Eleven-year-old Will Page is sitting on a Scottish beach, imploring his math-teacher father to teach him “what economics means.” His father points to the water and asks him how a politician should combat a rise in child drowning deaths. “Why not make swimming lessons compulsory?” Page suggests. “No more children should drown — surely we need to ensure they can all swim.”
“Do people who can’t swim usually go in the sea?” asks his father. “So, would we have more or fewer children in the water as a result of your policy? And if a certain percentage of children swimming drown, then…”
More would drown, Page realizes, with a thudding feeling. His answer, though intuitive, would actually exacerbate the problem; a better, but less straightforward, solution might be to design alert systems for dangerous tides. It’s his first lesson in what the modern-day Page calls “pivotal thinking” — which, in turn, is one of the eight principles comprising Tarzan Economics, Page’s treatise on entrepreneurship in the breathless digital era. The author, who compiled his learnings from two decades of work as an economist for Spotify in its startup phase and for the British music copyright collective PRS, spoke with Rolling Stone about the key insights of his book, which is on sale in the U.S. May 18th.
When did you start forming the idea for this book?
I felt like I needed to develop a plan B after Spotify went public [in 2018]. My passion has always been in teaching economics, especially to people who don’t think they can understand it, and it’s always been an ambition of mine to teach it at scale. The story with my father at the beach is one I’ve used in many an induction presentation at Spotify — when Spotify was hiring 200, 300 people every quarter — to help people think like economists. It’s a simple example of how the best intentions can lead to perverse outcomes. I think the first 10 years of music’s journey through disruption is littered with examples of that.
Tarzan Economics talks a lot about music’s “Napster moment” in 1999 and argues that industries need to find ways to work with disruption, not against it. Is music in another “Napster moment” now?
I am convinced the labels won the war against piracy when they stopped fighting it. Attacking people for stealing would not solve the problem — I think the legal perspective of “we’ll teach them a lesson!” was black or white. When I first met Daniel Ek in 2007, we shared a belief that we could build something better than stealing, and the people would come.
Record companies spent 10 years making a dog’s dinner of trying to solve piracy, and then spent 10 years letting go of the old vine and reaching out to the new vine of streaming. That’s a telling lesson for everyone else to draw upon. And now, because of Covid, everyone is staring at their Napster moment.
Recently, the most fascinating thing to me has been the growth of the DIY model for musicians. Last year, major labels released 1.2 million tracks; DIY artists released 9.5 million. This [shift] is happening across film, TV, book publishing, media. The “make or buy?” decision is being reappraised. It’s hard to see where the dust will settle — there’s more money, but there are also more mouths to feed.
There is also a trickle-down dilemma with the streaming model: Streaming services push out billions of dollars from the factory gate out into the market, but how much gets lost in transaction costs and intermediaries before making it to the artist? When barriers to entry fall, supply exceeds demand. That is the big lesson I’ve learned from my journey.
What was your first area of focus when you joined Spotify?
In 2007 it was the average revenue per user (ARPU) question. There used to be this term here in the UK about the “£50 man,” who would spent £50 a month on music, and the industry was desperately holding onto this old vine of existing buyers and CDs in plastic cases as the units of transaction. But, critically, the average spend from music buyers was going way down and the number of people spending nothing was growing. So the challenge was not to better monetize what’s left behind; it was to reach that new vine of turning zeros into ones.
“The anatomy of a hit is constantly changing. What TikTok has achieved in the span of six months has completely rewritten the rulebook again.”
Do you think there are still many legacy philosophies to be upturned? For instance, the use of data — does the industry need a more sophisticated or nuanced way to look at data points?
I definitely think the language has to change. First of all, in 2021, we still say someone is “putting a new record out.” To where, to space? Through some hocus-pocus magic, some money is going to come back? The language needs to catch up to the technology. And music was a first adopter of seeing consumption, not transactions.
Back in 2013, I remember doing a study on music festivals, streaming, and social media. What is going to be interesting now is, with the onslaught of TikTok and Snapchat and Twitch, where does the music journey begin? What is the order of events: Does someone rise on TikTok first, then streaming, then vinyl, then sales, then radio as a distant fifth? I think this is a good example of how all parties in a food chain need to keep sharpening their knife, keep revisiting the order of events, to figure out where they should pivot to, next. The anatomy of a hit is constantly changing. What TikTok has achieved in the span of six months has completely rewritten the rulebook again. If TikTok is where discovery happens, then Spotify is perhaps further down the food chain now.
There is a growing contingent of people calling for Spotify to reconsider its core pro-rata business model and pay artists on a per-stream instead. Where do you see this movement going?
I love this debate because it makes us talk about fair division, a long-forgotten concept in economics, which came out of three Polish mathematicians at a café who looked at a cake and said, what’s the best way to cut a cake? Well, how about I cut the cake but you get to choose your slice? What a brilliant way of ensuring it’s fair — but how do you introduce a third person? So there is some economic theory here in terms of how to divvy up a fixed pot of cash.
If you want to have a user-centric streaming model, you have to not just consider the benefits but also the cost to users. I can give you an efficient distribution pro rata, or I can give you a fair distribution user-centric. Another concern is volatility of the worth of streams: Currently all streams are worth the same, but what happens if one stream is worth $4 and another is worth $0.13? What if a lot of people join the service and Drake receives an even greater share of the royalty pot than before? Going back to the story of me on the beach with my father, there can be a lot of unintended consequences.
But on the periphery of the music industry, gaming platforms like Twitch have launched user-centric platforms, and we can learn a lot from that too. I think Spotify, Apple, and Amazon would be willing to do it. And I think the U.K. parliamentary inquiry might well ask for a mass industry experiment. Whether it changes the picture is not clear; what’s really interesting, though, is whether it will change people’s perceptions of what fairness means.
What industries have most impressed you with the type of “vine to vine” thinking you advocate for in the book?
If I pay for Netflix, I’m probably more likely to pay for Disney+, Amazon Prime, HBO Max. But to get my 60 million songs, all I need is $9.99 for a Spotify subscription and not a cent more. And it’s been $9.99 since 2002. So it’s fascinating how video streaming has performed a similar Tarzan journey to music, but it’s been able to extract maybe $40, $60 a month out of a single consumer, as opposed to a flat tab. Video streaming has worked out how to cross-pollinate each other’s gardens, but also how to grow the overall ARPU.
In moving to the next vine, Netflix has also raised questions that many people overlook: If I’m spending all my time watching Netflix, I’m spending none of my time watching adverts. As Netflix gathers more importance, it soaks up more attention and monopolizes time — the hours I spend binge-watching Netflix are hours that nobody else gets to touch, not Spotify or Apple or Universal or Taylor Swift. Everybody loses because Netflix wins.
On the flip side, Tarzan Economics is pretty critical of journalism as an exemplar of an industry that still clings to the old vine.
Before, journalists were laughing at the music industry: “You guys are dying, you’re dead,” and it was. I took those hits on the jaw. Then music started to turn around, and I started being invited to newspaper management off-sites to explain how we did it, because news was staring at the same abyss. There are still so many things that are just out of kilter with journalism today: the distribution cost of newspapers, the language, and the question of what business you are really in.
Does a listener really care if an artist is signed to Universal or Warner or Sony? No. What Spotify did was make it really accessible to discover the artist, and the ownership of that artist has nothing to do with it. So I think the news industry could learn from Spotify’s collective solution of just one platform where you can go to get all the content. The solution could be Apple News, or it could be specialisms, like what The Athletic does.
I really believe that consumers today are willing to pay for the thrill of a bargain and the thrill of a luxury — $10 for a month of streaming or $25 for a bespoke vinyl record they might never play — but they do not want to pay for what’s in the middle. In the airline industry, it’s low-cost carriers and high-end carriers doing fantastically, and the ones in the middle that are suffering. It is a very interesting wrestling match going on. Nobody would have predicted this; it’s irrational. But vinyl recovered as a result of streaming, and the luxury vinyl buyers are paying $120 a year for the bargain of access as well.