Poverty among riches: understanding the contracted economy for recorded music and its impact on market actors

Abstract

ABSTRACT More people are listening to more recorded music than any other time in history. While record labels have largely rebounded from the lean ‘Napster years’ of the early 2000s, remuneration for artists remain low. This article moves beyond an investigation of label-artist contracts – largely blamed for low recording royalties – and considers the broader array of consequences brought by the institutional structure of the streaming economy. Three factors explain dynamics within the music economy: music as a non-rival, non-excludable good; digital service providers (DSPs) as interchangeable market substitutes; and the concentration of Major Label market power due to their discretion to grant or withhold catalog access to DSPs. The ultimate consequence of this market structure is to depress prices in the music economy; value that can be captured largely rests with rights holders. With the DSPs as nearly perfect substitutes, the music industry is constrained in its ability to increase its revenues. Due to market power asymmetries, the burden of this contracted market size is borne by musicians, and to a lesser extent, by DSPs. To illustrate the problematic dynamics of the music streaming economy, music is compared to another non-rival, non-excludable good with a divergent market structure and outcomes: video streaming.