When life gives you lemons

THE release of Beyoncé’s newest album (a genre-jumping tour de force entitled “Lemonade”) was carried out with the precision of a military operation. Manoeuvres began in February, with the release of a single and a performance at the Super Bowl. Phase two commenced in April, when the complete album was rolled out across various platforms in stages, alongside a short film and the launch of a worldwide promotional tour. Beyoncé’s campaign is about more than showmanship. Like other artists, she is attempting to work out the answer to a difficult question: how to maximise the money made selling digital files that many listeners can easily (if not always legally) obtain free of charge.

Money earned by selling music has declined steadily from a peak in the late 1990s, the salad days of the compact disc, to the early 2000s. Though Apple used the popularity of the iPod to reaccustom people to paying for music, in the form of low prices for digital downloads, sales of physical recordings have fallen faster than digital ones have grown. The era of digital downloads in any case proved short: in 2015, for the first time, more money was spent on paid subscriptions to music-streaming services.

The economics of digital music seem to favour streaming. A typical user values the music of a few favoured artists highly—highly enough to pay for their albums (and perhaps also for concert tickets and merchandise). That user may also enjoy songs by other performers, but not enough to shell out the $1.29 it costs to download the music legally. Rather than reduce the money earned on each sale by cutting the typical song price, the music industry has instead chosen to lose sales, often to piracy.

Streaming offers a way to pick up those pennies from the pavement. By bundling thousands of songs together and offering access to them on demand, streaming services like Spotify have created an appealing product. Many services provide free, ad-supported streaming while also offering premium subscription packages; both Tidal’s standard service and Spotify’s ad-free premium service cost $10 per month—less than the $17.99 it costs to buy “Lemonade” as a digital download. IFPI, an international recording-industry trade group, estimates that there are now 41m fee-paying subscribers worldwide, up from 8m in 2010. Streaming services add value in other ways, as well. Tidal offers a more expensive service providing high-fidelity audio, and all services compete for users by seeking to build the best algorithms, which tailor playlists to users’ tastes.

Each time a user listens to a song, the artist earns a small fee: about $0.007 on average at Spotify, for instance. This income pales in comparison with the windfalls that sales of physical albums used to generate. In 2013 Thom Yorke, Radiohead’s lead singer, declared streaming services to be “the last desperate fart of a dying corpse”. Yet recent research suggests that streaming is not in itself diminishing artists’ earnings. Although it does displace some digital sales, the shift of other listeners from illegal downloading to streaming more than makes up for the loss.

As streaming grows, artists are pursuing several broad strategies to boost what they earn. Most rely on cross-selling: streaming helps build demand for live performances, for instance, which provide nearly all the money earned by artists just starting out and as much as half of the income for big acts like Beyoncé.

Other artists focus on boosting album sales. Some, like Adele, eschew streaming, relying instead on older fans who are still happy to buy CDs. Artists occasionally market their album as an artistic whole (rather than as a collection of tracks that can be slotted into streaming-service playlists); most of the songs on “Views”, a new album by Drake, a Canadian rapper, cannot be purchased as individual tracks. Adding bells and whistles to the album can help, too. Many come with digital books or videos; those who purchase “Lemonade” can also download the accompanying film. Artists are also selling old-fashioned records, which appeal both to nostalgic baby-boomers and to young hipsters who see some cachet in vinyl. Last year the industry earned more selling vinyl records than it did from ad-supported streaming services.

Against the current

The most marketable artists increasingly follow a third strategy, of deeper involvement with streaming services themselves. Tidal was set up by musicians, including Beyoncé and her husband Jay-Z, a rapper; part of the service’s pitch to users is that it pays out a bigger share of its earnings to musicians than rivals.

Popular acts are also learning to play online music outlets off against each other by auctioning off the exclusive right to stream or sell their music, a practice called “windowing”. Beyoncé’s last album, released in 2013, was available only on Apple’s iTunes for a week after its debut; “Lemonade” was exclusive to Tidal for a day. In 2014 Taylor Swift pulled her music from Spotify and gave exclusive streaming rights to Apple; Prince did something similar with Tidal, which saw sales jump when he died on April 21st.

Although windowing provides artists with a way to capture more of the money made selling their music, it complicates life for consumers. When services compete on the basis of catalogues, that dispels the dream of having all of the world’s music available in one place; users must instead decide whether to sign up for multiple services or miss out on some artists. Consumers may ultimately gravitate to one dominant service, with which all musicians feel compelled to do business; or competing services could co-operate to share artist catalogues. Yet while that might satisfy users, artists might balk at the concentration of market power in streamers’ hands (and regulators might take an interest). More likely still, technology will strike the next blow, delivering new ways for users to access digital music—and leaving artists and record companies scrambling to adapt once again.

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