“Information, knowledge, and culture are central to human freedom and human development. How they are produced and exchanged in our society critically affects the way we see the state of the world as it is and might be; who decides these questions; and how we, as societies and polities, come to understand what can and ought to be done.” -Yochai Benkler
The music industry is in distress, and the Internet is (mostly) to blame. Ever since the rise of Napster and other consequent peer-to-peer sharing networks, the blogosphere, and the dwindling willingness of consumers to pay for music while free options exist, the industry has been scrambling to find a way to monetize their product and entrench more firmly their beloved traditional business model. Thus far, the music industry has been doing this through escalating enforcement of intellectual property. The Digital Millennium Copyright Act of 1998 (DMCA) serves as a example of the tight grip on the past of music label giants. With this legislation, copyright owners attempt to build strong encryption into the media products they distribute on the Internet. Says Yochai Benkler, “If this outcome was achieved, the content industries could simply keep their traditional business model.” He continues, “It is intended specifically to preserve the “thing-“ or “goods-“like nature of entertainment products.” But many argue it’s not working, and this is visible in the steeply declining revenues from music sales and the inability of music executives to keep their copyrighted works within their grasp. Consumers today want musical diversity, and they want to access it as easily and as cheaply as possible, using peer-to-peer networks and other means to get the music they want now for free. In this look into the future of the music industry and the networked economy, I will explore a few issues. First, I will look at one of the upcoming models in the music industry today: streaming sites, such as Spotify, whose benefits and consequences will be examined. I will then discuss the role of music within the cultural aspects of the public sphere and possibilities for the music industry within the networked economy.
In a work conducted by Maija Halonen & Tobias Regner, the authors speak about the shift in the music industry. “The main findings in the traditional music market (pre-Napster) are a label dominated retail distribution network without alternative…Due to the high indispensability of labels…the label owns the copyright…In the post-Napster scenario, labels are getting more dispensable as their retail distribution networks become replaceable due to alternative ways of digital distribution.” The labels are losing traditional control, and digital possibilities are taking over. This is where Spotify comes in, a burgeoning Swedish service that allows consumers to stream their favorite songs from a wide library. Consumers can choose between a free, ad-supported model or a premium paid service that takes ads out of the picture. Not only that, it taps heavily into the social aspect. “Social integration provided the logical next step for the music industry; Spotify capitalized on it,” says Chase Andre of The Biola University Chimes. “If you want to show off your inner music aficionado, Spotify auto-publishes every song you listen to for your friends to see…A few clicks and you have a whole playlist to share with your friends. And unlike with Sharpie-scribbled CDs, artists are compensated every time their song is played.” Spotify has found another way to monetize file sharing: through access, rather than ownership. “In the history of music, it’s been about how you need to buy this record or song,” says Spotify founder Daniel Ek, quoted by JP Mangalindan of CNN Money. “What Spotify is saying is ownership is great, but access is the future.” A streaming service gives consumers the option to access vast music catalogues and find new favorite artists that they may eventually support through concerts, etc. or, as Ek hopes will inspire consumers so much that they switch to the paid, premium version of the service. With Spotify, Ek combines the possibility for free music with a system that actually pays the music industry. While some were concerned that Spotify doesn’t pay enough back, Mike Masnick of Techndirt attributes this to the incremental nature of labels’ monetary gain from Spotify. “The more you look, the more you realize that Spotify actually pays out quite a lot…Comparing Spotify to radio, iTunes, and a lot of other things…it turns out that Spotify pays a hell of a lot more than any of those other sources. It’s just that it’s incremental, so it looks smaller.” This could definitely be a turning point for monetization of music. In fact, surveys done in Europe, reports Ade Adeshoye of the Northwestern Business Review, “The numbers of people who downloaded music illegally has decreased by more than 25 percent in Sweden,” the place of Spotify’s birth.
However, in Masnick’s assurance that Spotify pays labels back is one of the problems: Spotify pays the labels. Masnick quotes the CEO of Merlin, an independent music rights agency: “Spotify pays labels, not artists. And labels aren’t always great about paying artists. That’s not Spotify’s fault. It’s what you get when you sign up for a major label.” Spotify is just another tool for major labels to, in many ways, continue their traditional business model, under the guise of a step towards a more networked economy. Yes, there are advances—people can stream free music—but there are definite flaws: the consumer is bombarded with ads, the labels are still getting money and stiffing artists, and though Spotify’s library may be vast, to a true aficionado there will always be things missing, and people will still look for those for free. Plus, some such as Andre wonder if there is a ceiling for people willing to pay the subscription fee. Andre definitely has his doubts about the Spotify model. “This upgrade may prove necessary to bail out a drowning industry,” he says.
“However, every revolution meets an ultimatum: Change everything or get coopted or consumed by the status quo. Unsurprisingly, major recording labels monopolized and monetized…Purevolume and now it is irrelevant to nearly any conversation regarding the state of the music industry today, irrelevant because it was abandoned by the fans who used it. Free access to full songs was replaced with a myriad of banner ads and 30-second song clips. Listeners moved on.”
Spotify now plans to cap listening for free users, and it seems like Andre might be right: Consumers, at the end of the day, are going to gravitate towards free if access isn’t easy. What’s more, services like Spotify would have to make themselves widely accessible and portable. Currently, without a paid account, you cannot hook the service up to your mobile device. For consumers to stay interested, they’ll have to be able to access the music whenever they want: on the road, while outside of Internet range, in their home. Concludes Andre, “Spotify is just another bandage on a sinking ship…Direct artist-to-fan distribution is a game changer, and thanks to social integration, it’s a viable one.”
So then, what can be done? The industry needs to embrace rather than fight that copyright and industrial modes of production are out the door and find successful nonmarket alternatives. The faster that they can find ways to adapt, the faster the music industry will find new ways to make money. Of course, there aren’t any clear answers to what precisely should be done. If I had them, I would be rich. However, what is clear is that something new is needed and depending on the model, labels just might not make it unless they drastically redesign themselves. Music is crucial to our culture. Says Benkler, “It would be silly to think that music, a cultural form without which no human society has existed, will cease to be in our world if we abandon the industrial form….Music was not born with the phonograph, nor will it die with the peer-to-peer network.” Music itself won’t die, just the past winners might.
Music, like information, is nonrival: it’s consumption by one person does not make it any less available for consumption by another. Once it is produced, no more social resources need to be put into creating more of it to satisfy the next customer. Benkler discusses that marking up information above its marginal cost creates inefficiency in our cultural system. Because such information is nonrival, it is the perfect candidate for a networked economy that encourages creativity both in artists and consumers. While copyright is claimed to champion creativity by incentive, Benkler argues that it actually stifles creativity by making it difficult for the next generation to build on existing cultural information. To him, and to Gaylor, the director of the documentary RiP: A Remix Manifesto, culture is based on the “On the Shoulders of Giants Effect,” that everything is based off or inspired by something else. Increased copyright laws make it more expensive for today’s consumers and creators to build on the past. Even Disney, whose corporation is now one of the staunchest advocates of copyright law, is claimed by Gaylor to be an original “remixer,” bringing old public domain stories such as Alice in Wonderland and reinterpreting them with modern meaning. Says Benkler, “If prices are too high we will have not only too little consumption of information today, but also too little production of new information for tomorrow.” The networked economy supports creativity and supports its citizens to engage with and think about their culture, rather than to be passive consumers as the industrial model necessitates. The culture of the past is “absolutely central to our cultural self-understanding,” and by interacting with it in the ways that DJs and documentary collagists such as Gaylor do, we gain a better grasp on our society. Says Benkler, “A ubiquitous practice of making cultural artifacts of all forms,” regardless of true creativity, including the “glomming on” described by Balkin, “enables individuals in society to be better readers, listeners, and viewers of professionally produced culture, as well as contributors of our own statements into this mix of collective culture.” Though the folk culture that existed in the past was displaced by the industrial economy, a new folk culture of engaged creators and consumers can emerge in the networked economy, wherein we are no longer passive. This new folk culture presents the possibility, says Benkler, “for a new public sphere to emerge alongside the commercial mass-media markets.” If we want to be more understanding of, connected to, and a part of our culture, then we must move towards the networked economy which treats information, and thus music, as a conversation. This shift would not only be better for us as citizens of our world, but it could also help save the music industry.
This emphasis on information as a conversation can certainly translate into the future of the music industry, though Benkler says that a move in music towards the networked economy means “substantial redistribution of power and money from the twentieth-century industrial producers of information, culture, and communications…to a combination of widely diffuse populations around the globe.” Rather than the “few superstars” created by massive labels, “niche markets play an ever-increasing role.” Consumers want diversity, not to settle for something they find average. Benkler says that peer-to-peer networks enable an “anarchist culture” that is better suited to today’s consumer. “File sharing systems produce distribution and “promotion” of music in a social-sharing modality…they could entirely supplant the role of the recording industry.” It seems that, for most artists, the attack on the moneymaking of labels by piracy and peer-to-peer networks doesn’t really affect them, as labels gobbled up most of their share to begin with. “35 percent of musicians and songwriters said that free downloads have helped their career…increased attendance at concerts…helped them sell CDs and other merchandise…helped them gain radio playing time.” This, some argue, presents one way to deal with the music industry: encouraging free music as a vessel towards monetization of other sectors such as concert attendance, premiums such as physical copies or B-sides, and the purchase of merchandise. Bryan Kim of Hypebot doesn’t think this is the best model, and I agree that there is an even bigger future lying ahead for the music industry that revamps the whole model rather than moving around parts of the current model. “I believe it’s very possible to revitalize the music industry with free music, without relying on unrealistic growth in the existing concert and merch sector,” says Kim. “This requires us to create an entirely new product offering to fans…”crowd patronage.”” James Reed of the Boston Globe explores this as well. “The fans aren’t just giving money to artists” who take donations for work rather than use labels, “they’re buying services.” What happens next is a more open dialogue between artists and fans that also allows fans to participate in the work and lives of artists. Reed details a number of examples where artists asked for money from their fans and find that “their supporters are eager to help” and thus, succeed. Kim delves into similar studies: consumers and fans are now buying an experience rather than the music itself. “For most of human history,” says Kim, “Music was a public and participatory experience.” Now, that approach is making a comeback. Kim’s solution is this, and I think it presents hopefully a viable shift for the music industry: “First, we must allow ourselves to be okay with music being free, or close to it. Second, we must recognize the anthropological value of music itself in human societies. Last, we must attempt a solution based on what the internet enables.” In this model, artists open up communications to their fans. With services like Kickstarter, crowd-funding becomes a possibility. For example, indie darling Amanda Palmer recently raised twelve times her goal of $100,000 to help release her next album. “The finished album is not even the point anymore,” says Kim, as the album was later released for free. What fans were paying for was an experience, in this case, an invite to a private art show with the artist, or even a house party appearance by the artist. Such approaches give the fan and consumer access to the artist, exclusivity, or recognition. This radically new structure would lessen the power of the entrenched incumbents of the music industry, allow artists to make money, and also improve music culture by giving fans more access to the musicians they respect. Maybe we’re not saving the label giants, but we’re saving the music, and that is what seems most important. And, Kim says, “the 80% of casual fans who don’t buy any crowd patronage product are still generating plays, which will eventually count for a trickling revenue.” This movement would allow for the commendable artist to receive more money and freedom, and also the ability to monetize music through streaming services such as Spotify.
I can only anticipate a networked economy and the emergence of a new folk culture within the American music industry. “During periods of perturbation, more of the ways in which society organizes itself are up for grabs,” says Benkler. “We are in the midst of a technological, economic, and organizational transformation that allows us to renegotiate the terms of freedom, justice, and productivity in the information society. How we shall live in this new environment will in some significant measure depend on policy choices that we make.” If artists and consumers collaborate to seek alternatives to the incumbent industrial economy, I believe there is hope for the music industry.
“Spotify: The Next Step in Digital Music Innovation.” by Ade Adeshoye at the Northwestern Business Review.
“Why Spotify won’t save the music industry.” by Andre Chase at the Biola University Chimes.
The Wealth of Networks by Yochai Benkler.
“Technology Change and the Allocation of Ownership: The Music Industry” by Maija Halonen and Tobias Regner at the University of Bristol.
“Crowd Patronage: Can a 400 Year Old Model Save the Music Industry?” by Bryan Kim at Hypebot.
“Spotify CEO: Music access, not ownership, is the future.” by JP Mangalindan at CNN Money.
“Myth Dispensing: The Whole ‘Spotify Barely Pays Artists’ Story is Bunk.” by Mike Masnick at Techdirt.
Sean Parker, Managing Partner of Founders Fund and a co-founder of Napster, talks about how he believes technology will revolutionize the music industry, and how companies like Spotify and Napster already have. From Techonomy.
Parker: “I’ve watched for the last ten years as the four major record labels, now about to be three major record labels, have systematically failed to embrace any kind of interesting new models. They essentially have existed in a storefront mentality, which is a unit sales driven business, where you basically walk into a store, whether that store is physical or iTunes—iTunes even calls itself a store—and you buy music the way you’ve always bought music, with maybe some limited ability to sample, but there’s no social context whatsoever. You can’t see what your friends are listening to, you can’t listen to what they’re listening to without first buying it. And until you solve that problem of creating a free tier of experience where a consumer can look at their friend’s music collection, listen to a few play lists, add those to their collection, and then ultimately there’s a monetization event when the consumer either subscribes or decides, “You know what? I want to take that music with me on my iPod. I’ll pay to buy it in bulk”—that is an idea that we had proposed at Napster 11 years ago. It was an idea that took all of this time to mature, and, you know, unfortunately a huge amount of value has been lost in the meantime. I actually am of the belief—everyone thinks the publishing business is doing great. I think it’s hard to believe that music publishing continues to scale, because the multiples are already so high, you know, there’s so much growth baked into the valuations of these music publishing businesses, and that valuation assumes growth that may not actually exist, whereas the record business is in such a slump, due to the lack of great distribution systems that are able to monetize the direct consumption of music. Now we have that. You know, we’re starting to see it with Spotify, we’re starting to see it with things like Turntable, to some extent with Pandora. You know, I would be naïve to think that iTunes wouldn’t at some point pursue licenses which look something like the licenses we have at Spotify.
So the market’s changing rapidly, and it actually, we’ve presided over the largest destruction of value in the history of the music industry over the last 10 years. If we can just get the industry back to where it was 10 years ago, we will in effect have presided over the largest increase in value, by definition, in the music industry in the last 10 years. And so, you know, I think it’s an industry that’s poised for a significant comeback.”
Much of the background behind this examination is derived from Yochai Benkler’s The Wealth of Networks: How Social Production Transforms Markets and Freedom. Through this very insightful (and very liberal) text, Benkler discusses the possibility of a shift from our current industrial economy to a networked information economy in this period of media uncertainty.
Says Amazon, “With the radical changes in information production that the Internet has introduced, we stand at an important moment of transition, says Yochai Benkler in this thought-provoking book. The phenomenon he describes as social production is reshaping markets, while at the same time offering new opportunities to enhance individual freedom, cultural diversity, political discourse, and justice. But these results are by no means inevitable: a systematic campaign to protect the entrenched industrial information economy of the last century threatens the promise of today’s emerging networked information environment.
In this comprehensive social theory of the Internet and the networked information economy, Benkler describes how patterns of information, knowledge, and cultural production are changing—and shows that the way information and knowledge are made available can either limit or enlarge the ways people can create and express themselves. He describes the range of legal and policy choices that confront us and maintains that there is much to be gained—or lost—by the decisions we make today.”
This book proved to be imaginative, insightful, and a great springboard for the exploration of the present and future of the music industry, new technologies and their benefits and repercussions, and the application of music to a healthy public sphere.