High Taxes and Inflation reduce Disposable Income and our Music Purchases

Posted by PITHOCRATES - December 14th, 2013

Week in Review

If you’re old you remember going to a record store.  Putting a flat piece of vinyl on a spinning disc.  Lowering a needle on it.  And listening to that song through a pair of headphones.  If the music was awesome you bought that piece of vinyl.  If it wasn’t you listened to other songs until you found the one you wanted to buy.

Then came the audio cassette.  Where people would borrow their friend’s records and record them.  So you could enjoy the ones you paid for.  And the ones your friends paid for.  But the audio cassette did not put the music industry out of business.  For people still bought music.  In fact, some people may have bought even more as they could record the one song or two they liked onto a ‘mix’ tape.  Creating a ‘mix’ for each mood.  Hard rock.  Soft Rock.  And the more records you owned the more mix tapes you could create.

But since those days taxes and inflation have sucked away our disposable income.  And we’re not buying as much music as we once did (see Why It’s Hard to Charge for Music by Matthew Yglesias posted 12/13/2013 on Slate).

The problem here is one of supply and demand. It’s not that people won’t pay for Pandora because they don’t see any value in Pandora’s service. It’s that Pandora’s paid service has to compete with Pandora’s ad-supported service. Pandora could solve that problem by eliminating its ad-supported service, but it’s pretty clear that there’s a robust market for an ad-supported music-streaming service so then Pandora would need to compete with a new player. Personally, I really do enjoy an ad-free music streaming experience so I have a paid Rdio subscription which works on my computer, on my mobile phone, and on my home Sonos setup.

So good for me. But if I was a teenager with no money or ran into financial difficulty as an adult and needed to cut back, this would be an easy call to chop. Not because music isn’t valuable but because the margin of convenience offered by a paid service versus a free one just isn’t that big.

It’s the loss of disposable income that is hurting the music industry.  As well as paid subscription services.  In today’s world it is not uncommon for someone to pay for cable television AND a broadband Internet connection AND satellite radio in your car AND a mobile device contract with a monthly payment as large as a car payment.  People have never spent more money on entertainment.  And paying for live-streaming music on top of all this is just one paid subscription too many.  That’s why people aren’t paying for music if they can get it for free.  They love and value their music.  But they love and value so much other stuff as well that they don’t have any disposable income left to pay for music.  Thanks to higher taxes and inflation shrinking everyone’s take-home pay.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , ,