We're currently in the midst of another "Snowpocalypse" here in Washington, DC, but we figured a blog post would give us a nice break from all that shoveling.
Today, reports emerged about Warner Music backing off of "free" music streaming. As digital entrepreneurs and rights holders continue to explore ways to get fully-licensed music to the masses via the internet and mobile, issues in licensing and revenue generation continue to bedevil players on all sides.
In Europe there are promising "freemium" services like Spotify and We7, which allow free access to audio, subsidized by audio and web-based advertising. Spotify, in particular, has pointed to successes in both reducing piracy in its native Sweden and winning "conversions" to its subscription-based service, which removes the ads and allows listeners to go mobile via apps for the iPhone and Google Android handsets.
Experiments with "free" in the US haven't fared as well, with sites like Spiralfrog (which allowed PC users to stream tunes subsidized by web ads) and MySpace Music either going belly up or struggling to generate revenue. It's clear that ad-supported services face considerable challenges, particularly where licensing costs remain prohibitive. But is this the full story? Take Spotify, for example. The service is such a hit in Europe that it has scaled back the number of users who have access to the free verison. Still, due to the favorable response from users, Spotify has made inroads in increasing paid subscribers. Part of the reason is because fans become so enamored with the free desktop version that they are willing to pay for on-the-go access. On the other hand, MySpace Music has seemingly failed to win the "hearts and ears" of fans. Some would say this is due to the product design — MySpace Music has been criticized for its clunky interface, while Spotify has gotten praise for its clean, intuitive (and some would say bare-bones) feature set.
But back to Warner Music. The company has the reputation of being among the most resistant of the major labels to embrace new models for digital distribution. So there's probably no reason to be surprised that they've cooled on the idea of freemium. According to Warner CEO Edgar Bronfman Jr, "Free services are clearly not net positive for the industry and as far as Warner Music is concerned will not be licensed. The get all your music you want for free, and then maybe with a few bells and whistles we can move you to a premium price strategy, is not the kind of approach to business that we will be supporting in the future."
Yet Bronfman clearly sees potential in the idea of paid subscription access, particularly as an alternative to the iTunes pricing model, which some major label chiefs have long viewed with suspicion and even outright contempt. "The number of potential subscribers dwarfs the number of people who are actually purchasing music on iTunes," Bronfman says. This may be true, but Apple, too, seems primed to get into the "cloud-based" access game with its recent purchase of streaming service Lala. (Click here for more juicy speculation about what that could mean.)
One big big question is whether Warner will be removing its catalog from existing freemium services or simply refusing to license to similar platforms going forward.
Another big "if" is whether Spotify — which is currently only available in Europe — will be able to bring its free, ad-supported service in the US. An American launch has been "imminent" for at least the last six months, but this could throw a new wrench into the works. Spotify founder Daniel Ek has been outspoken about his confidence in the Spotify model, a view that has been recently echoed by other major label execs. In January, Rob Wells, senior VP of Universal Music Group International claimed that "Spotify is a very sustainable financial model - full stop."
Other industry insiders seem to share this view. Jon Webster, CEO of UK's Music Managers' Forum says that services like Spotify are crucial to luring users away from illegal means of obtaining music. "Anything that's going backwards is denying where the world's going," Webster says. "New media has to give the consumer what they want and the consumer is in a world where they want things right here, right now — and if you don't give it to them, they'll steal it."
Here at FMC, we believe that "monetization" (an early contender for buzzword of the decade) must include equitable structures for artist compensation. Currently, even subscription streaming services don't pay huge dividends to artists at least not in league with what a songwriter or performer could make from physical media. On the other hand, the digital music space is still evolving, and there is a possibility that this compensation dynamic could change due to the so-called "economics of scale." Equally important is ensuring that artists — particularly independents — have access to these increasingly popular platforms. Still, it's obvious that a service will only take off if it has a fully stocked digital cupboard, and Warner Music owns a hefty chunk of music. It remains to be seen how or if withholding catalog from freemium services will impact the viability of these outlets.
What do you think about this development? How do you see it impacting artists, both big-name and developing? How do you access music legally? What do you think about freemium vs. subscription vs. download? Tell us in the comments.