The Problem for Musicians and Writers Is the Internet, Not Monopolistic Corporations

December 24, 2023

We all know the old line about intellectuals having a hard time dealing with new ideas. The New York Times set out to prove this point with a column by Kim Scott warning that Spotify may do to the book industry what it has already done to the music industry. The main concern in the piece is that Spotify is getting into the business of pushing audiobooks. The piece argues that it will control the pricing and the publicizing of books in ways that disadvantage authors. The piece is fighting an imaginary foe.

I don’t have any interest in defending monopolistic corporations, and arguably Spotify fits the bill here, but the idea that it is the main problem facing musicians, or possibly authors in the future, is complete nonsense to anyone who follows Scott’s argument.

To see this point just follow the links in the piece claiming that Spotify impoverishes musicians. We learn from one that Spotify keeps roughly 30 cents of each dollar that people pay to hear streaming music. The other piece tells us that just 13,400 musicians or songwriters (0.2 percent of the total) make over $50,000 a year from their sales on Spotify. Only 7,800 earn over $100,000 a year.

If we think that $50,000 is a minimum that a musician can pocket from recorded music to make a decent living along with what they can get from live performances, that means that not many musicians will be able to support themselves without a day job. The number is cut almost in half if we use $100,000 as a cutoff. That would be a bit more comfortable, but hardly a lavish standard of living. (Supreme Court Justice Clarence Thomas apparently thinks that $285,000 a year is poverty.)

In short, given the current economy of the music industry, very few people can make a living writing and performing music. And Scott warns us that writers will face a similar fate once Spotify ramps up its audiobook marketing.

There is little reason to doubt the numbers Scott gives us, but is Spotify really the villain here? The company pockets 30 cents of every dollar that it pulls in. Maybe that is too much, but suppose it was reduced to 15 cents of every dollar, thereby increasing the take of the musicians by 20 percent. Would this picture look very different? And Spotify is actually losing money at present, so it is not clear that it has a hugely excessive margin.   

Is there a plausible story that there would be more money in streaming if we didn’t have Spotify? That seems unlikely. As a company with considerable marketing power, its incentive is to maximize revenue. Many businesses are run poorly, and Spotify may be one of them, but it is hard to believe that it is so badly mispricing its music that it is missing out on a great deal of revenue that would be available with a better strategy.

It’s also worth remembering the environment that gave birth to Spotify. Napster and other services that allowed unauthorized copies to be downloaded at no cost were proliferating on the web. The idea of Spotify was that it would allow people to get music easily and at low cost in a way that at least paid the performing artists something. If we envision a world where there is not a low-cost service like Spotify, it is almost certainly one where there are many more Napsters.

Apart from the size of the total pie, there is a question of whether Spotify is responsible for its concentration in a relatively small number of performers. The distribution of revenue among musicians, writers, actors, and other creative workers has always been highly skewed towards a small number of stars. Perhaps Spotify makes this worse, but it is not clear how. In any case, even if we divided Spotify’s total $7 billion take completely evenly, and we didn’t have the service pulling out anything for operating costs and profits, it would only allow 140,000 people to earn $50k a year from their music.

That would be a bit more than ten times as many as now, but it still would only be a small fraction of the people looking to make their living in the music industry. It obviously does cost something to run a worldwide streaming service, so even if we think Spotify’s 30 percent cut is too high, we are not going to be able to push it anywhere close to zero. And the Bruce Springsteens of the world are not likely to be satisfied getting just $50k a year from their recordings.  

In short, if we think there is a big problem with musicians being unable to support themselves, and writers are soon to be in the same boat, the issue is not Spotify. The problem is not enough money being spent on creative work.

Getting More Money to Creative Workers

At the most basic level, we are paying out much less money for creative work now than in prior decades because so much is now available at zero cost over the Internet. To take the case of recorded music, where the drop-off is most pronounced, going back to the start of the century in 2000, the early days of the Internet, we spent roughly 0.19 percent of GDP on recorded music. That would be the equivalent of $51 billion a year in today’s economy. Instead, we spend just $14 billion on streaming services, permanent downloads, CDs, and records, just over one fourth as much measured as a share of GDP.

Part of this falloff is due to savings on the physical product, since only a fifth of the current spending is going to purchase CDs or records, whereas in 2000 all of it was. However, that can only explain a small portion of the decline, the rest is due to less money going to the people who write and perform music. There is a similar story with newspapers, books, movies, and other types of creative work. With less money being spent, there is less money being paid to creative workers. We can devote our efforts to fighting over a diminishing pie, or we can try to develop ways to expand the size of the pie.

The latter would mean relying on a new mechanism for supporting creative work and creative workers. Currently, we rely primarily on government-granted copyright monopolies for getting money to creative workers. The logic is that the government gives this monopoly as a reward for creative work. However, it is worth much less in the Internet Age, both because there is competition from a large amount of material that is available at zero cost and because copyrights are more difficult to enforce.

Congress did pass the Digital Millennial Copyright Act in 1998 to ensure that copyrights could be enforced on the web, but even with this very copyright-friendly law, there are literally billions of unauthorized downloads of songs, movies, and TV shows every year. Granting copyright monopolies may have been a useful policy for supporting creative work a hundred years ago, but in the Internet Age it clearly is not an efficient route.   

It is long past time that we talked about alternative mechanisms for supporting creative work. My preferred mechanism is an individual tax credit, modeled on the tax deduction for charitable contributions. (I outline this system in a bit more detail in chapter 5 of Rigged [it’s free].) The basic logic is that every person could get a tax credit, say $100 to $200, to support the creative worker(s) of their choice. This credit could go to a single writer, musician, singer, or other performing artist, or an organization that supports creative workers, say focused on country music or mystery writers.

Unlike the charitable contribution tax deduction, this would be a credit that would have the same value for everyone. It also would be fully refundable, so that even people who owed no taxes would be able to use it.

On the receiving side, individual creative workers or organizations would register with the I.R.S. or a new agency, indicating what creative work they do. This registration would be similar to what groups do now to get tax-exempt status. The organization must indicate what it does to qualify for tax-exempt status, for example, is it a church, a charity that provides healthcare to the poor, or a cultural institution? The I.R.S. doesn’t attempt to evaluate its quality as a church or cultural institution, just that the organization does what it claims.

One condition of getting the money through this system is that the people getting funding through the tax credit system would not be eligible for copyright protection for a substantial period of time after getting the money. The idea is that the public has already paid for your work, it should not have to pay a second time. Any material produced through this system should be freely available on the web.

A nice feature of this provision is that it is self-enforcing. If someone gets money through the tax credit system and then copyrights their work, they would find that their copyright is unenforceable. If they tried to sue for infringement, the defendant could just point out that the person was in the tax credit system, and therefore ineligible for copyright protection.

There are efforts in Seattle and Washington, DC to set up systems along these lines to support local journalism. If either gets implemented, it will provide a useful test of this sort of alternative mechanism for supporting creative work.  

Can Intellectuals Consider New Ideas?

The New York Times column complaining about Spotify was striking because it was so obviously lashing out at the wrong target, as should have been clear to anyone who spent a few minutes looking at the numbers the piece itself relied upon. There is simply not very much money going for recorded music now and whatever part Spotify pulls out will not change that basic fact.

We should be looking for ways to increase the size of the pie. The tax credit system is a way that does this which allows individuals to choose what creative work will be supported, rather than having some government agency making the call. In that way, it preserves the element of individual choice in the copyright system. However, it is intended to take advantage of the fact that the Internet can allow material to be transferred at near zero cost, rather than trying to fight this fact, as is the case with the copyright system.

Undoubtedly people can think of different and possibly better mechanisms, but the point is that we really do need some serious thought about alternative systems. Lashing out at a monopolistic corporation may make for some cheap fun in the New York Times, but it is not a serious way to address the problem.


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