Taylor Swift Gets Paid!

Apple announced today that it would change its policy and pay performing artists for songs streamed during the trial period for its new music streaming service.  Why? Taylor Swift wrote an open letter to Apple pressuring the firm to change its tune.  The remarkable story has several lessons.  Most say it's a story about the power of social media.  I disagree.  It's a story about an influential supplier using their bargaining power to extract value from another party in the supply chain.  Another musician could have used social media and had a letter go viral, but they may not have had the leverage to create change. 

Why have others not exercised this power?  Well, some artists make most of their money off of tours.  They are ok with lots of their music being available for free, because it has introduced them to a large potential audience for their tours.  That is the Ed Sheeran story.  Fans flocked to his concerts and knew all the words to his songs because they had listened to him on YouTube.  Some artists sell lots of their hit singles, but few of their other songs.  

Few artists sell tons of albums these days.  Taylor is an exception.  In 2014, she is the only artist to release an album that sold more than 1 million copies.  Remember that Apple still generates a lot of revenue through the sale of songs on iTunes.  She had more leverage than most singers as a result. The other lesson though has to do with Apple's rapid response. They have a big challenge in taking on Spotify, a firm that has a giant head start in the streaming business.  When Apple launches iTunes, it overcame the first movers because it offered high quality, safe, legal downloads.  No viruses, high quality.  Apple does not have those advantages over Spotify.  It does have deep pockets though.  It can afford to give some value to the artists in hopes of developing relationships that may be an advantage over Spotify.  

Finally, this story shows how the actions of one powerful player can reshape industry structure.  In other words, supplier and buyer power are not simply fixed and exogenous. Key players can take actions that shift the structure in a way that lifts (or decreases profits) for all.  In some ways, Taylor was so influential here because she could claim to be speaking on behalf of other less powerful players in the industry.  She gained some economic benefit here, but most of the gains will go to fellow artists.