s be clear. Consumers are paying for music access. All of the leading Internet radio publishers pay for music streaming rights either through statutory rates set by the courts or through direct negotiations with rights holders. Nearly all publishers today also charge consumers for access to this content. Consumers pay in one of two ways. They either pay an annual subscription or they agree to be delivered ads, which is a sacrifice of their time in exchange for an advertiser to pay for their music consumption. There is nothing free about this arrangement.
The Data Rejects the Free Argument
In case you don’t think that the revenue Internet Radio is delivering the recording industry is significant, look no further than the Recording Industry Association of America (RIAA) reports. In the first half of 2014, streaming music services accounted for 27% of industry revenue. That is up from 21% in 2013 and accounted for $859 million in revenue for the music industry in just the first six months of 2014. In 2013, full year payments were over $1.4 billion and that number will easily be surpassed this year.
It’s About a Cultural Shift to Renting
The real narrative isn’t about greedy consumers that want everything for free. It’s about a shift in attitude and behaviors. Last month we discussed in detail the generational attitudes of millennials that favor renting access over owning things. Much of this attitude was shaped by the severe impacts of the 2008-09 recession. It is also influenced by a preference for experiences over ownership. Twenty-six million people worldwide that used a music file sharing service more than a decade ago didn’t cause this change. There are many causes of the decline in recorded music sales, but the ‘culture of free’ isn’t a leading candidate and neither is Napster. If they were, everyone would be using the multitude of piracy sites or simply listening to the radio. Blaming the consumer as immoral is a canard.
Why the Recording Industry Loves Napster
It is worth remembering that the victim narrative is driven by the same recording industry that sued over 20,000 consumers for using Napster. It also forced Napster to close through the force of the courts. That victory which protected the interests of an industry cartel, is what the industry hopes for again. However, there are two important points that make this situation different.
First, the industry believed it had the moral high ground with Napster because it equated file sharing to stealing. The complaints about Internet Radio are not based on morality – they are economic. No one is stealing, but the owners want more money. This also means that the industry will not have the judicial system on their side so they are attempting to resort to the court of public opinion.
Second, the industry presided over a rapid decline in music sales revenue after Napster was shut down. The move to digital music that has close to zero distribution and manufacturing costs allowed singles to be cost effectively separated from albums and offered at a low price. This had nothing to do with Napster or the ‘culture of free.’ Consumers bought all of those tracks but didn’t buy entire albums with less popular songs that would historically been thought of as filler content.
News Media Sympathy for the Free Content Accusation
It’s not all that surprising that the New York Times was sympathetic to this industry-driven narrative. News publishing is facing an existential crisis from the proliferation of free and ad-supported content on digital platforms. That is understandable.
However, the industry dynamics are very different. News media have long relied on advertiser support. The difference now is that advertisers have many more options to reach audiences and that competition has created lower ad rates that do not support the old news media economic model. By contrast, the music industry is concerned that consumers have more choices and are finding less expensive ways to access more music content than purchasing a new album. News industry challenges are driven by increased competition that is driving greater advertiser and consumer choice in fragmenting markets. The recording industry is fighting against greater consumer choice that in fact brings a new revenue source.
It’s About More than Money
Finally, the recording industry complaints with streaming aren’t just about money. Streaming disrupts the recording industry’s control over which acts get the chance to succeed and who has control in contract rights discussions. In Napster’s day, it was the bands Radio Head and Dispatch that used the platform to drive new music sales not dependent on the recording industry infrastructure. More recently YouTube has launched the careers of Macklemore and Justin Bieber. On Internet Radio streaming services you have Daft Punk and Mumford & Sons that rode the new channel to success.
The industry overall has adjusted. In 2000, concert tours brought in just $1.7 billion in revenue according to Pollstar. In 2013, that had grown to $5.1 billion. That is almost a 9% compound annual growth rate for more than a decade. Of course, the recording labels make their money on music sales and artists make very little on them. When the artists are making more from touring and have more access to audiences, the power in the industry shifts away from recording label executives. No wonder they are fighting so hard.
Don’t fall for the narrative of the poor musician being taken advantage of by streaming services or of the immoral consumer that wants her music for free. Napster may be the right metaphor, but for a different reason. The current music conflict is the recording labels against the consumers. The Internet Radio streaming services are only the latest battleground. The fact is that consumers are paying for music through subscriptions and listening to ads; but no matter what they pay, recording label executives will want more.