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Media Apple Entertainment

Why Tech Companies Should Pay Up for Music

As Pink Floyd tells it in their 1975 song “Have a Cigar,” a hit record was a way for record companies to “ride the gravy train.” If Pink Floyd was to update the song, they’d have to put those words into the mouths of executives from Silicon Valley.

Overlooked in all the debate about whether Spotify is correctly rewarding artists for their music is the reality that Spotify itself doesn’t make money—as it confirmed last week—while the music companies are moderate profit generators at best. It’s no secret that the companies that may enjoy the biggest business benefit from music are those on the periphery of the music industry, such as Apple and Google, which use it to sell hardware and ads respectively.

The problem now is that with revenues still falling, the long-term future of record companies that release most music and own vast music libraries is in doubt. At the very least, there has to be a question about how long labels will continue to pour several billion dollars a year into finding, developing and marketing new acts.

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After all Apple, in its most recent fiscal year, made more money every two weeks (about $2 billion) than the three major music companies combined did in their most recent fiscal year (roughly $1.6 billion).