Will “music as a service” destroy music?

No.

However, that it will is the contention by Karim Lakhani and Macro Iansiti on HBR.org. Their post — which contains a number of points including the interesting issue of who music publishers missed the boat — argued the following:

However as the iTunes and Taylor Swift examples illustrate, value capture is now becoming increasingly confusing for all commercial players in the industry. Streaming music services are creating the consumer expectation that they will only pay for the frequency of listening. No longer do consumers want to build libraries or assets of music. Instead music has become a service, one that has transformed the business that once operated on the basis of acquisition (essentially a capital expense) to one based on paying only for use (an operating expense). This has ruined the industry’s previously rich economics. Companies and even platforms do not even have the ability to exploit price discrimination. Everyone gets paid the same for each stream. At least for now.

This is not an uncommon view and, indeed, Lakhani and Iansiti are basically agreeing with Taylor Swift on this. Their iTunes data point is that iTunes music revenues were down 2.1% two years ago and then 14% in the past year. They argue, as many do, that the reason is obvious — Spotify and Pandora are taking those revenues. Apple may well agree and it could be why they bought Beats.

Actually, I am not sure it is so obvious. Bought music is a durable good. But, importantly, for the past decade (and it has really only been a decade) it has traversed the S-curve for market adoption of digitised music. What I mean by that is that digital music took a while to take off. Then with the iPod and especially with the iPhone/Android, music players grew to ubiquity. More recently, however, the growth in those devices — at least in the US — has tapered off. Bought music is a complementary good to this change. If I were to imagine a potted model whereby people get a new device and with it buy lots of their favourite music to go on it, during the rapid adoption phase we will see even faster growth in the complementary product (bought music) then when that tapers off there will be a reduction in music bought. I am sure streaming services have had an effect but I would really like to see a careful study that established this as I think the usual technology adoption path is likely to be the bigger effect. 

But let me move to Lakhani and Iansiti’s theoretical proposition that music as a service rather than a product — that is, something that is subscribed to rather than bought — is a short and long-term issue for musicians and music publishers. Actually it is not fair to call this a theoretical proposition (as in not fair on the word “proposition”) as it is really an assertion and frankly I can’t construct their logic.

As for the alternative, that music as a service will be good for musicians and artists, I can see the theoretical proposition. First, when people subscribe to music, they aren’t pirating it. Something is better than nothing. Second, we have always had music as a service — that is, radio. But the problem with radio was (a) it was poor quality relative; (b) it was interrupted by ads and people talking; (c) you had a limited choice of ‘channels’ and so couldn’t, say, construct channels that were more personalised. By contrast, bought music had a problem. You couldn’t really construct channels at all (at least not without work). Moreover, even at the earliest instance of the technology it was clear that people preferred to listen to random songs (the ‘shuffle’) rather than structured ones — something that radio was sort of giving them. Apple even launched a successful iPod based on that notion. What this means is that the current services are allowing consumers to have their cake and eat it too. 

When the value proposition to consumers gets better, there is a way to ensure that they shed some of that value back to input providers. The good news about music as a service is that it is a better proposition. Moreover, there is a ton of levers for that service to increase the size of the pie for themselves and artists by using product versioning (think ads versus payments, buffering, and what Lakhani and Iansiti suggested about artist intimacy). 

What is true, of course, is that like radio stations and music retailers (when they were a thing) those providing a means of bringing services consumers want to them will themselves develop a better bargaining position. What this suggests is that music labels need to embrace as many of these as possible so that their own relative bargaining position is maintained. I think that is the game Taylor Swift is playing. Will others join in?