The Apple Music announcement briefly turned the spotlight again on the subscription model for delivering music, but as with Tidal earlier in the season, there does not seem to be anything new. Music subscriptions work only because so many subscribers don’t understand how much they’re paying. They think it’s the price they see, $9.99 or $18.99 or whatever. Notice that no subscription promotional materials tell you directly how much you pay in a year when you multiply the monthly subscription fee by 12, then add in taxes, data charges, and whatever else you end up paying. They don’t show the bottom line because they don’t want to hasten the day you figure out how much the subscription is really costing you.
But that day will come eventually whether consumers do the math or not. It takes no more than a vague feeling, “I feel like I’m paying too much and getting too little,” to get consumers to break a habit, though it won’t necessarily happen quickly. The same phenomenon makes people move their money out of Bank of America and Wells Fargo, stop going to McDonald’s and Olive Garden, let magazine subscriptions lapse, cancel cable, and delete their FaceBook accounts. Satellite radio continues to lose subscribers because the cost of providing the service is more than the core customers are ultimately willing to pay. It tells you something that most new Sirius XM subscribers are people who accidentally bought a used car that came with a satellite radio receiver. Don’t believe me? Try visiting the Sirius XM web site and see if you can go a full minute before one of the web pages asks you what kind of satellite radio is in the car you bought. Obviously, that’s a business model that won’t last for more than a few more years. But if satellite radio strikes most people as a bad deal, Internet-based music subscriptions charge more and offer less.
The core idea of having a market in music is that music listeners should have some influence on what kind of music gets made. If you buy music, listen to it, tell other people about it, that helps to encourage musicians to make more music like that. Music subscription services turn that idea on its head. It’s true that some fraction of the money you pay goes into a pool to pay for music content, but the way that money is paid out has hardly anything to do with your music preferences, and a great deal to do with which recording artists are the most heavily promoted. You might listen to music because you like Sigur Rós and Bonnie Raitt, but when you pay for a music subscription, what your money says on your behalf is that you like Wall Street banks, giant technology companies, and the latest boy band. Meanwhile, the musicians who do the best with subscription services are the ones whose music is just intriguing enough to get you to listen once. Why go to the enormous effort of creating music with artistic merit if the only statistic that is being measured is how many people listened?
The perverse economic incentives of music subscriptions, which reward mediocrity while penalizing excellence, are the main reason I think the subscription model can’t survive. The inevitable end-game of a system based on mediocrity is that the good months aren’t good enough to forgive the bad months. No matter how dazzling a subscription service might be in the first two years, after the novelty wears off and the cost-cutting sets in you can count on it being just barely tolerable, and as soon as the customer base starts to decline, it will be something a little lower than that.
