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stuck in the middle

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Hey! I rarely send you weekend emails but decided to switch it up this week.

It’s a bit ironic that the same week Spotify raised its prices, its stock price dropped while Universal Music Group’s stock jumped. One underlying tension of the streaming price debate is who will benefit more from the price hikes—the record labels or streaming services? Spotify missed its Q2 earnings this week which played a bigger factor in its stock, but still ironic.

Today’s memo is about a group of artists who wish they earned more from streaming—the middle-class musician. This group of artists often earns less from recorded music than they did in the CD era, but do they earn less overall? Why do venture-backed startups struggle to serve this group? And what is the best solution?

I broke it all on on this week’s podcast with MIDiA Research’s Tati Cirisano. Here are a few highlights.

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who serves the middle-class musician?

The “middle-class musician” is a lightning rod topic. Many companies aim to serve this group, yet few do it well. Streaming has flipped their world upside-down, but thanks to streaming, this group has more options than ever to make a living.

In America, I define a middle-class musician as an artist who reliably takes home $50,000 - $150,000 per year.

In the CD era, a solo artist was “middle-class” if they sold 20,000 copies of a $20 album annually. If the artist took home $4 from every copy sold, that’s $80,000. That artist also earned income from other sources, but album sales were the majority.

Comparing that $80,000 number solely to Spotify streams (which often happens!) is tempting but incomplete. Spotify only accounts for a portion of recorded music revenue, and most artists today earn most of their income from other business lines. It’s best practice to compare both top-line numbers.

But even if we do that, middle-class musicians still face an uphill battle today.

the game of scale

In a 2020 Fast Company interview, Pandora founder Tim Westergren shared his struggles to serve the middle class:

“When I founded Pandora, the purpose of it was to build a discovery engine for lesser-known musicians. I wouldn’t say we lost our way, but we got sucked into the music industrial complex vortex.”

For Westergren, that “vortex” was the inertia to serve the most successful artists in the world. That’s the same inertia that many music tech startups today face if their goal is to serve middle-class artists too. The streaming era has allowed their businesses to exist. Still, the underlying dependency on streaming pushes them to serve the most streamed artists possible, limit customer service costs on less profitable customers, and build a business with consistent revenue.

Streaming is a game of scale, access, and recurring revenue. Scale is great for superstar artists (and pro rata payout models), but smaller artists struggle to earn enough—especially if they are signed to labels and publishing companies. Plus, payouts don’t happen unless fans consume your music and you can only stream one song at a time. And while recurring revenue is great for investors and shareholders, it can limit consumer transactions that benefit middle-class musicians.

The middle-class still needs streaming, but they also need what streaming can’t offer. Middle-class musicians need niche, ownership, and product sales.

These artists need to spend time in circles with people more likely to be their true fans. The online and real worlds have more corners than ever. Which ones are most aligned with the middle-class artist’s fanbase?

The ownership these artists need to offer is not necessarily music rights ownership (although that helps) but ownership instead of access. CD sales allowed fans to own the product they buy, like merch, vinyl, or other items. They are more about self-expression than utility. It’s a product sale that lets artists take home several dollars from each transaction. If fans want to go deep into an artist’s available products, make an impulse buy, or get multiple items at once, they can do all that too. There’s risk in treating fans like ATMs, but many middle-class artists have built a consumer surplus with fans without going overboard.

Touring is a huge income stream for all artists, but like streaming, a concert ticket grants fans access, not ownership. The opportunity cost to attend a show is higher than ever. Most fans only attend a few shows annually, and the post-pandemic data shows that touring is more subject to the power law than ever before.

The best solution is several solutions

One of the most successful companies that served middle-class artists is Bandcamp. The company is the antithesis of the streaming era. It was a profitable company for a decade until its 2022 acquisition by Epic Games. It allows fans to buy products at or above a particular price threshold for each item, and eliminates its 15% transaction fees once a month on Bandcamp Fridays. It offers niche, fan ownership, and product sales.

Bandcamp is rare. It stopped raising money years ago, focused on profitability, and likely left money on the table. But middle-class musicians don’t need to rely solely on Bandcamp, Spotify, concert promoters, or solo distributors. Their take-home pay is likely from several revenue services.

It’s more work for the artist to manage, and the revenue mix likely shifts year to year, but there’s more flexibility in what success looks like.

A middle-class artist can take home $100,000 even if they only take home $10,000 from Spotify. They could earn $40,000 from all recorded music services and $60,000 from touring. They could also own their music rights, focus solely on music revenue, and only participate in other revenue streams when they want to.

If you have any middle-class revenue breakdowns, please share.

In the podcast episode we recorded on this topic, Tati and I also talked about:

• why middle-class creators outside of music also struggle
• How Kevin Kelly’s 100 True Fans Theory applies
• good data vs bad data on artist success in streaming

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money moves

• what the hell happened with Travis Scott’s album rollout?​
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• a deep dive on James Cameron (well worth listening to)

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