Music News

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

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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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Dan Moore