Sunday, October 19, 2014

The Artists' Road to Serfdom: The Commoditization of Creative Content

This is the net result of commoditization: there's no premium for commoditized capital, labor, goods, services or content.

As I noted in Our New Robot Overlords & The Third Type of Capital, profits flow to whatever inputs are scarce. Unfortunately for musicians, writers, filmmakers and others producing creative content, creative content is no longer scarce: it's been commoditized and is now available in unlimited quantities for $10/month.

The model is simple: unlimited content for a few bucks per month.This is the model of music services such as Spotify and Pandora (which offer advert-supported services for free) and iTunes Radio, Amazon Prime for borrowing Kindle ebooks and various film/video distribution services.

The model effectively commoditizes all creative content. Commoditization makes all inputs interchangeable. Global labor has been commoditized because it no longer matters which workers assemble the goods, global capital has been commoditized because it no longer matters where the capital comes from, and globally produced goods, services and resources have been commoditized because it no longer matters where they come from or who produces them.

Services that offer unlimited streaming/borrowing commoditize all content: the content is interchangeable to the buyer, and the creator of the content earns next to nothing when the content is streamed.

A recent article in the S.F. Chronicle (ITunes is in need of a tune-up to keep up with streaming) explains:

Digital music sales recently fell for the first time ever, with the number of digital songs purchased plummeting 13 percent to 594 million in the first half of 2014, compared with the same period a year ago, according to research firm Nielsen, which has tracked music sales since 1991. Meanwhile, the amount of music streamed online rose 50 percent, the firm said.

While streaming sites have helped big online music spenders save money, they have also cut into the money that musical artists make per song.

ITunes sells songs for 69 cents to $1.29 each. For a song that costs $1.29, Apple takes 30 percent of the sale and the rest goes to the record label and artist, Stewart said. If the artist is on a record label, they would get a royalty of about 20 cents for that track, she said.

That might not seem like a lot, but the money could be even less in streaming music for free with ads. In general, a song must be streamed 75 to 80 times in order for a music label to make the same amount of money as from a single online song purchase, according to MIDiA Research.

The unlimited-streaming/borrowing model is great for consumers and the companies collecting the fees every month, but it's a rocky road to serfdom for content creators. 80 downloads are needed for the musicians to collect a lousy 20 cents for their creative efforts? Let's be generous and note that self-produced/distributed artists could collect as much as 50 cents of an iTunes purchase, and presumably the same from 80 downloads.

So it only takes 8 million downloads to earn a median middle-class income of $50,000 a year. Musicians (those signed to labels) who receive 20 cents from 80 downloads would need 20 million downloads annually to earn $50,000--roughly the median household income in the U.S.

How many musicians get 20 million downloads?

The distribution of creative-content rewards tends to follow a power law, i.e. the Pareto Distribution, where the "vital few" (the very apex of the pyramid) reap most of the rewards.

So a handful of artists, writers and independent filmmakers collect most of the shrinking pool of money paid for creative content, and the vast majority earn chump-change.

As a writer with a number of Kindle ebooks available for purchase or borrowing by Amazon Prime members, I do a little better than the musicians whose songs have been commoditized; I earn about 25% of an ebook sale when someone borrows one of my Kindle ebooks.

Nonetheless, this is a 75% haircut in earnings from the everything's been commoditized model of unlimited access to content. And the sum I earn from borrowed ebooks changes, depending on the funds Amazon places in the pool and how many Prime customers borrowed ebooks.

Numerous articles promote work-arounds for the desertification of earnings wrought by commoditization of content: sell more T-shirts at your gigs, work the loyalty of your fans to encourage them to buy your stuff even though they could stream it for free, etc.

But the reality is the pool of money being distributed to content creators is shrinking. Work-arounds may work for the handful of people who master 24/7 marketing, but this is just another iteration of the power law: a tiny handful of content creators reap most of the profits from the full-court-press of marketing.

My friend Richard Metzger of the excellent Dangerous Minds website and I discussed this trend of artistic serfdom years ago, and the only thing that's changed is the velocity of the decline in creators' incomes.

This is the net result of commoditization: there's no premium for commoditized capital, labor, goods, services or content. Those with the big idea of controlling the distribution of content are collecting an enormous premium for figuring out how to scale up this model, and the vast majority of content creators are left with the nickels and dimes that fall through the commoditizing blades of the distribution machine.

But hey, you might get famous on YouTube, and that might open a trickle of advert revenue.

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