Greed is usually a good guide as to how high prices can go

We’ve been observing this shouting match over streaming royalties with some interest for there seems to be a deep misunderstanding of how prices are set buried in there:

The DCMS committee inquiry has heard testimony from an array of musicians, from Elbow frontman Guy Garvey to Mercury-nominated singer-songwriter Nadine Shah, which have highlighted the difficulties artists have making money from the small royalties artists receive from digital music services. Garvey, who told the committee that the next generation of bands are being lost because they cannot sustain their careers, has also said services such as Spotify and Apple Music are not charging customers enough. It can take more than 1 million streams for an artist to make £1,000.

£1,000 from a million people listening to a song doesn’t seem like much we agree. We would note that this appears to be about 5 times what a million people listening to the same song on the radio generates for the musicians. Sure, this is inaccurate but it’s close, songwriters and performers together make perhaps £200 from a Radio 1 play - to we’ll assume a million listeners - of a 3 minute song.

It is not obviously true that the streaming price is lower than the radio one. It is entirely possible to argue that the on demand nature of streaming, possibly the absence of the DJ, makes that a more valuable experience for the listener than the radio play. But this is where we come to price setting.

Spotify is at least attempting to be a profit maximising company. We’ll not have to work very hard to convince people that capitalists are greedy for other peoples’ money. Therefore the obvious assumption is that the streaming giant is charging listeners as much as they think they can possibly get away with. That’s the function of greed in setting prices, that greed meets the consumer willingness to pay and that’s where supply meets demand.

The other way of putting this being that Spotify cannot raise prices - we assume, of course - without reducing gross revenue. They’re extracting as much as is possible from the pockets of the listeners. This assumption could be wrong, of course it could. The answer to which is to launch a higher priced streaming service and see how it does. We believe people have done this too which is that markets testing the limits of greed thing again.

Understanding these basics leads to what might be an uncomfortable finding for Mr. Garvey and Ms. Shah. The people have spoken, their output is worth what is being paid for it simply because that is what people are willing to pay - that’s the only valuation that has any merit in a society containing humans.

Being in a popular beat combo doesn’t pay very much because consumers don’t value popular beat combos very much. Ah well.