Hint: It’s all about the data.
Over the past 30 years, we’ve witnessed a radical transformation of creative industries buffeted by digital formats. Moore’s Law governing the cost of digital computing has drastically reduced the costs of production and distribution. For example, a $250,000 analog studio can now be eclipsed by a $2,500 digital home studio. The zero marginal cost of digital distribution has also made large scale publishing and distribution of physical products obsolete. Following the simple economic law of supply and demand, these technological trends have led to an explosion of supply while collapsing the selling price of creative output. Accordingly, global demand has responded strongly to lower prices, but the considerable cost of matching supply and demand across global niche markets prevents the price from increasing to a sustained level, or equilibrium. The result has been that creative content is almost free and incomes for creators almost non-existent. Hence the life of the busker pictured above.
The Streaming Siren
In his book, Who Owns the Future, technology guru and musician Jaron Lanier cited the main failure of the digital age: By encouraging users to give away valuable information about themselves in exchange for free services, network platforms accrue large amounts of valuable data at virtually no cost. Lanier calls these firms “Siren Servers,” alluding to the Sirens of Ulysses. Instead of paying each individual for their contribution to the data pool, the Siren Servers concentrate wealth in the hands of the few who control the data centers.
Read more: Jaron Lanier: Beware of Siren Servers!
This is what streaming services such as Spotify, Pandora, Apple Music, Amazon Music, Google Play, etc. are doing with their cloud-based streaming models. One needs to unpackage the streaming business model to understand what is going on. Storing and streaming all the world’s content is not economic as a revenue model based on subscriptions. In other words, the cost involved in storing and delivering all the music in the world greatly exceeds the $10/mo. subscription prices members pay, so these services are being subsidized by shareholders, and/or by revenues pooled from other revenue sources by diversified companies like Apple, Amazon, and Google. In other words, Amazon or Apple can lose money on subscriptions indefinitely as long as they can see some future returns from another source. That source is the network data generated by users.
The next problem with the streaming model is that because it’s not really profitable, except as a pyramid scheme to keep signing up new users, cost pressures prevent streaming platforms from paying musicians fair value for their content. In addition, record companies that control copyrights can demand the lion’s share of any licensing royalties. For existing catalogs, this is just free money with no production costs involved. New boss, same as the old boss, and I’m not referring to Springsteen or the Who.
Read more: YouTube — 1.254 Million Views = $42.56
Interestingly, due to the almost zero market price of digital music, the cost of streaming probably exceeds the true price of buying that same content. The real difference is how much actual content we are interested in: the entire universe of possibilities or what we’ll actually consume? Streaming becomes an illusory choice: “I have all the music in the world at my fingertips, but actually I’ll never listen to 99% of it.” So why pay for it?
Lastly, we are relying on streaming services to search and curate our music for us. As alluded to above, this means we are relying on AI machine algorithms to judge the art we wish to consume. This doesn’t mean robots are choosing our music, but it does privilege certain metrics, like streaming metrics that lead to winner-take-all popularity contests. This is why 5% of the artists are earning 95% of the revenues.
Read more: What it feels like to be a songwriter
The nature of creative content has a lot to do with all this because the value of creativity is very subjective and difficult to measure. Professional critics exist but, with so much content, audience popularity is usually the default. Without the resources to consume and evaluate all that content, we rely on machine algorithms that primarily measure objective factors such as stylistic similarities and streaming or sales counts. Success breeds success as we are fed the popular content and creative incomes become more drastically skewed in a superstar winner-take-all contest. Unseen and unheard, innovative, risk-taking artists cease to create. With a few notable exceptions, this is what we are seeing today with the streaming of digital content in music, books, and movies. This state of affairs is unsustainable.
What to Do?
To truly understand what has happened in creative industries, one must stop thinking about these industries using the business models of the recent era, which are defined by the ownership and control of physical media. Physical media permitted centralized control over market supply and price, most often through the distribution channel. This is how record companies, movie studios, and print publishers came to dominate this era. All that has changed, but what has replaced it is not fundamentally different, with centralized control over online distribution networks by technology behemoths like Google, Apple, Facebook, and Amazon. Some great efficiencies have been realized, but the skewed distribution of value has become even worse.
Musicians have been responding to the challenges of the digital age over the past two decades by harnessing many new tools provided by technology. We’ll discuss some of the more common online platforms in terms of their strengths and weaknesses, realizing that none of them solve the problem in a wholistic manner.
In the digital age, artists are faced with three related challenges: promotion, distribution, and pricing. Social media is the primary channel for promotion and audience building. Platforms like Facebook, Instagram, Twitter can be used to build brand awareness and attract followers. Streaming services like Spotify, YouTube, and TikTok are distribution platforms that also help to promote content and artist branding. Some streaming platforms connect their streaming services to a marketplace where artists can sell content for a nominal price. Examples are Amazon, Apple, Google, and Bandcamp.
With each of these promotion and distribution channels, musicians are limited in their ability to monetize the value of their content. Because the age of physical media focused on the transaction value of content — selling LPs or CDs — many artists are still focused on selling content at the much-reduced price. This is not financially viable unless one is in the elite winners’ bracket; as with other free media channels, the transaction price revenue stream is largely inconsequential.
The current streaming distribution services cannot solve this problem for artists, they can only make it worse. Spotify has been lobbying artists heavily to convince them that eventually, they will receive all of the royalty revenue streams, cutting out the record companies and publishers, but that only favors the elite winners who can reach a global market through their brand presence.
What really matters is audience share and follower networks. Some artists who are savvy social media influencers can reap far more value from selling access to their follower networks to 3rd party advertisers and marketers. Of course, this is what the network platforms are doing with our data. Mostly they are selling it back to us and reaping the flow of data both ways: a ready supply of free content that creates user network data that they then repackage to advertisers who want to reach a targeted market. It’s great to be on the receiving end of that revenue model, as any shareholder of Apple, Google, Facebook or Amazon will attest. The trouble is most artist-creators do all of the giving and none of the receiving.
The only viable solution for the large majority of artists is to secure ownership and control over their audience, or peer, networks. But this means to control the revenue stream that streaming platforms wish to exploit for themselves. The old centralized distribution model, with all the centralization of market control, has merely been replaced by a new centralized digital distributional network. But the true promise of information technology and data networks is market decentralization. This is where we can integrate social media, digital distribution, and blockchain to build an ecosystem that distributes value fairly across that ecosystem.
The Secret Sauce: It’s All About Data
The first maxim of this new world of digital media is that value is derived not from individual content, but from the data networks created by sharing this content. This bears repeating because it requires a different way of thinking about the role of creative content. Content is used as a means to create networks rather than as an end in itself. This may go against the grain of artistic expression and motivation for intrinsic sake, but it does promote the sharing of that expression with an appreciative audience. We should be seeking to reinforce that human connection.
Broadcast television was built on the 3rd party advertising revenue model, so it’s not a radical innovation. Network platforms, like television broadcasters, gather the information data from their users and sell it. Think of Nielsen ratings. The problem, again, for artists and users is that don’t receive a fair share of the data value they create in the network; instead, that value accrues to those who own and control the centralized network. This is especially true for those servers that, like tv broadcasters, stream content.
How can we change direction?
First, as previously mentioned, the solutions offered up by the streaming platforms don’t really solve the problem. Streaming services like Spotify, YouTube, TikTok, Apple, or Amazon Music are consumer-centric in that they deliver an infinite supply of content to consumer devices at a low, subsidized price. Artists virtually give away their music to streamers in order to promote their art and build audience awareness. Top streaming content can also be used to demonstrate market viability to attract record label interest for the artist.
Platforms for independent artists, like Bandcamp, Soundcloud, Tunecore, and Amazon are artist-centric in that they help artists build an online presence and monetize sales in a marketplace.
Pure social networks like Facebook and Instagram help artists promote their brands and can be harnessed by influencers to build follower networks that can be monetized through the platform.
But in each and every case, artists and creators end up with tiny residuals after the platforms take their share of the transactions and data network value created. Instead of continuing down this road, artists need a platform that allows them to own and control their audience shares. They also need to harness the power of social media networks to promote their content so they don’t have to become social media marketers in addition to artist-creators.
One can imagine such a platform as illustrated in the graphic below. This model integrates social network dynamics with a peer-to-peer marketplace and blockchain ledgers to keep track of user-generated network data and value.
· The social network searches, shares, curates, and promotes content as it builds peer networks of users, or audiences, with similar content tastes.
· The peer-to-peer marketplace allows creators to sell or license their content directly to users. The importance is less about the price value of content and more about making strong network connections between artists and consumers.
· Control over peer networks (followers) allow users to monetize their audiences to 3rd party advertisers or promoters while spreading the value received across the peer network through special discounts or token rewards.
· Blockchain ledgers anchor the network data to artist content and user behaviors. Decentralized blockchain allows value to be distributed to users who create value through sharing and purchasing/licensing content. Tokens can be used post-sale by artists to reward followers/influencers who promote their content that leads to sales conversions. Crypto-tokens rewards become the unit of value to be exchanged, which can be used on the platform or converted to other currencies through an exchange.
Conceptually, a network platform hosting a decentralized creative content catalog that becomes large enough can develop a streaming channel that would operate more like an artist cooperative. Think United Artists. Revenue streams would include direct digital downloads, streaming royalties, and advertising.
So, the short answer to the question, How Can a Musician Make Money? posed at the beginning of this article, is: By sharing their art and owning their network data. All one needs is the right platform. If we build it, they will come.
Read More: tuka: Connecting the Creative
The author is Founder and CEO of tuka (www.tukaglobal.com), a social network platform for sharing creative digital content that will integrate with the Ethereum blockchain platform.