Guest post by Tyler Hayes, founder of Liisten.com, an independent music discovery site..
Spotify will lose close to $900 million this year. Are we still sure that subscription services will save the industry? A better hope at trading music for money and becoming profitable is to look at the app market, specifically iOS and the Mac app store.
The app-as-a-business model, which has been around, but has recently been popularized by Apple’s iOS, has too many similarities and things that independent artists could benefit from to just be ignored. Recently, Instapaper’s Marco Arment, responding to Will Shipley’s article, made the point that by not allowing upgrade pricing, it is forcing software prices downward. This got me thinking about the connection to music.
By having software commoditized, Apple is indirectly benefiting, having a complimenting product, the app, to go along with people’s new iPad or iPhone. The difference, and reason this didn't play out the same way with music when the iPod came along was because of the labels. It almost happened, but never quite got there. If there hadn't been record labels or if they hadn't fought the battles they did, we might have digital music that's more heavily commoditized and cheaper. That would be a bad thing though right? How can cheaper music be a good thing?
Well, let's look at the app market. When a photo editing program (iPhoto) costs $4.99 instead of $20+ you sell a lot more. I'll let economic majors argue the details of price balance, but the fact is, you sell more. This was, and could still be, music’s solution. Digital music needs to cost less than physical music does. The ability to sell 1 of something or a 1,000 and it be virtually the same cost of manufacturing is the simple answer to a lot of these complex music industry problems.
Percentages, and the who gets what is the bottle neck that will continue to exist between the solution on paper and in practice though. This is where the music industry and the app industry differ and the age crusted onto the music industry is clear. With apps, you have a lot, not all, but a lot, of independent developers creating something that then only goes through one middle man, Apple, before getting to consumers. That just isn’t the reality for most bands even today. It should be, but it just isn't.
Even if the music industry was only 4/5 years old like the modern day mobile app industry is, I'd be willing to be there would still be record labels, the difference is they would be few and far between, not the norm. If we venture farther into this alternate universe for a second where the music industry is brand new, I can absolutely see a digital collection of song (album) costing $1.99-$4.99. When anyone who creates a good app can easily sell 50,000+, you begin to talk about serious money ($70,000 after Apple’s take). If independent bands could make even just $30,000 a year from selling their music, I bet it'd be hard to find one that'd turn that down.
I've made the argument that record labels should be more like venture capitalist firms, but maybe it's just a matter of cleaning up the bloodlines between the content creators and the consumer. Let me leave you with one last thought. If the music industry had immediately combated Napster with dramatically lower prices, they would have made more money than they would have known what to do with. The leap of faith involved in lowering prices, when the conditions and environment are right, is a scary thing, but not doing it could be scarier.