Creating a Merit-Based Music Economy
A paper about the problems with the music market structure, possible corrections, and action items required for the fix -- PDF version

Final update, 2024: It turns out that the major streaming services, like Spotify, have been able to collect very large catalogs of music. This has not increased the revenue going to lesser artists, as I would have hoped. Partly this is because recommendation algorithms are not including lesser artists in a systematic way, and partly it's because the subscription fees have not risen appreciably. The system of remuneration for play is also distorted, and fake tracks gaming the system have been a problem.

In short, current day streaming services have not fixed the market in the way I'd hoped, by making the "power-law" distribution shallower, with a smaller exponent, and distributing success further down from the top. In fact, just the opposite has happened: the slope of the distribution is more extreme than ever, with the hits getting an even larger share of revenue and the "middle curve" and "long tail" getting less and less.

On top of that, the amount of play it takes to get an appreciable amount of revenue is only available to the stars, the rest starve as before. The real game in the music business these days is live performance, not recordings. And because of reasons stated in the paper, this exacerbates the problem with the distribution of success: only big stars can fill large venues like stadiums and arenas, while playing small clubs and cafes is often not even a breakeven proposition, given the costs of transportation, food, and lodging for touring acts. Playing concert halls is the minimum prerequisite for making a living performing music live.

In short, the live performance market is highly skewed toward a steep slope, as it has always been, and perhaps even more today.

Bottom line: I don't know if there is a way to fix the market in the way I'd envisioned. Streaming services in their current form don't do it. And I don't know if regulatory measures can be put in place to shift the structural dynamics in a way that would help. Our society is in one of its most disparate wealth gaps in the nations history, and it is not just the music industry that displays this economic structure, it's across the board. If there is a regulatory solution, it seems more likely to be nationwide, and not relegated only to the recorded-music market.

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Note: As of 2013, this paper is getting somewhat old, but the underlying issue is in most ways structurally unchanged. Most people refer to the realm of "compulsory" or "blanket" licensing these days as "collective licensing" -- I remain agnostic as to whether compulsory or voluntary collective licensing is preferable, as even with voluntary collective licensing there will likely still need to be government oversight (the way the Department of Justice has a continuing "consent decree" that governs the voluntary licenses of ASCAP and BMI).

There has been a recent emergence of several subscription-model music services, such as Pandora, Spotify, Rhapsody, etc. However each of these services either operates under the DMCA compulsory webcasting license, which prohibits fully interactive programming (play any tune on-demand instantly), or else is required to license tracks individually at-will, leading to an incomplete catalog. This prevents the full potential of the subscription services from being realized, and thus the consumer value is limited. Because of this limited value, the price that users will pay for such services is limited, and the royalty pool available to distribute to composers and performers / producers is limited. There is good reason to expect that extending collective licensing to fully interactive services would increase their consumer value, and thus increase the royalty pool to a level more commensurate with the value of the musical work itself.

Bottom line: This problem still needs to be fixed, and collective licensing still seems to be the way to do it, so far as I can see. There are others with different opinions, but none of them have argued convincingly enough to change my opinion here.