People Don't Want to Pay for Music Because Music Isn't Scarce

A blog about business and economics.
Dec. 13 2013 8:47 AM

Why It's Hard to Charge for Music

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This guy is big in Japan, apparently.

Photo by Richard A. Brooks/AFP/Getty Images

Water is incredibly useful. None of us would last more than a day or two without it. By contrast, most of us get along just fine with no diamonds. So water is, in an important sense, much more valuable than diamonds. And yet diamonds are much more expensive than water, since there's a scarcity of diamonds (thanks in no small part to some nefarious cartel activities) whereas water is fairly abundant. Such is the logic of capitalism, for better or for worse.

And that's the problem with any analysis of revenue options for the music industry that's based on getting people to subjectively value music:

Pandora, the only publicly traded streaming company, delivers about 1.5 billion hours of music each month to more than 70 million users, but only about three million of them pay. The rest listen free but must endure advertising. Even though it has a market value of $5 billion, Pandora has yet to turn an annual profit.

“There is this irrational resistance for people to actually plunk down their credit card for streaming services,” said Ted Cohen, a digital music consultant with the firm TAG Strategic. “We’re 13 years into the Napster phenomenon of ‘music is free,’ and it’s hard to get people back into the idea that music is at least worth the value of a cup of Starbucks coffee a week.”

The problem here is one of supply and demand. It's not that people won't pay for Pandora because they don't see any value in Pandora's service. It's that Pandora's paid service has to compete with Pandora's ad-supported service. Pandora could solve that problem by eliminating its ad-supported service, but it's pretty clear that there's a robust market for an ad-supported music-streaming service so then Pandora would need to compete with a new player. Personally, I really do enjoy an ad-free music streaming experience so I have a paid Rdio subscription which works on my computer, on my mobile phone, and on my home Sonos setup.

So good for me. But if I was a teenager with no money or ran into financial difficulty as an adult and needed to cut back, this would be an easy call to chop. Not because music isn't valuable but because the margin of convenience offered by a paid service versus a free one just isn't that big.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.