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Speaker 1: Fun fact fround me guys. I was Beyonce for Halloween

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Speaker 1: last year. Like Complete on the Run tour, Beyonce crushed it.

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Speaker 1: This episode is brought to you by Nadex, the Binary

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Speaker 1: Options Exchange. Binary Options let you limit your risk and

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Speaker 1: and may not be appropriate for all investors. Hi, and

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Speaker 1: welcome back to Bloomberg Benchmark, a podcast about the global economy.

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Speaker 1: It is Thursday, December three. I'm Tori Stillwell, an economics

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Speaker 1: reporter with Bloomberg News in DC, and I am joined

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Speaker 1: by my co host, Ako, our editor for a Benchmark,

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Speaker 1: who is also in d C with me this week. Okay, Tori,

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Speaker 1: how's it going good? It's so weird to be looking

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Speaker 1: at you, I knowing, it's so rare that we get

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Speaker 1: to be in the same room together. It's right. Ai

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Speaker 1: was in town for our party two nights ago. Yeah,

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Speaker 1: thank you so much. To everyone who came to our party.

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Speaker 1: It was so fun and uh, it was so great

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Speaker 1: to get to meet everyone in person. Yeah, too much fun. Well,

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Speaker 1: let's talk about the big economic news of the week, um,

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Speaker 1: and the thing that comes to mind for me is

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Speaker 1: the I m F adding the you Want to its

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Speaker 1: basket of reserve currencies. Yeah, historic moment. Basically, the International

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Speaker 1: Monetary Fund has this basket of currencies and it's called

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Speaker 1: the Special Drawing Rights Basket. That sounds really boring and complicated,

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Speaker 1: but basically, think of it as an international reserve asset.

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Speaker 1: And there's a couple of currencies already in there, the dollar,

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Speaker 1: the Euro, the pound, the end, and now that you

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Speaker 1: Want is being added to that as well. It's the

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Speaker 1: first change in the makeup since back when I was

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Speaker 1: a reporter in Japan. I started there six years ago

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Speaker 1: and people were talking about this and it finally happened.

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Speaker 1: So it's almost kind of a surprise that it's taken

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Speaker 1: this long for the un to be added to this basket. Yeah,

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Speaker 1: and people are saying it's sort of like a stamp

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Speaker 1: of approval, um assign that the international community is really

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Speaker 1: behind China's efforts to really transform its economy and and

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Speaker 1: become a bigger player. Yeah. So one of the criticisms

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Speaker 1: of China, I think we talked about this in our

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Speaker 1: second episode too, but one of the criticisms has been

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Speaker 1: that the Chinese government has such tight control over its

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Speaker 1: own currency, and China's government is starting to loosen some

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Speaker 1: of that control now. So the move the other day

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Speaker 1: was kind of in recognition of that. Turning to our

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Speaker 1: topic for today, if you've been anywhere near a radio

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Speaker 1: in the last month or so, you've probably heard Adele

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Speaker 1: saying hello to you from the other side. And if

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Speaker 1: you haven't, which seems to me like it would be impossible,

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Speaker 1: but if you haven't, here's a clip. ACKI have you

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Speaker 1: listened to the album? Yeah? I love it. I just

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Speaker 1: love it. I still think I like Taylor Swift better.

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Speaker 1: You know my feelings on that. Um Well, anyways, Adele

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Speaker 1: has been crushing album sales. Data from Nielsen Music show

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Speaker 1: that she sold three point three eight million copies in

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Speaker 1: the US in her first week in Sync and their

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Speaker 1: album No Strings Attached previously held the record for most

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Speaker 1: album sales in the US in one week, and she

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Speaker 1: beat them in just a few days after her release

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Speaker 1: and She also surpass the first week sales of an

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Speaker 1: album in any territory, which was previously held by Hikaru

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Speaker 1: Utada's two thousand one album Distance, which apparently sold more

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Speaker 1: than three million copies. Fun fact, I was definitely a

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Speaker 1: purchaser of this album. It was probably my favorite growing up,

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Speaker 1: my favorite, one of my favorite albums growing up. And um,

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Speaker 1: she also went to my high school. That was pretty

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Speaker 1: significant claim to fame, the American school in Japan. Well,

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Speaker 1: I was like every other teenage girl and obviously had

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Speaker 1: the nose strings attached album from instinc justin he will

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Speaker 1: always have my heart. But it's pretty It's pretty hard

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Speaker 1: to talk about how widely Adele's album sold without mentioning

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Speaker 1: the fact that she did not make it available to

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Speaker 1: streaming services like Spotify and Apple Music at the launch.

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Speaker 1: Taylor Swift and Beyonce have also had huge success with

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Speaker 1: their album launches by holding back their music from streaming services,

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Speaker 1: but that seems to run a little counter to where

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Speaker 1: people think the industry is heading through the number of

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Speaker 1: paid subscriptions to on demand music services in the US

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Speaker 1: alone has more than tripled to seven point seven million

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Speaker 1: since two thousand eleven. And all this made us want

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Speaker 1: to know more about the future of this fifteen billion

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Speaker 1: dollar global music industry, how it's going to coexist with streaming,

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Speaker 1: and why we're talking about it on an economics podcast.

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Speaker 1: And for that we're bringing on Lucas Shaw, who is

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Speaker 1: an entertainment reporter here at Bloomberg based in l A. Hey, Lucas, Hey,

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Speaker 1: how's it going great? Thanks? How are you good? I

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Speaker 1: I was also a purchaser of No Strings Attached, but

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Speaker 1: I can't say I bought the Japanese record I used

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Speaker 1: to like, I used to know the whole dance to

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Speaker 1: like bye Bye Bye, you know, and they jump in

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Speaker 1: then like do the arm in front? Can you still

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Speaker 1: do it? Yeah? Later they sort they sort of mimic

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Speaker 1: the butterfly with their hand right right exactly. Lucas, are

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Speaker 1: you a user of Spotify or up music? I pay

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Speaker 1: for both. You pay for both. I pay for Spotify.

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Speaker 1: Same here. It's amazing. So the way I consume music

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Speaker 1: is I discover music on songs which I think recently

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Speaker 1: bought um And when I find songs that I like,

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Speaker 1: I download it on my Spotify mobile app and then

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Speaker 1: I binge listened to it until I can't listen to

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Speaker 1: it anymore, and then I go back to songs that

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Speaker 1: to find more songs. So you don't use you don't

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Speaker 1: use Spotify to discover music. You don't use YouTube to

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Speaker 1: discover music. No, not really. I feel like so songs

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Speaker 1: they curate music through human musicians, Um, they don't really

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Speaker 1: use an algorithm uh necessarily to create the playlists. And

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Speaker 1: I think that makes a huge difference in my opinion. Yeah,

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Speaker 1: I just got I'm I got signed up for this

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Speaker 1: new human curated music service that's in beta where you

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Speaker 1: tell that you answer a bunch of questions about your tastes,

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Speaker 1: and then you have kind of a one on one

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Speaker 1: uh communication with someone who sends you a new playlist

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Speaker 1: every week or two. It sounds like sort of what

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Speaker 1: we talked about on the Robots podcast, where it's like

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Speaker 1: a premium now for like people to do this stuff

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Speaker 1: like a matchmaker. Right exactly. Well, I mean, Lucas, let's

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Speaker 1: talk a little bit more about the music industry and

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Speaker 1: how it's been disrupted by streaming and really link it

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Speaker 1: to economics here. I think you point you put it

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Speaker 1: really well. Um. In a conversation that we had earlier

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Speaker 1: this week, about it sort of being a microcosm for

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Speaker 1: the broader media industry. Yeah, I mean the recorded music

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Speaker 1: business was the first one to kind of suffer from

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Speaker 1: the proliferation of the Internet because the files are pretty

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Speaker 1: small and so they were easy to download to share,

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Speaker 1: you know, as the recorded music business peaked around the

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Speaker 1: turn of the millen where it was forty billion dollars

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Speaker 1: compared to the fifteen billion dollars that you said, uh

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Speaker 1: it is now. That was the peak of the CD boom,

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Speaker 1: where you had the record industry convincing people to shell

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Speaker 1: out fifteen eighteen dollars four c D when they probably

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Speaker 1: just wanted a song or two. Uh, so you had Lucas.

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Speaker 1: What was your first CD? My first CD? I think

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Speaker 1: it was a red ut Chili Peppers Greatest Hits album.

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Speaker 1: It was like ten songs, ten songs from the early

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Speaker 1: more funky rock days of the Chili Peppers, and I

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Speaker 1: bought it at Rockaway Records. Mine was Shania Twain. So

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Speaker 1: I think you did a little bit better than Sorry,

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Speaker 1: what were you saying? Yours probably sold better than this,

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Speaker 1: uh the ten best Yes, So this this kind of

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Speaker 1: this CD, the CD fueled boom in the record business

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Speaker 1: started to peter out after that. This boom in when

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Speaker 1: you know, you had three of the five fastest selling

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Speaker 1: albums came out in two thousand. That was when I

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Speaker 1: believe No Strings Attached came out and set the record.

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Speaker 1: You had a Backstreet Boys album and you just had

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Speaker 1: people going crazy for c d s. And then Napster

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Speaker 1: came along in lime Wire and Kazah and all these

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Speaker 1: different file sharing services, and so younger people no longer

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Speaker 1: needed to buy albums. They would just rip everything and

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Speaker 1: download it for free. So that started to eat away

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Speaker 1: at the business, and the record business was very nervous.

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Speaker 1: And and then Apple came around and invented iTunes, which

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Speaker 1: at the time, you know, they sort of forced the

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Speaker 1: music industry's hand, but the music industry also hoped that

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Speaker 1: it would stop this this proclivity for file sharing. And

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Speaker 1: I think what ended up happening is digital sales did increase,

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Speaker 1: but they didn't increase faster than CD sales declined. So

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Speaker 1: the music industry has basically been a state of perpetual

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Speaker 1: decline for the past, you know, fifteen to twenty years.

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Speaker 1: And there's been some discussion in recent years as to

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Speaker 1: whether we're going to see something similar happen in video.

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Speaker 1: You know, you've never seen file sharing or piracy kind

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Speaker 1: of unsettle the TV and movie business to the same

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Speaker 1: extent because the file sizes are so much bigger, and

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Speaker 1: because the quality of ripped material tends to be lower

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Speaker 1: and you want to watch it on a big screen.

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Speaker 1: You know, music you can sort of listen to on

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Speaker 1: any device. People are a little less particular about the quality. However,

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Speaker 1: you have all of these streaming services popping up on

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Speaker 1: the video side, whether it's Netflix, Amazon, Hulu, UM, and

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Speaker 1: just one or two of those seemed to be substitutes

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Speaker 1: for the entire kind of TV ecosystem for some younger consumers.

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Speaker 1: And you also have a lot of young people watching

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Speaker 1: video for free on YouTube rather than say, watching Nickelodeon.

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Speaker 1: You know another industry that I feel has tanked as

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Speaker 1: a result of the Internet and all it's free and

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Speaker 1: extremely cheap goods is journalism. Yeah. Well, journalism and music

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Speaker 1: were the ones that got hit the fastest because again

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Speaker 1: it's very you know, you had a lot of people

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Speaker 1: offering journalism articles for free that that people previously had

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Speaker 1: to pay for, right, so they're they're both great examples

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Speaker 1: of industries that have been completely quote disrupted, as the

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Speaker 1: Silicon Valley types like to say, try so hard not to,

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Speaker 1: but they know they really are great examples of how

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Speaker 1: the Internet has just totally transformed our economy and the

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Speaker 1: and the way we do things. Um. And so, how

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Speaker 1: has the music industry received streaming services. It seems like

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Speaker 1: it's kind of like a grudging acceptance. I don't I

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Speaker 1: don't know. Yeah, that's probably fair, you know. It's they

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Speaker 1: have a very complicated relationship with them because, on the

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Speaker 1: one hand, most of the record label's own stakes in

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Speaker 1: streaming services, so they obviously don't own anything of Apple Music.

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Speaker 1: Apple owns that outright, but record labels have a piece

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Speaker 1: of Spotify, so they do have a vested interest in

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Speaker 1: its succeeding. Um. But their their hope is that they

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Speaker 1: can convince as many people as possible to pay for

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Speaker 1: Spotify rather than use the free tiers. So spotify strategy

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Speaker 1: is they have this, they have a free service that

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Speaker 1: is almost as good as the pay service, and they

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Speaker 1: hope that that kind of serves as this funnel to

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Speaker 1: bring in lots of customers who, when they see how

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Speaker 1: much better the pay services, will want to pay and

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Speaker 1: as it stands now, about a quarter of all Spotify

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Speaker 1: users are paying subscribers, and the record industry would like

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Speaker 1: that to be more like a third or a half.

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Speaker 1: And so there in this constant state of negotiation where

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Speaker 1: they want Spotify to grow because it's a much better

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Speaker 1: alternative to YouTube, but they want Spotify to be better

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Speaker 1: at getting those customers to pay. Uh, So they're in

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Speaker 1: this there in this constant state of push and pull.

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Speaker 1: So people, the record industry is cheering on Spotify more

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Speaker 1: than YouTube because YouTube is completely free, whereas for Spotify,

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Speaker 1: some people pay for it. Yeah, and YouTube just introduced

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Speaker 1: to that, but there's a lot of doubt as to

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Speaker 1: whether that will actually work. And the payments that they

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Speaker 1: get from Spotify are just better than YouTube, I mean,

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Speaker 1: the whole the creative industries have had to begrudgingly accept YouTube,

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Speaker 1: but none of them like it because YouTube has introduced

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Speaker 1: this idea that you can find any video, any song,

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Speaker 1: ever and not have to pay for it. And the

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Speaker 1: ad rates on YouTube are so low that payments are

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Speaker 1: are miniscule for a major media company. And are things

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Speaker 1: like Spotify and Pandora profitable yet or they still working

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Speaker 1: on that? Yeah, Pandora has reported a profit a couple

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Speaker 1: of times in its fifteen year history, but but not often,

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Speaker 1: and even when they do, it's a really small one. Spotify,

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Speaker 1: it is not public, but from everything that you know,

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Speaker 1: leaked documents and what people have been told, they're they're

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Speaker 1: not profitable either because these services have to pay out

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Speaker 1: at most of their revenue to the music business. Uh.

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Speaker 1: And so they tend to point the finger at the

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Speaker 1: music business and say, hey, we're actually paying enough out.

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Speaker 1: You guys are not properly compensating your artists. The problem

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Speaker 1: is that they're all fighting over a shrinking pie. That's

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Speaker 1: a good point, and uh, let's pick up on sort of.

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Speaker 1: I guess the benefits of streaming for musicians, for the industry,

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Speaker 1: for consumers, and the drawbacks after this break? What do

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Speaker 1: dot Com Futures options and swaps. Trading involves risk and

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Speaker 1: may not be appropriate for all investors. So, Tori, since

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Speaker 1: we are an economics podcast, should we talk about the

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Speaker 1: theoretical benefits and the drop backs of streaming? Yeah, let's

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Speaker 1: do a little cost benefit analysis, very nice with no equations. Yeah. So,

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Speaker 1: first of all, I guess one benefit is that some

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Speaker 1: people think of streaming as advertisement for artists, the way

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Speaker 1: that radio is. People say it could be a way

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Speaker 1: for consumers to discover new music that you may not

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Speaker 1: have heard otherwise, which you know, helps artists create a

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Speaker 1: bigger fan base. Um, that's certainly the case for me

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Speaker 1: with services like songs A Yeah. And another thing that

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Speaker 1: we've we've talked about already is that they are actually

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Speaker 1: at least getting paid per listen, even though it may

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Speaker 1: be like a fraction of a penny per stream. At

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Speaker 1: least they're not getting pirate ID like they were before.

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Speaker 1: That's right, So, Tori, what are the drawbacks of streaming

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Speaker 1: for musicians, Well, that fee rate is super low. You'd

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Speaker 1: have to stream it all the time basically to make

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Speaker 1: money off of it to be able to quit your

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Speaker 1: job and do this. Um, if they're just if you're

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Speaker 1: not really selling any albums. If I were an artist,

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Speaker 1: I'd probably just like leave my laptop up all the

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Speaker 1: time and just like do a continuously songs. Um. So yeah,

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Speaker 1: the fee rate is is tiny. And also people don't

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Speaker 1: have to buy a whole album just to get that

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Speaker 1: one hit song. You know. I don't have to buy

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Speaker 1: the whole Christina Aguilera album to hear Genie in a

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Speaker 1: Bottle anymore, and just play Genie in a Bottle whenever

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Speaker 1: I want, Although that's not the fault of streaming services, right.

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Speaker 1: iTunes was the one that ultimately I'm bundled yea song

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Speaker 1: sales very true. Yeah, And then looking at the consumers perspective,

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Speaker 1: which I think is is sort of easy for us

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Speaker 1: to run through because they're all consumers of streaming services.

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Speaker 1: You get this huge library of songs that you didn't

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Speaker 1: have access to before for basically the same price as

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Speaker 1: a c D every month. Yeah, I mean you pay

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Speaker 1: for Spotify. I pay for Spotify. Lucas pays for both

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Speaker 1: Spotify and Apple Music. That's got to mean that we

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Speaker 1: find incredible value in it. Yeah, and Lucas, I knew

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Speaker 1: nothing about Apple Music. I mean, do you like it? Yeah?

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Speaker 1: I I pay in part because it's my job. So

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Speaker 1: I feel like, point, do you get to expense that

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Speaker 1: I do not? That I know. I pay for cable,

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Speaker 1: I pay for Netflix, I pay for Hulu, I pay

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Speaker 1: for Amazon, Uh, Spotify, Apple Music, none of this is expensed.

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Speaker 1: It's a it's it's unfortunate getting ripped off. I am.

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Speaker 1: Apple Music is is most streaming services are similar. They

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Speaker 1: have this unlimited or seemingly unlimited library of music. One

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Speaker 1: of the things that Apple introduced to try and differentiated

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Speaker 1: service was this radio product where they have a live

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Speaker 1: radio show around the world twenty four hours a day

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Speaker 1: with hosts in Los Angeles, New York, and London. That's

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Speaker 1: actually free. You don't have to pay for Apple Music

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Speaker 1: to to get that. Um and then they also have

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Speaker 1: a slightly different approach to curation, which is sort of

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Speaker 1: a buzzword in in the music streaming circles because one

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Speaker 1: of the problems that people have with Spotify with any

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Speaker 1: of these, is that what the library is so vast

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Speaker 1: that it's really hard to discover things, to find things

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Speaker 1: to you know, to either stumble upon new music or

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Speaker 1: kind of remind yourself about music that you do like.

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Speaker 1: And so there is a part of Apple Music that

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Speaker 1: is kind of tailored for you, which I find to

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Speaker 1: be good, not great. And I think some of that

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Speaker 1: is because I tend to toggle between the two services,

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Speaker 1: so it only knows of one segment of my listening habits,

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Speaker 1: right right. You know, it's really interesting how the record

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Speaker 1: industry is declining. You know, we said it used to

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Speaker 1: be forty billion, now it's fifteen billion. And we also

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Speaker 1: talked about how Spotify and Pandora they're not really profitable

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Speaker 1: yet because they have to pay out so much in royalties.

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Speaker 1: The big winner here is us here, it's the consumer.

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Speaker 1: Well a paper published in October, I believe by Louise

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Speaker 1: agu Are did I Did I say that? Right? Guys?

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Speaker 1: I think so? And incidentally enough, Joel walt Vogel, who

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Speaker 1: we had on the show last week, UM, they've looked

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Speaker 1: into this. They want to know how streaming impacts the

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Speaker 1: music industry in money terms and it's they had some

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Speaker 1: really cool results. Yeah. So, basically, they found that streaming

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Speaker 1: does indeed discourage people from buying permanent downloads on iTunes.

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Speaker 1: Um so, it does displace record sales, but it also

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Speaker 1: drives down piracy because uh services like Spotify and Pandora,

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Speaker 1: they make it easier for consumers to listen to music.

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Speaker 1: Um So, in effect, they found that it's revenue neutral

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Speaker 1: to the music industry, which is kind of interesting. Yeah, yeah, yeah,

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Speaker 1: that's not really the kind of narrative that you hear.

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Speaker 1: I think in the mainstream media. Well, if the streaming

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Speaker 1: industry were to grow large enough, it would actually be

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Speaker 1: as good, if not better, than the recorded music business.

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Speaker 1: This is the point that people at record labels make

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Speaker 1: all the time, is that the annual spend for one

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Speaker 1: streaming service, say so it's month that ends up at

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Speaker 1: d twenty dollars a year, is more than your average

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Speaker 1: consumer ever really spent on CDs. So if you can

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Speaker 1: get enough people, if you can get to to mass

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Speaker 1: with streaming, it's it's great. The question is whether it

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Speaker 1: can get there or if there are enough people who

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Speaker 1: are willing to fork over that month to make it

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Speaker 1: worth it. Yeah, I think that's a really great point,

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Speaker 1: and uh, it's it's a great challenge um for the

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Speaker 1: music industry to kind of figure out, and also the

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Speaker 1: technology industry to figure out, because if they can get

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Speaker 1: this right and they can get music industry sales back

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Speaker 1: up again, that might be a model for other industries

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Speaker 1: that are also getting digitally disrupted. And we talked about

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Speaker 1: Adele at the top of the show, so I want

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Speaker 1: to loop back to that as we wrap up, but

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Speaker 1: I mean Adele Taylor Swift. As we mentioned Beyonce the Queen.

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Speaker 1: They took a stand against streaming, and their albums sold

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Speaker 1: like crazy. They made us all buy music. Is this

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Speaker 1: something that other artists can do? Is is it a

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Speaker 1: viable option? Or is this something that only those three

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Speaker 1: ladies will be well too to make work. That is

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Speaker 1: a question to which we don't yet know the answer.

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Speaker 1: It's being debated at a lot of the different record labels.

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Speaker 1: You know, this idea of making something available only for

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Speaker 1: purchase and then kind of distributing it to secondary platforms

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Speaker 1: where it's you know, like treating Spotify and Apple Music

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Speaker 1: essentially as a second window. Is what happens in most

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Speaker 1: other sectors of the entertainment business. So if you look

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Speaker 1: at the movie business, a movie comes out in theaters first,

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Speaker 1: where you have to spend to buy a ticket, and

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Speaker 1: then popcorn and all that other junk, and then later

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Speaker 1: on you can watch it on HBO or Netflix or

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Speaker 1: wherever it is. In the TV business, usually you know

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Speaker 1: you'll have a show premiere in one place and then

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Speaker 1: it's what's called it's syndicated to other people, So there

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Speaker 1: are multiple different points at which the right solder collects

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Speaker 1: for that property. It's been harder to make that happen

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Speaker 1: in the music business because it's been hard to get

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Speaker 1: people to pay for anything to begin with. So the

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Speaker 1: question for for record labels for artists is whether kind

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Speaker 1: of most artists can can kind of uh can employ

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Speaker 1: the strategy that Adele Beyonce Taylor swift of views and

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Speaker 1: get people to buy more in those first you know,

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Speaker 1: first few weeks, first couple of months, and then put

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Speaker 1: the music out on streaming services or is that really

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Speaker 1: only does that really only work for artists who don't

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Speaker 1: need these other services to promote them and who are

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Speaker 1: so popular that they can actually force people to go

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Speaker 1: and spend money. You know, we're we're having a test

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Speaker 1: on Friday with probably with cold Play. I just wrote

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Speaker 1: a story this morning about how they have previously withheld

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Speaker 1: their album from Spotify, with held their past couple albums.

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Speaker 1: They have a new album coming out on Friday. They

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Speaker 1: haven't said what they're going to do, so they could

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Speaker 1: again withhold it from services. The danger for them is

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Speaker 1: that their record sales are in decline, so do they

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Speaker 1: really have the power to force people to go out

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Speaker 1: and spend Well, that's a great question for us and

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Speaker 1: on Yeah, yeah, Lucas, thank you so much for joining

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Speaker 1: us today. Thanks so fun. Well, that's it for us today.

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Speaker 1: Things again for listening to Bloomberg Benchmark. We'll be back

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00:23:02,720 --> 00:23:05,159
Speaker 1: again next week. Until then, you can find us on

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Speaker 1: the Bloomberg terminal and on Bloomberg dot com and also

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Speaker 1: on iTunes, pocket Cast, Stitcher, google Play and all the

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Speaker 1: other platforms. And while you're there, please take a minute

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Speaker 1: to rate and review the show so more people can

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Speaker 1: find us. And as always, we love to hear what

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Speaker 1: you guys thought about the show, so talk to us,

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Speaker 1: follow us, don't troll us on Twitter at at Tory

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Speaker 1: Stillwell and at Akieto seven and our guests Lucas is

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00:23:33,520 --> 00:23:38,040
Speaker 1: also on Twitter at at Lucas Underscore Shaw See you

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00:23:38,080 --> 00:23:43,240
Speaker 1: next week. This episode was brought to you by nat X.

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Speaker 1: which you're listening to now, don't miss Odd Lots, a

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Speaker 1: deep dive into the intersection of markets, economics, and finance

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Speaker 1: with Joe Wisenhal and Tracy alloway. There's also Deal the

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Speaker 1: Week with our mergers and acquisitions reporter Alex Sherman, looking

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Speaker 1: at a breakdown of the biggest deals and giving you

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Speaker 1: an inside peek into corporate boardrooms. All three shows are

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Speaker 1: and of course, the Bloomberg Terminal. Check them out and

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