One low price for over a hundred great Mac apps.

Okay, so you're scrolling through Reddit, because, what else does one do during the

tired hours of 9am-5pm? just minding your own business, when you click

on a link and this happens.

Nothing is more frustrating than a paywall - being told you have to buy an entire subscription

to read this one article.

Sometimes they wait until you're halfway through, Oh, wanna know what Snape does next?

That'll be $10.

Well, this one's free: Snape kills Dumbledore.

Don't say this channel isn't a good value.

But when I think about it for, half a second, of course they ask for money.

Writing, and editing, and publishing require labor.

Ya know, the thing you're supposed to be doing right now but instead opened this video.

And if there wasn't a paywall, I'd be complaining about how many ads there were.

cough

The same goes for music, videos, apps, and so on.

Long ago, deepwater navigation freed merchants from making only what their town wanted to

buy, Now, they had access to the world's markets, As long as someone somewhere wanted

their custom engraved potatoes, they could sell them.

Today, you can specialize even further, make a living, say, selling homemade glitter.

That's pretty cool.

But when there are no barriers to entry, supply is unlimited, and the value of everything

trends to zero.

So here we are.

Nobody wants to pay for music or news or apps,

And yet musicians, and writers, and developers need to get paid.

The question is how, preferably in a way that doesn't suck.

Spotify, Netflix, the New York Times, and the App Store are all attempts to answer that

question.

Some of which are thriving.

Others, you might be surprised to learn, are failing.

So, what works? and, maybe more importantly, what doesn't?

The iTunes music store opened in 2003.

The App Store, in 2008.

In other words, the music industry has a head start.

This graph of music revenue over time, adjusted for inflation, tells the story pretty well.

Earnings peaked in 1999, and they've been down ever since.

Like, really, really down.

Now, I'd argue this period was somewhat artificially high,

If we zoom out a little, it looks more like an anomaly, a ten-year spike in the long history

of recorded music.

People spent so much, because, they had to.

Their choices were: buy music a whole album at a time, or don't listen at all.

But then, the numbers just start falling.

If we break it down by format, first, LPs, EPs and 8-tracks, then cassettes, CDs, and

later, digital, You can see this time is different.

Nothing replaces the CD.

At least, not immediately.

You'd think people just stopped listening.

Busy wondering why the world didn't end or something.

But really, of course, they just stopped paying, in favor of sites like Napster.

iTunes tried to fight piracy by breaking up the album.

But nothing really changed until a Swedish programmer, no, the other one realized something:

“The problem with the music industry is piracy…

But you can't beat technology.

Technology always wins.

But what if you can make a better product than piracy?…

It took a few minutes to download a song, it was kind of cumbersome, you had to worry

about viruses.

It's not like people want to be pirates.

They just want a great experience.”

And that's how Spotify was born.

The lesson is: Companies can fight change, lobby for new laws, burden everyone with annoying

restrictions, even more annoying ads, and sue 12-year old girls for sharing songs.

Or, they can adapt, see it as an opportunity.

Because most of us are lazy.

If we can pay a little more for a lot more convenience, we usually will.

That's why streaming wins.

Today, people listen to more music than ever before - an average of 32 hours a week.

That's a lot.

And revenue is actually growing, for the first time since the 90's.

Now, Netflix seems to be in the same position,

Both are $10, all-you-can-eat streaming subscriptions.

An answer to piracy and, in this case, Blockbuster making a killing on late fees.

Before Netflix, the idea of letting users watch any movie, from any device, at any time

was… ridiculous, What if people share their password?

Netflix was like: Ah, good point, we should make that easier.

They don't just accept it, they embrace it, letting you make separate profiles on

the same account.

But then you look at money, and suddenly the two companies couldn't be more different.

One has been profitable for 15 years, making half a billion dollars last year alone.

The other, reported almost the same number a year earlier, except its number was… negative.

Why is that?

In a word: scalability.

Spotify only takes a small cut of your $10 a month, the rest is distributed among the

songs you listened to.

In other words, no matter how many people sign up, the economics never improve.

More users, more costs.

Netflix, on the other hand, licenses shows for a set period of time.

7 or 10.99 a month isn't a lot of money, but after they've paid for content, every

additional user is pure profit.

More users, more money.

So why doesn't Spotify just raise prices?

Well, competition.

Every company and their mother sells a music service - just pick your favorite color.

There's also plenty of video sites, Netflix, Prime, Hulu, Showtime, HBO, soon even more.

The difference is, customers can and do pay for several at a time.

Music is winner-take-all.

We expect every song to be available on every service.

They just... aren't unique.

They also can't really take a bigger cut, Because artists barely survive as it is.

When Taylor Swift complains about money, you can only imagine what it's like for the

average musician.

For many, streaming is really just an ad for their concerts, where they make almost all

their money.

The problem is musicians share their revenue with producers, writers, and record labels,

Just three of which: Sony, Universal, and Warner, control most of the industry.

Spotify, for example, pays between six and eight-tenths of a penny per stream.

But after everyone takes their cut, artists are left with just over an estimated 1 tenth

of a penny.

So, here's my prediction: Sites like Netflix will focus almost entirely on exclusives - the

Stranger Things and the West Worlds that make their service unique.

There won't just be one winner, but several.

For music, the future may not be so bright.

Unless something drastic changes, like cutting out the labels, services will land in one

of two categories,

those owned by a bigger company, like Apple or Google, who use them as a loss-leader.

Not to make profit directly, but to sell more phones.

And, everyone else, left with no way to make money.

This is already starting to happen.

It's just not obvious unless you're looking.

A MoviePass user can feel the business model fail underneath them, Unlimited movies turns

into most movies, turns into some movies turns into only black comedy westerns starring Adam

Sandler, only between the hours of 4 and 5 am... in select Wyoming theaters.

But a Spotify user can just keep happily listening away.

For now.

Every song ever written for less than the price of a single album works only because

investors pay for it.

But that won't last forever.

The industry may look healthy in aggregate, but it's mostly the top 1% inflating the

average.

It's not that I don't think developers, or musicians, or journalists will survive,

I worry which ones survive.

There are three kinds of companies, those that make money honestly, those that make

money dishonestly, and those that… don't.

When nobody pays for music or software, independent musicians and developers lose, But there are

still ways to make money, they just aren't good ones.

Journalism won't die, but the good kind very well could.

Some would say, largely has.

If you think there's a problem with freemium apps and in-app purchases today, just wait

until that's the only thing that works.

The good news is that these industries have an advantage: they don't have record labels.

And Spotify offers them a few free lessons:

First, people will pay for content, but it's on the company to make it cheap and convenient.

To adapt, not to fight.

Second, services have to be unique.

And finally, for it to be sustainable, it can't just be good for you and me, it has

to work for the musician, the writer, the developer.

The companies that apply these lessons will determine which industries thrive, and which

just survive.

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