Ministry boss gives Deezer both barrels in ferocious freemium takedown

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You’ve never seen an industry panel quite like this one. Ministry Of Sound label boss Lohan Presencer has always been anti-freemium music services – and now Universal’s Lucian Grainge has come round to his way of thinking.

Perhaps it was Grainge’s change of heart that gave the whip-smart indie label exec the confidence to tell stunned Deezer and Rdio reps exactly what he thought of their free music tiers at Mobile World Congress in Barcelona.

Or perhaps he’s just been waiting for this opportunity for a long, long time.

As you can see below, the first ten minutes of the debate – which took place between Presencer, Rdio’s global head of biz dev Chris Burton and Deezer’s VP of Europe Gerrit Schumann – starts off placid enough, as the two digital execs gently discuss the move to mobile in the modern age.

But as soon as Presencer opens his mouth, things take a turn for the combative.

Kicking off, he comments that streaming is “a very insignificant part of [our] business … it represents less than 5% of our total income from digital music and less than 1% of the income for the [Ministry] Group as a whole”.

“You’re very nice guys and I’m sure you work very hard. But you espouse the rhetoric of supporting the music industry when the reality is that you work for companies funded by investors who want to see an exit.”

As such, Presencer feels that the amount of attention that streaming gets in the media is “astonishing”.

Then, he increasingly goes on the offence – ensuring at least one more streaming headline is created in style.

“My beef, continually for the last few years, has been with the freemium model,” he says. “I just can’t see how that is sustainable or supportable.

“The argument goes that by making a free ad-funded service available, you give the pirates an alternative. I just don’t buy it. What you do is you is take casual users of music from purchasers and turn them into… snackers.

“They don’t have to engage in premium. The reality of some of the bigger streaming services is that 75% of their user base is free. That has a horrific impact on the music industry and its ability to invest in talent going forward.”

Rdio and Deezer’s reps react by politely defending the freemium model.

Schumann says: “The music streaming market is going to exceed 15% of the [global recorded music industry] market this year at least. We’ve seen growth rates of over 50% and the music markets globally are growing again. I don’t think that’s coming from CD sales, and I don’t think it’s coming from downloads.”

This is where Presencer gets really irked. And his takedown of freemium from there in on – regardless of whether you agree with him or not – makes for scintillating viewing.

“You can massage your figures in any way you want. Universal, the biggest record company, saw its revenues fall by almost 7% last week.”

“These figures can be massaged in any way you want,” he observes. “Universal Music Group – the biggest record company in the world – saw its figures fall by almost 7% last week…. The reality is that streaming is not making up the gap [from download and CD sales falls].”

Presencer and Schumann then begin to debate why UMG’s numbers dropped; the Deezer exec claims that poorer new blockbuster releases can affect any label in any year and that “the music market is growing again for the first time in ten years”.

(That’s despite the fact that the following countries’ recorded music income was down, to varying degrees, in 2014: the US, the UK, France, Japan, Australia, Canada, Sweden, Norway.)

At around 16mins into the debate, which took place on March 2 but has just appeared on YouTube, Presencer challenges Schumann by asking: “How many of your users are free?”

The German exec replies: “It doesn’t matter… How many users are not engaged with [legal] music without any free service?”

“But what value is a consumer who’s engaging with music without paying [anything] to a record company who’s investing in the music?” says Presencer. “You just said the reason the record industry might be down is because of a lack of new releases!”

After Schumann and Burton argue that freemium is the only route to maximising the audience in your “funnel” – before you attempt to upsell them to premium later – Presencer kicks up a gear, turning to the digital execs for the remainder of the panel and challenging them face to face.

“It’s all very well telling us your user base is growing. You don’t see what it looks like on the other side, investing in talent.”

“It’s all very well you telling us how you’re growing your user bases and growing your businesses – you don’t see the numbers of what it looks like on the other side; to run a record company and to continue to invest in talent,” he says.

“Each artist that we sign that we need to take to market costs us approximately US $750,000. Obviously, a reasonable proportion of those won’t necessarily make it. In a major record company there’s even a greater proportion that won’t make it.

“We have seen such dramatic consolidation of the record industry – so much so there are now only three major labels – and there are only a handful of independent labels that are well enough resourced to be able to bring artists to market. The idea that the cream rises to the top has never been proven; we have not seen an artist break on a global level without the support of a well-funded record company behind them.

“We can talk about how consumers love the free service, how it acts as a funnel to draw people in, but the bottom line is that neither of your businesses can stand alone without raising external investment. You are constantly raising cash, which is turn you are handing over to the major record companies.

“I looked at the streaming charts in the UK: the Top 75 most-streamed records in the UK in the past four weeks , less than 2% of that content was delivered by independent record labels.

“We are seeing a homogenisation of content creation. And the bottom line is that not enough money is coming into the pockets of record companies.”

“We are seeing a homogenisation of content creation. We are seeing a reduction in choice. And the bottom line is that if not enough money is coming into the pockets of record companies – such that they can’t invest in talent – there will be a reduced amount of music delivered to the market and that will eventually [create] further decline.”

When Schumann eventually rises to Presencer’s goading over how many of Deezer’s users are free – a public figure of 10m to 16m total users – Presencer reels off some maths: “So if we add your 10m free users to Spotify’s 45m free users, to YouTube’s billion free users, to SoundCloud’s 150m free users…”

Presencer also dismisses the income currently arriving in Ministry’s coffers from ad-funded music as negligible.

And things get really testy when Schumann claims: “In the CD and download age we had 300m to 400m paying users, and the average RPU…”

An incredulous Ministry boss: “‘In the CD age we had 300m paying users?!’ Where do you get that number from!? There are billions of people who [have] consumed music through CD and download… iTunes alone has 500m customers!”

“Do you get 100m paying users as a result of 2bn free users?” continues Presencer. “Is that the conversion metric?

“You’re very nice guys and I’m sure you work very hard… [but] you espouse the rhetoric of supporting the music industry when the reality is that you work for companies who are funded by investors, who want to see an exit on that investment.

“So your objective is to grow your user base to tell a story that is such so that you can IPO or you can sell… You are not the ones investing in developing talent. You are not the ones signing artists. Our artists, our investment, our creative community is contracting daily as a result of the free services that are out there giving music away with the objective of an exit at the end of it.”

A clearly shell-shocked Schumann facetiously asks Presencer whether: “You, like most labels are a not-for-profit organisation?”

“I’m not saying there’s anything wrong with profit,” replies the Ministry man. “I’m saying that your business strategy is sucking creative investment out of the industry.”

“I’m not saying there’s anything wrong with profit. I’m saying that your business strategy is sucking creative investment out of the music industry.”

But Presencer doesn’t just come with problems.

His solution, which will doubtlessly be debated across the music industry in the coming days, is a combination of ‘pay as you go’ paid streaming and other micro-payment models – although he wonders if services following this structure are currently “struggling to get the licenses from the major content owners”.

He comments: “We need to switch off free, across the board… You will of course argue that if you switch off free you inflate piracy.

“We need to switch off free and come up with clever alternative payment mechanisms that allow people to snack, that allow them to pay as they go… nudging them when they’ve used up various levels of investment they’ve put in.

“The reality is that on-demand music is a consumption medium. And giving it away for free just kills the industry.

“Unfortunately I fear the horse has almost certainly bolted, none of this is going to change. YouTube is out there as the great big elephant in the room.

“But I’m not going to sit here as a creative business and tell you what you are doing to our [industry] is good, because it isn’t.”

Remember, things stay nice until about 11 minutes in. If you’re after the fiery stuff, skip to then.

Side note: we hear a Spotify exec was asked to appear on this panel, but corporate PR decided to rescind the invite.

Somebody needs to give the person who made that call a pay rise.

Music Business Worldwide

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  • Jon Riffioso Hockley

    A few points i picked up on

    So Rdio said “they started their free tier because their paid tier wasn’t working out”. Right so they created a problem and solved it by pushing it onto the artists and labels.

    Deezer said “their free tier isn’t free it’s generating revenue”. Well so do pirate sites with all their adverts so what makes them any different.

    Deezer said “well youtube have been giving away music for years so why point the finger at us.” With regards to music Youtube is used as promotion. Only some artists upload all their music for free and the rest of the music is only up there is because fans have uploaded it and no one has bothered to pull it down.

    Deezer effectively said “their business is still experiment and they are still trying to figure it out” So how long do rights holders have to suffer as we wait for Deezer to figure it out.

  • Matt Barrell

    Kudos to you, Lohan. Variety of price points! Boom! Theres the answer!

  • Nicholas James Concklin

    But it’s not free, you’re paying with your time in the face of advertisement. The catch is that once a user base is large enough you can actually target your advertising, allowing for more conversions and eventually increasing the value of that ad-space. And that increase of revenue should go to the collective whole, which should be on a %-based payout instead of a flat rate. But if the user base isn’t large enough, you’ll get black metal ads while listening to folk music like I experienced on Spotify 4 years ago.

  • bobo65

    The sense of entitlement these streaming guys have is staggering. They need to pay negotiated fees as they go or else go out of business. It’s called capitalism. Music creators owe them absolutely nothing.

  • Jay Cooper

    Jon – what makes the pirate sites that generate ad revenue any different? Seriously? This is an easy question. The percentage of ad revenue that pirate sites pay to rights holders = 0%. The percentage of revenue that Spotify pays to rights holders = 70%. There may be little difference between Pirate Bay and YouTube, but there is a world of difference between Pirate Bay and Spotify or Deezer or Rdio.