Used car salesman or record company executive?


The music industry has faced a lot of financial pressure in the last fifteen years to offer more value and lower prices to consumers. Pirating and a huge variety of low cost entertainment options have left record sales struggling. Taylor Swift is one of the most successful artists of this generation, and as such, she throws around a lot of heft. That's why she made big news a few weeks ago when she pulled her music from Spotify, the largest of the streaming music models. She complains that they're not paying her enough for the artistic value of her works. She's wrong and I need only point to the modern automotive industry to explain why.

Truecar.com is the car industry's Spotify. We salesmen like to think of ourselves as car buying consultants offering service and expertise to our lucky customers, but in truth, our incentives are tied up in satisfying our particular brand and dealership. Truecar, Carfax, KBB, and other online services give consumers access to (relatively) objective information and advise on our products for low fees. NADA hates them. They rail against the lost profits and loss of customer-dealer relationships. In much the same way, Swift's label, Big Machine, is railing against modern streaming services cutting into their profit margins and perceived customer loyalty.

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The problem is that when you sell a product, your customers set the value of that product. If you ask too much for it, they won't buy. And despite claims that the music industry was healthy before Spotify, it's been in decline for decades now. The era of "record labels" is over. Much like I can't stop customers from using services like Truecar, labels can't keep consumers from finding the cheapest, easiest way to get their entertainment fix.

Spotify and other services have begun to recapture that lost revenue, and now the record companies want it back. Does Spotify pay enough? Are they victimizing Swift and other artists? Spotify pays 70% of its revenues, to the record companies who own the rights to the music. Labels typically pay 10-15% to artists, who then pay producers and managers and other costs. Record companies, like the auto industry, have enjoyed decades of decadent profits. It's time they, and Swift, face the future like the rest of us.

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