Will Pandora and Spotify and the Internet Ever Figure Out How to Pay Artists?

Music-discovery apps like Spotify and Pandora are free, but they have social costs. Among them: Every six months or so, we get an open letter from an artist who is being cut comically tiny checks for thousands of plays on one service or another. This week, it's musician and label-owner Blake Morgan, who reportedly made $1.62 for 27,900 spins on Pandora.

Having seen enough tiny checks by now -- having heard the arguments that are made on one side and the other after each tiny check hits the blogs for a couple of days -- I'm down to one hypothesis to suggest: The Internet startup business model is especially ill-suited for artists of all kinds. It's hard to pay somebody for music or words or video when your medium-term goal isn't profit, and Spotify and Pandora have never consistently made money.

These companies don't exist to make money. They exist to generate enough revenue to gain more funding. Slate's Matt Yglesias has described the way this phenomenon works with Amazon and its impossibly slim profit margins:

Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers. The shareholders put up the equity, and instead of owning a claim on a steady stream of fat profits, they get a claim on a mighty engine of consumer surplus. Amazon sells things to people at prices that seem impossible because it actually is impossible to make money that way. And the competitive pressure of needing to square off against Amazon cuts profit margins at other companies, thus benefiting people who don't even buy anything from Amazon.

It's a truly remarkable American success story. But if you own a competing firm, you should be terrified. Competition is always scary, but competition against a juggernaut that seems to have permission from its shareholders to not turn any profits is really frightening.

As startups, they trade either on the promise of making money later, like Twitter, or the possibility they'll be acquired for billions of dollars by somebody already making money. If they mature, as Amazon did, they destroy more profit than they generate. Spotify's CEO came right out and said last year that "the question of when we'll be profitable actually feels irrelevant. Our focus is all on growth. That is priority one, two, three, four, and five."

Consumers have benefited enormously from this business model. We have more selections than we've ever had at lower prices than we've ever had. It's great for me when I want to buy a TV or some chairs or a huge thing of paper towels.

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It's great for me when I want to listen to music, too: Spotify has put an enormous library of music at my command, and because there are ads, I get to feel good about myself for not downloading it.

But all that free music I listen to isn't profitable -- even at the price Spotify is paying artists for it. And Spotify doesn't care. It doesn't need it to be profitable.

Musicians do, generally. Amazon and Walmart squeeze suppliers and employees hard -- about which I'm going to leave you to make your own moral judgment -- but musicians are hurt by this willingness to abandon margins and chase volume because they're always working on spec; they've got no predictable wages to be squeezed in the first place.

Work for Amazon on an hourly basis, and it will try as hard as it can to make you do more work for less money every hour, but the unit you're being paid for is still one hour. Musicians are being squeezed on every song, which could take any number of hours and make any number of dollars. The incentives do not seem pointed in the direction of thoughtful work, or toward art-as-work at all.

Read More: How Twitter #Music Doesn't Get Why Friends Give Friends Music

There are still questions worth raising about this doomsday scenario -- as ever with free music, it's difficult to say how many of Spotify and Pandora's customers would otherwise just be downloading torrents. And it's been suggested that these checks look so ridiculous only because we're conflating streaming, in which one person is listening to one song, with radio, in which thousands are listening to one song at the same time.

I certainly have no plans to buy Wheatus' first album, however many times I've listened to pieces of it on Spotify. And I know somebody's making money on streaming music.

But Blake Morgan isn't, and I'm not sure there's any way he will so long as Spotify's business model involves starving itself until it can fit everywhere.

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