Is music streaming part of the "passion economy"? It's complicated.

Today’s update is inspired by a conversation I’ve seen boiling up in the media and technology worlds around the concept of the “Passion Economy.”

The most popular takes on the passion economy come from Li Jin (former partner at Andreessen Horowitz), Adam Davidson (co-founder of NPR’s Planet Money program and author of The Passion Economy: The New Rules for Thriving in the 21st Century) and most recently Ben Smith (media columnist for the New York Times).

The connective tissue behind their takes is that, as opposed to previous kinds of economies, the passion economy thrives on monetizing passions rather than commodities — enabling everyday people, in Jin’s words, to “turn their passions into livelihoods” built on “individuality and creativity,” instead of just copying everyone else in a race to the bottom on price.

Many of these conversations have referenced the music industry as an exemplary model of the passion economy in practice. For instance, Jarrod Dicker, VP of commercial technology and development at The Washington Post, wrote in a recent Medium post that media companies in the passion economy need to promote individual writers more than the higher-level brand of a given publication. Specifically: “The media companies of tomorrow should look something like the record labels of today,” whereby “talent is the driving force behind the business … the source of the reputation and the end of the line when it comes to driving financial returns … Labels are masters at managing a creator and building a brand while allowing the artist to go out and do what they do best; create.”

Similarly, in the final chapter of his book, Davidson argues that Sony Music Entertainment — the major label with whom he launched his joint podcast venture Three Uncanny Four — “may be the world’s largest and most successful passion business. Sony Music’s core purpose is to support artists so they can create their best work and then to connect them with their most enthusiastic audiences.”

On the surface, of course you would want to group music with the passion economy. After all, the value and return that music fans get out of their favorite artists, whether through buying and streaming their records or attending their live shows, tend to be rooted in passion and emotion rather than financial gain. On the industry side, many artists and music executives are the definition of passion-driven in their careers, driven by their love for the art, craft and fan relationships rather than any notion of profit.

But the more I dug into key writings on the passion economy, the more I realized that recorded music, in its most popular, streaming-driven form, is the opposite of a passion business. Instead, it’s the ultimate example of a commodity business.

How music streaming falls short of the passion economy’s rules

In his book, Davidson outlines eight rules dictating the passion economy and its participants:

1. Pursue intimacy at scale.
2. Only create value that can’t easily be copied.
3. The price you charge should match the value you provide.
4. Fewer passionate customers are better than a lot of indifferent ones.
5. Passion is a story.
6. Technology should always support your business, not drive it.
7. Know what business you’re in, and it’s probably not what you think.
8. Never be in the commodity business, even if you sell what other people consider a commodity.

Music streaming checks off only two of these boxes: Scaling a sense of emotional intimacy (1), and excelling at storytelling (5). For the rest, streaming falls short. Let’s walk through why.

“Never be in the commodity business, even if you sell what other people consider a commodity.”

I’m going to start with Rule #8, because I think it ties into how all of the other rules work. It should really be the first rule, not the last.

By Davidson’s definition, commodities are products that are “undifferentiated” and “easily copied and replicated by others.” Usually, because of this ease of copying, companies that produce commodities either accept or attempt to undercut the lowest price in their respective market.

Competing in this kind of economy is so difficult because “the only way … to be truly successful is with volume and an ability to produce more cheaply than anybody else,” writes Davidson. “That’s why commodity businesses tend to be dominated by huge, global corporations that use automation and outsourcing to cut their costs to the bone” and “sell huge volumes to rack up profits.” The vast majority of people don’t have the resources to do this.

In contrast, “passion businesses never sell commodities. By definition, a passion business differentiates itself from others so that it can charge a unique price that represents its unique value.”

The debate of whether music is a commodity has been going on for decades. To be clear, artists are not commodities. Nor are fans. Human creativity and emotion is rooted in passion, and makes music as an art form so magical.

But the product of a song, a musical recording? In the streaming era, it is absolutely a commodity. Its price is being driven down by increased saturation and competition among big-tech competitors, and a song in the context of a streaming playlist or online radio is fungible, i.e. easily interchangeable with another track.

An important caveat to this conversation is that commoditization in and of itself isn’t necessarily bad. As Davidson wrote, “commoditization was such an elegant solution to the problems of early industrialization that it quickly spread through basic goods” like lumber, meat, iron and steel. It allowed for a higher volume of production and trade, more financial security, insurance against disaster and flexibility for long-term thinking.

In the book Music and Capitalism, Timothy Taylor also writes that “there are plenty of musicians who want their music to be commodified simply so they can make a living” (e.g. composers who focus on commercials for brands), and that “commodities are never ‘simply’ commodities. Any sort of good, whether or not it is a commodity, whether or not it’s a cultural good, can exist in different regimes of value and is never static in any regime.”

Where the concept of music-as-commodity becomes a problem is when artists and fans are not able to express and reflect these “different regimes of value” through price — which brings us to the next section.

“The price you charge should match the value you provide.”

According to Davidson, a core tenet of the passion economy is that “price should drive costs, not the other way around.” Otherwise, when businesspeople let costs drive price, they immediately ask themselves how to make their product cheaper than the competition — falling into the commodity trap. In the passion economy, price is determined not by the cost of production, but rather by how much people are personally willing to pay for it.

Another important corollary of Davidson’s argument is that as a small business, “value is a conversation” you have with your customers, not a top-down decision in which customers have no stake. Even making yourself as a company available for that conversation in the first place — what Davidson calls “passion pricing as a service” — helps differentiate you from your competition.

No matter how “passionate” an artist or label exec is about their work, the fact of the matter is that music streaming runs on commodity pricing, not passion pricing.

On the likes of Spotify, Apple Music and Amazon Music, artists have little to no say over the price of their own work. Instead, that pricing is decided by the services themselves (via a flat-fee, all-you-can-eat, $9.99/month cost for consumers), and then by the labels via blanket licensing deals in which artists have little to no say. Music fans pay monthly subscription fees to these services, who then pay royalties to rights holders on a pro rata basis. Artists sit on the sidelines and hope those rates work in their favor. (Narrator: They haven’t. Average streaming rates have actually gone down significantly over time.)

Even the user-centric payment model that industry figures have recently proposed is not an example of passion pricing, because it still gives Spotify the last word on royalty rates, instead of handing more of that price decision-making to artists.

This is in part why pay-what-you-want music marketplaces like Bandcamp have exploded in popularity in recent months. Not only are the payment terms on Bandcamp much fairer (artists keep 85%, and payments are received within days rather than months), but there’s passion pricing on both ends: Artists can set their own price for their work, while fans can also pay what they want on top of that. Oftentimes, fans pay more than the price the artists even set themselves.

It’s worth stating that the problem with the commodification of recorded music isn’t inherently the lower price. Many artists intentionally make their songs or beats available for free early on their careers, which can be its own source of value in terms of increasing accessibility and cultivating an enthusiastic foundational fanbase. The problem is the lack of control in a streaming environment. By releasing your music on Spotify, you are conforming and relinquishing control to a system where the price of your work is externally rather than internally defined.

“Only create value that can’t easily be copied.”

This is a straightforward argument: If commodities are easy to copy, passion-economy companies should strive to maximize differentiation. In Davidson’s words: “Once you stop asking how you can set your business or products or even yourself apart from the commodity version, you have dropped out of the Passion Economy.”

There are obviously many major music celebrities whose aura, vocal chops and/or personality cannot be copied, no matter how good someone’s impression of them might be. Rihanna, Lady Gaga, Adele, Bruno Mars and Beyoncé come to mind.

As with any industry, though, success breeds imitation. David Breunger outlines the dynamic in his book Create, Produce, Consume (emphasis added):

“Musical familiarity is … a predictor of whether or not a listener will like a song. Repetition leads to familiarity, which increases success. And over time … there is a creep toward interchangeability. Not so much to the ears of committed fans, but rather among more casual music listeners looking for a more generic experience: getting ready to go to a club, to work, to unwind … As a result, any good can become ‘commodified’ by growing numbers of increasingly similar competitors.”

I feel this sentiment among a lot of artists who are emerging or just starting out, in that they feel internal or external pressure to copy what already exists to maximize their audience reach. The “type beat” ecosystem on YouTube, for instance, centers entirely around the concept of replicating  existing producers or scenes in an attempt to get noticed. Songwriters and producers are also tailoring their creative processes and song structures to cater to specific playlists on Spotify. As Elizabeth Mencel put it to Pitchfork: “Spotify tells you what your job is.”

While rational based on what’s happening in the wider music market, this replication approach immediately throws artists and labels straight into a commodity mindset, not a passion mindset. By being replicable, songs also become fungible, or interchangeable with any other song. Building a business off of products that can be interchangeable is not a sustainable long-term strategy for any company. (Case in point: Lo-fi hip-hop livestreams.)

“Fewer passionate customers are better than a lot of indifferent ones.”

This rule involves homing in on a smaller but more loyal and enthusiastic customer base, instead of trying to appeal to everyone. “To be effective, a Passion Economy business can’t sell itself using universally accepted values,” writes Davidson. “For any business to attract some group of passionate followers, it must contain elements that some people will love and others will dismiss, or even find off-putting.”

There are many artists who thrive on “fewer passionate customers” — particularly those who are independent and community-driven, and/or run their own membership businesses on platforms like Patreon. In general, more and more artists are looking to less scalable, but more intimate and direct-to-fan engagement channels outside of streaming, as a result of the economically disruptive COVID-19 pandemic.

But looking at recorded music alone, it’s tricky to make “fewer passionate customers” work with the economics of streaming alone. An average royalty payout rate of half a penny per stream demands a massive amount of scale to break even.

In particular, a streaming economy or an individual music career that thrives on playlists also thrives on indifferent consumption, in that users often aren’t paying attention to artists’ identities in a lean-back listening environment. As music-promotion executive Sam Potts wrote in 2016 (emphasis added):

“The danger with editorial streaming playlists and therefore discovery and consumption being measured as the same thing is that our conventional measure of success, volume, could end up with us simply counting how good we are at generating discovery plays for a transient audience that don’t care that much.“

This isn’t inherently bad, but it’s certainly not a passion-economy approach.

“Technology should always support your business, not drive it.”

In his book, Davidson debunks two commonly-held assumption around the role technology plays in the passion economy and in business at large.

First, better technology alone is not a guaranteed solution in business. “It is solving problems and satisfying customers that makes a company successful,” writes Davidson. “Technology without solutions is always going to lose out to solutions without technology … technology can be your friend if you are focusing, solely, on solving your core customers’ challenges.”

Second, Big Tech alone is not the enemy to small businesses. “To succeed in the Passion Economy, one should not condemn large-scale business and technology or dismiss them as inferior,” writes Davidson. “Instead, the successful passion-based business owner recognizes the tremendous power of larger firms and their tools of automation and avoids competing directly. If your core customer cannot easily distinguish your products or services from those of a larger competitor, you need to shift and offer something else.”

As for whether recorded music abides by these rules — i.e. going against technological solutionism, and opting not to get involved in competition with larger tech firms — it depends on whom you ask.

The evolution of music is inseparable from the evolution of technology; to deny this mutual influence is ahistoric. Tech inventions have driven every single music format — from phonograph cylinders, to vinyl records, to cassettes, to CDs, to MP3s and WAV files, to streaming services — and, in turn, every single inflection point in recorded-music economics.

The issue that I keep seeing today, though, is that artists and industry decision-makers often overemphasize modern technological signals as indicative of their present or future success. For instance, A&R and marketing teams often veer in technological solutionism in signing artists based on surface-level data points alone, or in relying too much on a single app or tech-driven channel for raising awareness (e.g. TikTok videos).

This approach runs in danger of reducing artists merely to widgets in service of tech companies, instead of the other way around. As Ross Michaels, founder and co-president of Park Avenue Artists, told me in a recent interview (emphasis added):

“You don’t want to get to the point where the tech is telling you what to do … Instead, we’re thinking about how we can use tech in a cool way to support what they’re already doing. We start the conversation from finding the tech that best translates the artist’s DNA, as opposed to the other way around.”

“Know what business you’re in, and it’s probably not what you think.”

This final rule sums up all the previous ones nicely.

To know what business you’re in, you need to ask yourself four simple questions: What are you selling? Who wants what you are selling? Why do they want it? And how are they paying for it?

In reflecting on these questions, I think artists, labels and other music companies will realize that their actual business model looks really different from the business they think they’re in, especially with respect to pricing and product differentiation. No creative, passionate artist wants to be in the commodity business. But in a way, they’re pressured to participate in it from the start.