I don’t know enough about the music industry to know if this piece is true, but if it’s true, then it’s depressing.

In a normal tech business (like SaaS or Netflix), as you gain more subscribers, your profit margins increase exponentially because your fixed costs stay relatively stable. Once Netflix pays $20 million to produce an original movie, that cost is fixed. Whether 1 million or 100 million people watch it, the cost doesn’t change. The margin expands.

Streaming music operates in reverse. Because DSPs pay out roughly 70% of every dollar earned back to rightsholders (labels and publishers), their costs scale linearly with their user base. Every time a song is streamed, a fraction of a cent leaves the building.

Iovine put it bluntly: “The streaming services have a bad situation, there’s no margins, they’re not making any money.”

This model only works for Apple, Amazon, and Google, because they don’t need their music platforms to be wildly profitable. Amazon uses music as a loss-leader to keep you paying for Prime. Apple uses it to sell $1,000 iPhones.