Apple is set to launch a streaming music service. While music fans and the industry should welcome a new competitor to the music streaming, we might also want to step back and ask whether we want to live in a world where the dominant music distribution services are run by companies who make their money elsewhere.
Guest Post by Sherwin Siy, VP of Legal Affairs and John Bergmayer, Senior Staff Attorney at Public Knowledge
Apple, Amazon, and Google all have their own streaming offerings, but can afford to fund them by making gobs of money through other aspects of their businesses. As such, they can subsidize their streaming business model with income from other products and services they offer. We also know that, however well-known their brands and however impressive their growth, most independent music-streaming companies (like Spotify, Pandora, Rdio, Rhapsody, and Tidal) don’t always have the strongest financial bases. Some analysts have even questioned whether their business model can ever be profitable.
The market is not very transparent, so it’s hard to know what’s really going on and what these services pay. We do know that not all record labels are treated equally, and that larger labels get better terms than smaller ones. This means that an artist on a smaller label would get paid less per play than an artist on a larger label — in addition to probably being required to offer their songs for more play at this lower rate. All artists, and all labels, are far from being treated equally. We also know that in some cases large labels receive equity or other consideration in exchange for licensing their catalog, and that none of this is necessarily seen by the artists on a label.
Given these pressures, some musicians or small labels who feel like they’re getting the short end of the stick might welcome new services into the market. More competition means they can bid up their rates, and deep-pocketed tech companies can afford to pay more than streaming-only companies, which sounds good on paper if you’re a lone musician struggling to make ends meet.
But adding one more competitor is unlikely to be enough to make things better, particularly if the structural inequalities in music compensation go unaddressed. Right now, streaming services pay far more to play music than other forms of music delivery, like radio — so much so that they either need the deep pockets of tech companies, or end up handing large portions of their business over to the big labels themselves. If cash-strapped independent music streaming services like Pandora or Tidal end up owned by the major labels that supply a big portion of their catalog, those big labels will continue to favor themselves over smaller artists just as they do today. Although big tech companies might already make enough money to stay in the streaming business without handing over equity, we’re left with a new, equally limited set of music gatekeepers if they’re the only ones able to play in this industry. Fundamentally, it’s just better for musicians and listeners both if the music industry can be self-sustaining, with profitable music-only companies.
In an ideal world, music wouldn’t be a company’s loss-leader, or a tool used for ecosystem lock-in. Music-first companies could easily be more innovative than companies that do music for strategic reasons. And music-first companies are more likely to appeal to true music fans. This is not to say that large tech companies shouldn’t offer their own music services — more choice is better. But unless we get to a system where all labels, publishers, and artists are treated equitably, we might end up with a market where music streaming is dominated either by the largest labels selling their own products at the expense of independents, or by the same companies that already dominate the rest of our online lives. It’s hard to see how that could be good for music or fans.