Friday, October 8, 2010

Pretty close to ZERO and falling

Whether we like it or not, digital music will be free.

And nobody is to blame. It's not the fault of Napster, Pirate Bay, the music industry, or any other group of people (except maybe the brilliant minds that invented the Internet).

Free information is the systemic result of a highly networked society. With the Internet came abundance:  the abundance of information. And with abundance comes a steep price decline, the simple supply and demand paradigm of Economics 101.

More than 10 years ago, Carl Shapiro and Hal R. Varian pointed out that the price of digital information will soon approach zero because the marginal costs are zero (For more details, I highly recommend their straightforward analysis of the "New Economy" in Information Rules - A Strategic Guide to the Network Economy).  And that is what is happening.

If you prefer this dry theory as a juicy chart, a British journalist, David McCandless, has produced a great visual. He answered the question how much do artists earn online? See for yourself.

According to David's analysis, Rhapsody pays $0.001365 per stream to the artists (there appears to be a slight discrepancy in the numbers between the spreadsheet and the chart, but the takeaway is equally dramatic). While this isn't a ton of money, it is still more than twice as much as Last.fm pays. And the newest platform, Spotify, takes this trend yet one step closer to zero by cutting the price per stream in half again.

To understand how tiny the difference between $0.000255 per stream and free already is, let’s take a look at a pretty successful song as an example. According to this report, Spotify's payment to Lady Gaga for over 1 million streams of her hit track "Poker Face" amounted to $167.

Pretty close to ZERO and falling.

Posted by @soerenstamer

2 comments:

  1. Malte
    Nice find ;)

    But seriously, whenever you talk to someone younger than 50 in the industry they will tell you that the money for musicians is mainly on the road and in merchandise. There are US-bands you have never heard of that make more than $300k just in T-Shirts.

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  2. Noah Thorp
    @soeren -thanks for posting this very visceral depiction of the digital music income landscape.

    @malte - could you post an example of a little known band that makes $300k in T-shirt sales? I am genuinely curious.

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