Eleven-year-old Will Page sits on a Scottish beach, imploring his father, a math teacher, to teach him ‘what economics means’. His father points to the water and asks him how a politician should tackle the increase in the number of child drownings. “Why not make swimming lessons compulsory? The page suggests. “No more children should drown – we certainly need to make sure they all can swim.”
“Do people who can’t swim usually go to the sea? His father asks. “So would we have more or fewer children in the water because of your policy?” And if a certain percentage of swimming children drown, then… ”
More would drown, Page realizes, with a thudding sensation. His answer, while intuitive, would actually exacerbate the problem; a better, but less straightforward, solution might be to design warning systems for dangerous tides. This is his first lesson in what today’s Page calls “pivot thinking” – which, in turn, is one of the eight principles that make up Tarzan Economy, Page’s treatise on entrepreneurship in the breathless digital age. The author, who has compiled his lessons from two decades of working as an economist for Spotify in its early stages and for UK music copyright collective PRS, spoke to Rolling stone on key ideas from his book, which goes on sale in the United States on May 18.
When did you first get the idea for this book?
I felt I needed to develop a plan B after Spotify went public [in 2018]. My passion has always been to teach economics, especially to people who don’t think they can understand it, and I have always had the ambition to teach it on a large scale. The story with my dad at the beach is a story I used in many Spotify introductory presentations – when Spotify hired 200 or 300 people every quarter – to help people think like economists. This is a simple example of how the best of intentions can lead to perverse results. I think the first 10 years of music’s journey through disruption are littered with examples of this.
The page goes
Paul Harmer
Tarzan economy talks a lot about the ‘Napster moment’ of music in 1999 and argues that industries need to find ways to work with disruption, not against it. Is music in another “Napster moment” now?
I am convinced that labels won the war against piracy when they stopped fighting it. Attacking people for stealing wouldn’t solve the problem – I think the legal perspective of “we’ll teach them a lesson!” Was black or white. When I first met Daniel Ek in 2007, we shared the belief that we could build something better than flying, and that people would come.
Record companies spent 10 years cooking up a dog dinner to try to solve piracy, then spent 10 years ditching the old vine and reaching out to the new streaming vine. It’s an eye-opening lesson anyone can draw on. And now, because of Covid, everyone is watching their Napster moment.
The most fascinating thing for me lately has been the growth of the DIY model for musicians. Last year the majors released 1.2 million songs; DIY artists released 9.5 million. This [shift] happens through cinema, television, book publishing, the media. Do it or buy it? The decision is being reassessed. It’s hard to see where the dust is going to settle – there is more money, but there are also more mouths to feed.
There is also a dilemma with the streaming model: Streaming services send billions of dollars from the factory gate to the market, but how much is lost in transaction and middleman costs before it gets to the artist. ? When barriers to entry fall, supply exceeds demand. This is the big lesson I learned from my trip.
What was your first area of interest when you joined Spotify?
In 2007, it was the question of average revenue per user (ARPU). There was that term here in the UK about ‘the £ 50 man’ spending £ 50 a month on music and the industry was desperately clinging to that old vine of existing buyers and CDs. in plastic cases as transaction units. More importantly, the average spending of music buyers fell dramatically and the number of people spending nothing increased. The challenge was therefore not to better monetize what remains; it was to reach this new vine to turn zeros into ones.
“The anatomy of a hit is constantly changing. What TikTok achieved in the space of six months has yet completely rewritten the rulebook.
Do you think there are still a lot of legacy philosophies to be overthrown? For example, use of data – does the industry need a more sophisticated or nuanced way to look at data points?
I really think the language needs to change. First of all, in 2021, it is still said that someone “releases a new record”. To where, to space? Will the money come back through sleight of hand? Language must catch up with technology. And music was one of the first to embrace consumption, not transactions.
In 2013, I remember doing a study on music festivals, streaming, and social media. What’s going to be interesting now is, with the onslaught of TikTok, Snapchat, and Twitch, where does the musical journey begin? What’s the order of events: Does someone go up on TikTok first, then streaming, then vinyl, then sales, then radio in fifth? I think this is a good example of how all parts of a food chain have to keep sharpening their knives, keep revisiting the order of events, to figure out where they should pivot to, then. The anatomy of a sudden is constantly changing. What TikTok achieved in the space of six months has yet completely rewritten the rulebook. If TikTok is where the discovery is happening, then Spotify may be further down the food chain now.
More and more people are asking Spotify to reconsider its basic pro-rated business model and pay artists per stream instead. Where do you see this movement going?
I like this debate because it makes us talk about fair division, a concept long forgotten in economics, which came out of three Polish mathematicians in a cafe who looked at a cake and said, what’s the best way to cut a cake ? Well, what if I cut the cake but you pick your slice? What a brilliant way to make sure it’s fair, but how do you present a third person? So there is an economic theory here on how to divide a fixed pot of money.
If you want to have a user-centric streaming model, you have to consider not only the benefits but also the cost to the users. I can give you an efficient pro-rata distribution, or I can give you a fair user-centric distribution. Another concern is the volatility of the value of feeds: currently all feeds are worth the same, but what if one feed is worth $ 4 and another is $ 0.13? What if a lot of people join the service and Drake gets an even bigger share of the royalty pot than before? Going back to the story of me on the beach with my dad, there can be a lot of unintended consequences.
But on the outskirts of the music industry, gaming platforms like Twitch have launched user-centric platforms, and we can learn a lot from that as well. I think Spotify, Apple, and Amazon would be willing to do it. And I think the UK parliamentary inquiry may well require mass industrial experience. Whether this changes the picture is not clear; what’s really interesting, however, is whether this will change people’s perceptions of what fairness means.
Which industries have impressed you the most with the type of “vine to vine” you advocate in the book?
If I pay for Netflix, I’m probably more likely to pay for Disney +, Amazon Prime, HBO Max. But to get my 60 million songs all I need is $ 9.99 for a Spotify subscription and not a dime more. And it’s $ 9.99 since 2002. So it’s fascinating to see how video streaming took a Tarzan-like journey to music, but it was able to extract maybe $ 40, $ 60 a month from a single consumer, as opposed to a flat tab. Video streaming helped determine how to pollinate each other’s gardens, but also how to grow the overall ARPU.
Moving on to the next vineyard, Netflix also raised questions that many people overlook: if I spend all of my time watching Netflix, I am not spending any of my time watching commercials. As Netflix grows in importance it absorbs more attention and monopolizes time – the hours I spend watching Netflix are hours no one else can touch, not Spotify or Apple or Universal or Taylor. Swift. Everyone loses because Netflix wins.
On another side, Tarzan economy is quite critical of journalism as an example of an industry that still clings to the old vine.
Before, journalists laughed at the music industry: “You are dying, you are dead”, and it was. I took those punches on the jaw. Then the music started to turn, and I started to be invited to the offsite newspaper management to explain how we had done it, because the news looked at the same abyss. There are still so many things that are out of step with journalism today: the cost of distributing newspapers, the language, and the question of what business you really are in.
Does a listener really care if an artist is signed to Universal, Warner, or Sony? No. What Spotify has done is make discovering the artist really accessible, and the ownership of that artist has nothing to do with that. So I think the news industry could learn from Spotify’s collective solution of a single platform where you can go to get all the content. The solution could be Apple News, or it could be specialties, like what The Athletic does.
I truly believe that today’s consumers are willing to pay for the sake of a good deal and the thrill of a luxury – $ 10 for a month of streaming or $ 25 for a custom vinyl record they might never play – but they don’t want to pay for what’s in the middle. In the airline industry, it is the low cost carriers and the high end carriers that are doing well, and those in the middle that suffer. It’s a very interesting wrestling match going on. No one would have predicted this; it is irrational. But the vinyl recovered as a result of streaming, and luxury vinyl buyers pay $ 120 per year for the access offer as well.
[ Find the book here ]
