The way I see it, putting my boring economic rationalist hat on for the 100th time on DTF, the market for "music" has failed.
I use the term market failure in an economic sense, in that the market is unable to price itself in such a way to balance supply and demand. The problem that I see is that there is almost an unlimited supply of music, in a rational sense, matched with an almost infinite demand for music. Under normal circumstances, or prior to the internet as many have pointed out, the marketing system for music would involve listening to the radio, liking or disliking what you heard (more often than not, liking I'd say) and going out a buying a CD with the song you like on it. So what this was able to do is basically create a market for music, effectively reducing the "supply" of music to those bands who made it on the radio, which those who listened to the radio would then buy because its what they heard on the radio. Then, bands could/would follow up by going on tour, selling merchandise etc; but this would all be based around their popularity gained from being heard on the radio and shifting units. I'm probably grossly simplifying here, but it suits the purpose of what I'm trying to say lol.
The market for music was similar to an oligopoly, there was a highly concentrated supply of music in the hands of major record labels and, by extension, major bands, who were able to earn rents on their services due to their market power.
Flash forward to 2011, and this system is broken. Just think of all of the marketing channels created by the internet: forums, Facebook, web magazines, probably more. All of a sudden, this old oligopoly market structure is broken and we shift to something more akin to perfect competition (perhaps even monopolistic competition, as suppliers do have some power to earn rents); which lowers consumer expectations about the price they pay for services while simultaneously expanding the market. No longer is the market totally dominated by a number of big bands or record labels, internet technologies have broken the hold. The problem of infinite supply and infinite demand emerges, where a price signal doesn’t do enough to match supply and demand; and as a result the market price for music plummets so the supply can be better matched with demand.
So, businesses are forced to adapt to the new market structure in order to make money; they try to create oligopolistic profits by “making” an artist huge (by getting radio stations to play their song 15 times a day, plaster their semi-nudeness all over the side of buses, etc), selling lots of singles, supporting with a tour which charges $100 per ticket and merchandise that is marked up by hundreds of percent, and then putting them out to pasture. Think about all of the mainstream music that has been churned through over the past decade or so.
Meanwhile, all of the other bands that don’t have this kind of support flounder somewhat under the pressures of the market. How many bands do you see these days that aren’t in real niche markets touring, surviving and thriving? As a result, smaller bands are forced into a situation where they have to sell their music for effectively nothing and hope they can drum up enough support for a tour, and make their money that way. Selling records doesn’t pay the bills, and I can vouch for a number of people I know who have tried and failed to go down this route.
So I suppose what I’m getting at is that services like Spotify, last.fm, are good for the music industry, as they give these other bands who don’t have the support of the oligopoly a chance. The internet is also fantastic for collaboration, diversification and creativity as far as I’m concerned. I’m actually working on a high level business plan at the moment for something that harnesses the internet and the creative process, if anyone is interested. We are never, ever going to go back to the days of the Beatles, who put out 27 studio albums and were out there for decades; market forces won’t allow that. However, the new market structure will allow for a greater diversity of music to be made and heard, if not in the mainstream, but in communities like this.