How to Save the Online Economy

This extra video was made possible by Setapp. One low price for over a hundred great Mac
apps. Okay, so you’re scrolling through Reddit,
because, what else does one do during the tired hours of 9am-5pm?
just minding your own business, when you click on a link and this happens. Nothing is more frustrating than a paywall
– being told you have to buy an entire subscription to read this one article. Sometimes they wait until you’re halfway
through, Oh, wanna know what Snape does next? That’ll be $10. Well, this one’s free: Snape kills Dumbledore. Don’t say this channel isn’t a good value. But when I think about it for, half a second,
of course they ask for money. Writing, and editing, and publishing require
labor. Ya know, the thing you’re supposed to be
doing right now but instead opened this video. And if there wasn’t a paywall, I’d be
complaining about how many ads there were. cough The same goes for music, videos, apps, and
so on. Long ago, deepwater navigation freed merchants
from making only what their town wanted to buy, Now, they had access to the world’s
markets, As long as someone somewhere wanted their custom engraved potatoes, they could
sell them. Today, you can specialize even further, make
a living, say, selling homemade glitter. That’s pretty cool. But when there are no barriers to entry, supply
is unlimited, and the value of everything trends to zero. So here we are. Nobody wants to pay for music or news or apps, And yet musicians, and writers, and developers
need to get paid. The question is how, preferably in a way that
doesn’t suck. Spotify, Netflix, the New York Times, and
the App Store are all attempts to answer that question. Some of which are thriving. Others, you might be surprised to learn, are
failing. So, what works?
and, maybe more importantly, what doesn’t? The iTunes music store opened in 2003. The App Store, in 2008. In other words, the music industry has a head
start. This graph of music revenue over time, adjusted
for inflation, tells the story pretty well. Earnings peaked in 1999, and they’ve been
down ever since. Like, really, really down. Now, I’d argue this period was somewhat
artificially high, If we zoom out a little, it looks more like
an anomaly, a ten-year spike in the long history of recorded music. People spent so much, because, they had to. Their choices were: buy music a whole album
at a time, or don’t listen at all. But then, the numbers just start falling. If we break it down by format, first, LPs,
EPs and 8-tracks, then cassettes, CDs, and later, digital, You can see this time is different. Nothing replaces the CD. At least, not immediately. You’d think people just stopped listening. Busy wondering why the world didn’t end
or something. But really, of course, they just stopped paying,
in favor of sites like Napster. iTunes tried to fight piracy by breaking up
the album. But nothing really changed until a Swedish
programmer, no, the other one realized something: “The problem with the music industry is
piracy… But you can’t beat technology. Technology always wins. But what if you can make a better product
than piracy?… It took a few minutes to download a song,
it was kind of cumbersome, you had to worry about viruses. It’s not like people want to be pirates. They just want a great experience.” And that’s how Spotify was born. The lesson is: Companies can fight change,
lobby for new laws, burden everyone with annoying restrictions, even more annoying ads, and
sue 12-year old girls for sharing songs. Or, they can adapt, see it as an opportunity. Because most of us are lazy. If we can pay a little more for a lot more
convenience, we usually will. That’s why streaming wins. Today, people listen to more music than ever
before – an average of 32 hours a week. That’s a lot. And revenue is actually growing, for the first
time since the 90’s. Now, Netflix seems to be in the same position, Both are $10, all-you-can-eat streaming subscriptions. An answer to piracy and, in this case, Blockbuster
making a killing on late fees. Before Netflix, the idea of letting users
watch any movie, from any device, at any time was… ridiculous, What if people share their
password? Netflix was like: Ah, good point, we should
make that easier. They don’t just accept it, they embrace
it, letting you make separate profiles on the same account. But then you look at money, and suddenly the
two companies couldn’t be more different. One has been profitable for 15 years, making
half a billion dollars last year alone. The other, reported almost the same number
a year earlier, except its number was… negative. Why is that? In a word: scalability. Spotify only takes a small cut of your $10
a month, the rest is distributed among the songs you listened to. In other words, no matter how many people
sign up, the economics never improve. More users, more costs. Netflix, on the other hand, licenses shows
for a set period of time. 7 or 10.99 a month isn’t a lot of money,
but after they’ve paid for content, every additional user is pure profit. More users, more money. So why doesn’t Spotify just raise prices? Well, competition. Every company and their mother sells a music
service – just pick your favorite color. There’s also plenty of video sites, Netflix,
Prime, Hulu, Showtime, HBO, soon even more. The difference is, customers can and do pay
for several at a time. Music is winner-take-all. We expect every song to be available on every
service. They just… aren’t unique. They also can’t really take a bigger cut,
Because artists barely survive as it is. When Taylor Swift complains about money, you
can only imagine what it’s like for the average musician. For many, streaming is really just an ad for
their concerts, where they make almost all their money. The problem is musicians share their revenue
with producers, writers, and record labels, Just three of which: Sony, Universal, and
Warner, control most of the industry. Spotify, for example, pays between six and
eight-tenths of a penny per stream. But after everyone takes their cut, artists
are left with just over an estimated 1 tenth of a penny. So, here’s my prediction: Sites like Netflix
will focus almost entirely on exclusives – the Stranger Things and the West Worlds that make
their service unique. There won’t just be one winner, but several. For music, the future may not be so bright. Unless something drastic changes, like cutting
out the labels, services will land in one of two categories, those owned by a bigger company, like Apple
or Google, who use them as a loss-leader. Not to make profit directly, but to sell more
phones. And, everyone else, left with no way to make
money. This is already starting to happen. It’s just not obvious unless you’re looking. A MoviePass user can feel the business model
fail underneath them, Unlimited movies turns into most movies, turns into some movies turns
into only black comedy westerns starring Adam Sandler, only between the hours of 4 and 5
am… in select Wyoming theaters. But a Spotify user can just keep happily listening
away. For now. Every song ever written for less than the
price of a single album works only because investors pay for it. But that won’t last forever. The industry may look healthy in aggregate,
but it’s mostly the top 1% inflating the average. It’s not that I don’t think developers,
or musicians, or journalists will survive, I worry which ones survive. There are three kinds of companies, those
that make money honestly, those that make money dishonestly, and those that… don’t. When nobody pays for music or software, independent
musicians and developers lose, But there are still ways to make money, they just aren’t
good ones. Journalism won’t die, but the good kind
very well could. Some would say, largely has. If you think there’s a problem with freemium
apps and in-app purchases today, just wait until that’s the only thing that works. The good news is that these industries have
an advantage: they don’t have record labels. And Spotify offers them a few free lessons: First, people will pay for content, but it’s
on the company to make it cheap and convenient. To adapt, not to fight. Second, services have to be unique. And finally, for it to be sustainable, it
can’t just be good for you and me, it has to work for the musician, the writer, the
developer. The companies that apply these lessons will
determine which industries thrive, and which just survive. Today’s sponsor, Setapp, is a response to
the app side of this problem. It’s a $10 a month subscription to over
a hundred and twenty of the best Mac apps. It’s good for you because it’s a great
value. Use as many apps as you want, no ads or in-app
purchases, and every update to every app is included for free. Again, full disclosure, this is a sponsor,
but what they can’t pay me to say, is I’ve been using Setapp since February, long before
they reached out. I use Ulysses to write these scripts, CleanMyMac
to manage storage, and Timing to track my time. New apps are added all the time. It’s this quick to install and try one out
– I’m not speeding this up. And, importantly, it’s good for developers
because they get an extra, predictable, and fair stream of revenue. They’re incentivized to make great apps,
not charge you for an upgrade every year. I especially recommend Setapp if you’re
a student or do creative work, they have some of the best apps for studying, writing, photography,
and programming. If you use a Mac, there’s no reason not
to go to and try it free for seven days. Thanks to Setapp for making this extra video
possible, and to you for listening.

Danny Hutson

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