The Ridiculous Concept Of The 'Value Gap' In Music Services… And How It Could Harm Both The Tech Industry And The Music Industry

from the be-careful-what-you-wish-for dept

Over the past few months, the legacy recording industry has coalesced around a new talking point — a so-called “value gap” between different kinds of music services. In particular, the phrase is used to attack YouTube and to claim that it’s somehow unfair that the ad rates and money made from the ad supported YouTube is much lower than purely subscription services. This has lead to the repeated false claim from the RIAA and others that revenue from vinyl records is more than from ad supported streaming.

Unfortunately, this value gap phrase has caught on in certain circles — including over in Europe where the European Commission has mentioned it as it puts in place plans for copyright reform. Tragically, and incorrectly, EU officials have started referring to reasonable intermediary liability protections and other things as a “loophole” within copyright law that somehow allows platforms to “unfairly benefit.” It allows them to claim that they’re just trying to “level the playing field” when that actually means tilting the playing field heavily in one direction.

Maud Sacquet, from CCIA and Project Disco, has a good blog post about why this concept of the value gap is so problematic. As she rightly points out, differentiated pricing in music is not a new concept:

The claim that this difference is ?unjustified? or somehow ?unfair? should be challenged. The music industry?s revenues have always differed depending on the sources (i.e. the sales of sheet music and phonograms, live performances, radio and TV broadcasts). Online services have become additional sources of revenue, with different business models and technologies generating different incomes ? reflecting the current situation in the offline world.

And that’s true, but even that underplays the reality of the situation — which is that there are good reasons for differentiation here. It’s not just about differences in sources, but differences in how people consume music and the money that changes hands reflects that. Terrestrial radio is free and ad supported — and it’s an easy low-barrier entry point for people who aren’t necessarily huge music fans. Then as you travel up the ladder of musical fandom, and people get more committed, they may use a subscription service, or have their own locally stored music.

Sacquet further points out how the ideas that the EU is apparently considering would create a massive disaster for internet services that provide platforms for music:

Among the potentially very harmful measures considered by European policymakers to solve this ?value gap? is the ?clarification? of the right of ?communication to the public? ? i.e. both user and online hosting services would be ?communicating to the public? each time a user is uploading a content online. Online platforms, today only indirectly liable for copyright infringement, would become directly liable. All online hosting services would de facto fall outside of the scope of the liability protection regime of the E-Commerce Directive.

Such a measure would have far reaching consequences.

Firstly, it could cause online services to shut down their upload and sharing services, thereby chilling innovation.

Secondly, this would severely restrict users? freedom to impart and receive information, something that policymakers have struggled to grapple with in the past.

Thirdly, it could cripple the growth of the digital economy ? when the purpose of the Digital Single Market is the exact opposite.

But, perhaps even more importantly, is that it would end up harming the very musicians clamoring for such a solution. We’re still in the very early days of figuring out how music services should best work online. The whole concept of the “value gap” and “leveling the playing field” really are all about deciding that there is “one true business model” for all music services to live under, and EU technocrats (heavily pressured by the legacy recording industry) are going to tell the world what that is. That’s a recipe for disaster not just for the tech sector, but the very musicians who rely on these services to make money today.

completely lose out on the differentiated ways in which fans enter the music ecosystem. When you have a one-size-fits-all model, it pushes towards a world where the vast majority of casual music fans are left out, in a misguided effort to try to force more money out of stronger music fans. Years ago, music economist Will Page pointed out that the industry was wrongly focusing on share of wallet that they were able to extract from people, rather than trying to expand the population that was listening to music and contributing to the music ecosystem in some way. That is, there’s a large percentage of the population that doesn’t support the music ecosystem in any way. They don’t subscribe to anything. They don’t go to concerts. They’re casual music listeners at best. And there’s a real opportunity to offer low barrier entry points to those people, allowing them to “move up the ladder” to become bigger and bigger music fans.

But you lose all of that with a forced “level playing field.” The “value gap” is not a value gap at all. It’s simply showing differentiated pricing to help bring in more casual music fans and create new opportunities going forward. So the end result here would be not just harming technology companies and leading to fewer services with less innovation, but, even worse, a significantly smaller population of music fans who are willing to support the industry — and the ones who remain will be getting squeezed harder and harder by the industry, eventually probably shoving many of them out of the market as well.

The talk of a “value gap” is not only misleading and wrong, but it’s dangerous. And it’s dangerous to both internet services and musicians — which shouldn’t be a surprise because, despite all the rhetoric, the two are pretty closely aligned in their overall interests.

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Comments on “The Ridiculous Concept Of The 'Value Gap' In Music Services… And How It Could Harm Both The Tech Industry And The Music Industry”

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47 Comments
That One Guy (profile) says:

Re: The wrong value gap

I’ve seen that idea mentioned before, with some people complaining that people don’t value music enough because newer services ‘de-value’ it by making it easier and cheaper to listen to. The idea that maybe they over-valued their music apparently never occurs to them.

Something that also seems to go right over their head is that it’s possible to get more money even if you charge less, simply by increasing the number of people paying, but it would seem that they want to have their cake and eat it too, charging the same amount as before and expecting the market to just adapt to their wants, rather than them having to adapt to the changing market.

Anonymous Coward says:

Re: Re: The wrong value gap

In the past, releasing was risky business. It was expensive to print too much and you lost potential revenue by printing too little. Ie. A CD made in 200.000 prints with a sale of 150.000 prints would be far better than a CD printed in 2 times 200.000 prints with a sale of 250.000! That fact has been used to hide an ever increasing revenue surplus used for big marketing and other not technically needed expenses since the early eighties.

In todays market, online publishing has almost zero upfront costs, making it much easier to predict propertional income and where the money are going, by having a modicum of inside knowledge.

The “value gap” being talked about is the value of the loan that the music companies were generating revenue from. With significantly lower upfront economic costs for publishing music online and the lack of needing to scale the printing according to predicted sale, the music companies have lost a significant bargaining-chip and that bargaining-chip is called “value gap”. As optimistic as you make it sound, the music companies will never recover that value gap with the current ease of publishing online. They are facing a transition towards a new world where the economic return of the past will never return. That value gap is real, but it should never be compensated by hampering technological publishing opportunities by making further unwarrented regulatory special cases like this. Arguably that value gap is a sign of the free market forces working as intended.

That One Guy (profile) says:

Re: Re: Re: The wrong value gap

As optimistic as you make it sound, the music companies will never recover that value gap with the current ease of publishing online. They are facing a transition towards a new world where the economic return of the past will never return.

Barring turning back the clock such that they destroy the current services and are once more the only distribution route(something they keep trying to manage but have thankfully failed at so far), no, they aren’t likely to ever reach the same levels of profitability that they managed in the past, as the market and how people interact and use the services have changed too much.

They could shift from gatekeeper to facilitator roles though to stay relevant, and as such profitable, even if not as profitable. Instead of holding all the cards and being able to dictate terms to the musicians working for them they’d instead be in the position of working for musicians, helping them get their music on different services, promotion, that sort of thing. Musicians would pay them to avoid hassles that the musicians themselves don’t want to deal with, and/or use their more developed networks for promotion beyond what the individual artists can easily manage on their own.

They could do this, but their actions so far has indicated that they’d rather be dragged, kicking and screaming into the new market and learn to deal with it the hard way, so I don’t expect them to make the change until they absolutely have to, hopefully to the point that several of them go under and leave the field more open for more flexible facilitators.

Anonymous Coward says:

Re: Re: Re:2 The wrong value gap

“They could shift”

No. Not really. The top of the heap from yesteryear made their bones by being skilled at hustling, not by being good musicians.

It doesn’t matter if they hire people to “nerd harder”. The problem isn’t the technology, it is the fact that they suck, always sucked, and now we all have enough freedom knowledge and variety to know that for ourselves.

And that is true across the board. It isn’t just music, it is also cinema, tv, politics etc. The bar for modern consumers was raised in the late 90’s, and all of this market constraint is an attempt to divest people of the freedom and liberty that was unlocked by the collaborative efforts of thousands of programmers and engineers.

The modern Internet is the most collaborative and largest wonder of the world in all of history. The pyramids of Giza, the great lighthouse all pale in comparison. These guys are robbing bricks out of the thing, and are under the impression that nobody notices.

Wrong…

Thanks TD, for shining the light.

Anonymous Anonymous Coward (profile) says:

The gap...

…is actually the difference between what the legacy content owners believe they should receive, per performance/play/listen, and what the market will bear. The question they have is how to force the market to their point of view, without losing volume, ever.

The answer is a worldwide tax, payable by everyone, whether they listen to music or not, and have a 10% increase in the tax every year, and prison for those that do not pay.

Then they take their meds…

That One Guy (profile) says:

"I got a candy bar yesterday, you owe me a candy bar today."

Firstly, it could cause online services to shut down their upload and sharing services, thereby chilling innovation.

Secondly, this would severely restrict users’ freedom to impart and receive information, something that policymakers have struggled to grapple with in the past.

Thirdly, it could cripple the growth of the digital economy – when the purpose of the Digital Single Market is the exact opposite.

Take a wild guess as to which groups stand to benefit the most from the above and you’ll have a pretty good idea as to the source behind the absurd ‘value gap’ idea and their motivations for spreading it.

In addition to that I think a big part of it is the massive sense of entitlement the recording industry tends to exhibit.

They were the gatekeepers but a few years back and now that they’re not, now that it’s entirely possible to completely bypass them they’re throwing fits. Rather than adapting to work with musicians on more equal terms they’re lashing out at the tools and services that those musicians can use, trying to undermine them at every turn and force people to come back to them on their terms.

They also seem to operate under the idea that they are owed the same level of profits in perpetuity. If they made X last year then they are owed X this year, no matter what may have changed in that time period. If they made out like bandits selling plastic discs, able to charge X per song in that format then clearly they deserve X per song no matter what format or how it’s accessed, with anything less being ‘unfair’.

Anon E. Mous (profile) says:

Re: "I got a candy bar yesterday, you owe me a candy bar today."

I agree.

The RIAA and MPAA whose membership include a lot of music and film industries biggest companies still want the days of old when they controlled how, when, where, what format and what you payed to get the media from the end destination, thus they controlled the monies before they got distributed out after deductions for various accounting, production, distribution and advertising and of course if there was anything left over giving whoever their pittance.

Now that artists and film makers have a say and can put out their own albums thru various methods of release and even cut the studios and labels out of the equation troubles the RIAA and MPAA as they see their take of the pie become less and they have less control where an artist, band or film is not under their thumb.

Honestly Google and every other company that sells dvd or MP3’s, cd’s, or media for download or to stream online could give the RIAA/MPAA 99 cent out of every dollar and they would still scream it isn’t enough and how they are being cheated.

The RIAA/MPAA with their studio’s and Labels as clients have said the same thing time and time again. When casette and casette records came out they said it would be the death of music labels and artists and they needed a levy to survive.

When VHS and Beta recorders came out the same refrain was screamed again at how it would be the death of the industry and a levy was needed.

When CD’s and DVD’s came out and the record able media methods were once again purported to be the death knell of their industries… unless a levy was added

Over and over again we have seen the same mantra over and over again from the RIAA/MPAA crying out the same complaints.

No matter how much Google, Youtube, Apple increase either the MPAA or RIAA aligned clients a better percentage it will never be enough and it will only placate them till the next time they fell they deserve even more.

They do not give a shit about the consumer and are uninterested in what the consumer will pay or in what way the consumer can get the media they desire.

It has always been this way for the MPAA/RIAA and its clients, it always will be and wont change. The consumer will always be the one held hostage to the whims of the clients of the RIAA /MPAA and they could care less what the consumer see’s as fair and convenient

aerinai says:

Complaining about a Choice...

What I don’t understand is, if YouTube is not valuable to them, then they have the choice to not put their music on YouTube. ContentID gives them the freedom to restrict OTHERS from doing the same with their content… So how can you yell “This service is not making me enough money! Its not even worth it to have our content on here!” and yet simultaneously still keep your music on it…. If they want better terms, start their own site and pay others what they think is an appropriate rate… but that takes work, so nahhhhh…..

That One Guy (profile) says:

Re: give them everything they want.

The problem is they seem to have a ‘If I’m going down I’m taking you with me’ mindset, such that if they’re not in charge and/or raking in the majority of the profits no-one should be allowed to. As such giving them what they want would result in everyone getting hosed over, rather than just them.

surfer (profile) says:

Re: Re: give them everything they want.

they are already avoiding monetizing youtube in efforts to strangle the market, and flood takedown notices in efforts to show the notice and takedown system doesnt work. they will NEVER be satisfied.

they are already taking massive innovation to the grave, at this point there is no real additional damage that cannot be absorbed in letting them die a violent death, taking whatever casualties with them.

crade (profile) says:

Re: Re: Re: give them everything they want.

Why would they die? They control the playing field. Currently they are putting in regulations to cement their role as gatekeepers and prevent musicians from publishing music without paying them. They are also putting in taxes / levies / etc in many places to ensure they get paid regardless of whether they have any actual audience.

They control the legislation, and they are using it to ensure they keep getting paid. Growing or maintaining their audience isn’t necessary for their plan. As long as they control the laws, they aren’t going anywhere.

It will hurt the musicians and music industry as a whole, sure but not the legacy labels lobbying for these laws.

Anonymous Coward says:

Re: give them everything they want.

If everyone on the planet decided not to buy any more cd’s/dvd’s etc. for the reason that it cost to much then the MAFIAA will go running to the government crying laying the blame for the loss of revenue on piracy stating that pirates have found a way to share files online undetected and that more and tougher action/laws need to be implemented to stop this instead of the actual cause and blame that it is too expensive for people to buy cd’s/dvd’s.

surfer (profile) says:

Re: Re: give them everything they want.

piracy has always been the boogeyman. they have no inclination of stopping piracy whatsoever, it is the gremlin to point at and whine. MUSO estimates piracy as low as 5% in amerika. it is the gist of all evils.

agreed, if everyone in the world stopped buying movies and music completely, the MAFIAA would run to the gov and get laws demanding money from everyones wallet irrespective of reality.

I changed my consumption habits 22 years ago, never looked back. I still stand my my statement, give them everything they want, adapt or die.

That One Guy (profile) says:

Re:

Out of curiosity how much do you get paid to post counter comments like yours about stories like this?

I mean since clearly it’s impossible to disagree with the recording industry without being paid to do so it only makes sense that it’s impossible to agree with them unless you’re getting money from doing so, so I’m wondering how much they’re paying you?

Anonymous Coward says:

I’d normally say, if the value they’re given is too low, they could always gtfo. But then, this being the MAFIAA and its minions in client states, they whine so hard about piracy if they saw no moneyat all that I’d rather they be allowed to negotiate tenths of a cent increases each time if that’s the only way the rest of us normal people can enjoy pretty things

Capt ICE Enforcer says:

Idea

Here is a great idea in order to promote artist. Every time someone creates something, they are afforded a 6 month monopoly on their creation. They also receive the majority of money for their creation. After that anyone can use it without having to pay a dime. If the artist wish to continue making money then they must continue being creative. If they don’t like that, then let them work in a different career.

John says:

Good article

I or my family never bought music. A few years ago we signed up for music streaming and we now have spotify family plan which costs a few hundred dollars per year. We are listening to a variety of atrists you never hear on the radio. If you make that harder or more expensive than the music industry will lose that subscription. It won’t take much for me to cancel if I don’t see the value. If they want 100% of the revenue “for the artists”, they can have it. But 100% of a cancelled subscription is zero dollars for the poor artists.

aidian says:

With YouTube the *IAA has sorta got a point

I’m not an expert, but it seems like YouTube uses the implicit and explicit threat of user uploaded music/movies/whatever as a club to win better terms from studios & distributors. It’s sorta ‘give us an especially good deal or have fun playing whack-a-mole. We won’t be responsible, it’s just the users.’

YouTube is, for many of my peers anyway, a regular jukebox. I don’t subscribe to any streaming service, and when I want to hear music I don’t already have I go to YouTube. Sometimes, if I can’t find a decent torrent, I’ll download a copy from youtube and strip out the audio. But YouTube pays less than Spotify or Pandora or whoever, and it sorta feels like It YouTube is using the law as a sword, not a shield.

I don’t care about the studios or recording companies. Sony Music & friends can go DIAF. I do care about the artists and techs and workers — the key grip or whatever — but they’re pretty much tangential to this discussion. Whether it’s $0.01 or $0.005 per stream won’t matter much to them.

I don’t know what the solution is. It sure as hell isn’t to get rid of safe harbor provisions. It’s just starting to look like youtube is becoming the bully here (if only the other guy wasn’t so evil, I might be more concerned with this)

Anyway, I haven’t paid for a CD since 2001 or 2002 and haven’t bought a DVD since maybe 2006, so this is more of an intellectual exercise than anything 🙂

PaulT (profile) says:

Re: With YouTube the *IAA has sorta got a point

You’ve made a few claims there, anything to back them up?

“Sometimes, if I can’t find a decent torrent, I’ll download a copy from youtube and strip out the audio.”

But, YouTube are the bad guys because they don’t offer enough, even though you deliberately stop them from paying anything at all after your first play?

aidian says:

Re: Re: With YouTube the *IAA has sorta got a point

Claims about how youtube negotiates? There were some articles out in the tech press earlier this year about it. Google it, you’ll find ’em.

And as for me using youtube to pull a couple of songs: 1) I never claimed to be a beacon of consistency or righteousness 2) We’re I not oppressed and exploited by America’s capitalist oligarchy I’d have more disposable income to spend on music and 3) I’m more interested in how the law should work.

Most important, it just sort of feels like youtube is being a bully. Funny how quickly they became the incumbent with the power. Again, if it was anyone besides the members of the RIAA they were slapping around, I’d be outraged. As it is, I’m sorta meh.

PaulT (profile) says:

Re: Re: Re: With YouTube the *IAA has sorta got a point

“Google it, you’ll find ’em.”

This usually translates as “I pulled the claim out of my arse, but have fun looking”. No thanks.

“And as for me using youtube to pull a couple of songs: 1) I never claimed to be a beacon of consistency or righteousness”

No, but you whined about YouTube not paying enough to artists in the same breath as admitting to pirating. Which would be bad enough if you were just torrenting, but you openly admitted to directly removing revenue from YouTube. Do you not see the open hypocrisy?

“I’m more interested in how the law should work”

Which would be how, exactly?

“Most important, it just sort of feels like youtube is being a bully”

So, your personal feelings are worth more than verifiable facts. Got it.

Anonymous Coward says:

Re: Re: Re: With YouTube the *IAA has sorta got a point

it just sort of feels like youtube is being a bully.

More they are fighting back against those who bullied them into implementing contentid, which is certainly damaging them because of false take-downs., which have driven some people to competitors of YouTube.The RIAA’s real beef is with those who self publish, and cut them out from the income from music, but they cannot go after them directly because that really would turn people and the politicians against them, so they keep on hammering the enablers of self publishing by crying piracy, and they are not giving use enough for what little of the music we control that they host.

PaulT (profile) says:

“That is, there’s a large percentage of the population that doesn’t support the music ecosystem in any way. They don’t subscribe to anything. They don’t go to concerts. They’re casual music listeners at best.”

…which has always been the case. I’m not sure what imagined world these people grew up in, but I know I grew up in a world where most people didn’t pay for music directly and got it for free via radio, friends, parties and later TV. Most people only bought a handful of albums and singles each year, if that. Yet, that was the time when they made the most money.

The idea that the “free” music is suddenly wrong because it’s online is strange to me purely because I can’t remember a time when casual fans didn’t get most of it for free. Trying to simply force those people who do pay to pay more is a losing tactic.

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