New Money For Music: The Taylor Swift Effect

MoneyBy Faza on TheCynicalMusician.com

For the benefit of everyone who hasn’t gone outside recently – and folks checking in five years from now (happens more often than you’d think) – a quick recap. Taylor Swift’s new album – 1989 – has gone platinum in its first week of sales. No small feat, given that no other artist has had a platinum-selling album this year and that doesn’t look likely to change. The album wasn’t available to stream on Spotify – which is just as well, ‘coz now Swift and her label, Big Machine, have pulled all of her music from our favourite streaming service. To the best of my knowledge, Swift’s catalogue remains available to stream on other services.

So much has been written on the matter that there’s little I can add – except for one little detail I’m surprised has escaped everyone’s attention. If you happen to work for, at or with a label, pay attention now – this is very important.

1989 sold 1.287 million copies during the first week. It’s hard to estimate the amount of revenue it generated for Swift and Big Machine without a detailed knowledge of sales breakdowns and distribution deals, but if we apply the Apple standard” (70% of a $10 album, that is: $7 per copy to the rights holders) we might guess something north of $7 million (over $9 million, in fact, if the average revenue per copy is not lower than $7).

Every last penny of that is new money.

What is “new” money? It’s money coming into the industry specifically as a result of a new release. That $7-9 million would not have materialised if Taylor Swift did not release that album. Significantly, it would also not have materialised if the album was streamed, rather than bought.

How-much-can-you-make-from-streaming-servicesAnother item in our long list of fun features of streaming services is this: streaming services deal exclusively in old money. Why is old money old? Because it has already been spent and we’re not getting any more, no matter how hard we try. Remember that the marginal cost to consumer of a new release on a streaming service is zero? (If you need a recap, seehere.) Someone who subscribes to a streaming service pays a fixed amount and no more – regardless of how many new releases they pick up, so to speak.

In a hypothetical future that is nothing but streaming (a depressingly real possibility, given that everything but streaming is going down the drain), the size of the industry is capped at 70% of streaming service revenue. There’s no way to grow the industry, because there’s no new money coming in. The subscription revenue pays for all present and future consumption, it doesn’t matter how many (or few) hot new releases there are. In fact, it doesn’t even matter what music is on the service or how popular it is. The size of the pie is fixed from the start.

Of course, the more hot releases we have under such a scenario, the smaller everyone’s slice of that fixed-size pie becomes, ‘coz everyone’s fighting for scraps of that 70%. Everyone but the streaming services, of course, who are comfortably taking 30% off the top. They’re the only actors whose revenue scales meaningfully with the number of subscribers.

In the traditional music market, there are plenty of avenues for new money to flow into the industry. We have hot new releases like 1989. We have classic catalogue being rediscovered as a result of being featured somewhere (many examples over the years). We even see the influence of broader macroeconomic factors – for example: people’s disposable incomes growing (that would be a welcome sight).

Practically all of the above are absent from the streaming future. Any chance for growth of the industry will disappear along with them.

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