‘The music industry would be insane to dump freemium’

The industry-wide debate around free streaming music services has been going on a while – but in the past few weeks it’s really bubbled to the surface.

Universal Music Group chief Lucian Grainge has made his stance very clear: the current ad-funded, on-demand streaming model is “not particularly sustainable in the long term”. Although Grainge says there is a role for free streaming products to capture consumers, he seems to be growing tired of ‘all you can eat’ on-demand services that don’t cost fans a penny.

Sony Music boss Doug Morris concurs. He just told Hits in the US that, “In general, free is death,” reserving particular ire for YouTube. Morris, like Grainge, is optimistic to see what Apple can achieve with their paid-only upcoming streaming service.

Warner Music CEO Stephen Cooper has been more reserved, but in obvious agreement. He told investors in December: “We continue to believe that the long-term sustainability of the freemium model is predicated on high levels of conversion from ad-supported free to paid subscription… [but] in order to achieve those levels, the benefits of paid subscriptions must be clearly differentiated from the ad-supported offerings.”

Perhaps emboldened by this sense of a change of strategy from the major labels, Ministry Of Sound CEO Lohan Presencer – who has always been strongly anti-freemium on-demand music services – recently lambasted Deezer and Rdio execs on the issue.

“Your business strategy is sucking creative investment out of the music industry,” he told them. No ambiguity there.

But not everyone is in full agreement with these perspectives. The ability of Spotify‘s on-demand free service to attract non-paying users of torrent sites back to a legal music platform is widely applauded.

And although ad-funded isn’t paying huge revenues (despite being 75% of Spotify’s active user base, ad-funded customers contribute just 10% of the company’s income) it is paying something, and increasingly so as the scale of streaming platforms increase.

The crux of the entire debate, of course, rests on one question: how many ad-funded users later become paying subscribers?

According to Spotify’s data, that number has remained around 25% for the past few years. (Which is why MBW queried in January whether the music industry could live with that percentage.)

Today, MBW asks some leading lights from the global independent music world what they make of the recent anti-freemium comments from the business’s biggest power brokers – and whether they’re generally in support of free, on-demand streaming or otherwise.

Martin Mills
Martin Mills, Co-Founder, Beggars Group

“Spotify has, to my mind, made a pretty irresistible case in favour of the freemium model at this stage in the market’s development.

“The use of free to transition fans from piracy to monetised has clearly been a success – very visibly so in markets particularly challenged by piracy. And the industry would be insane to throw that away right now.

“Beggars defends the value of music as much as or more than anyone – music does and should have great value, and we should welcome Apple’s commitment to a fully monetised model.

“But these two models are not in total opposition to each other. We live in a mixed consumption music economy, and will continue to do so.

“Freemium’s ability to transition fans from piracy to monetised has clearly been a success. The industry would be insane to throw that away.”

“Ad-supported can not support the whole industry, but it’s not being asked to do so. Services that are free to the consumer and paid to rights holders have existed since radio first started being licensed, and there’s a place for them in the modern world – but not at any cost.

“Whilst believing that music should be paid for, the industry should not veer from agreeing over-generous terms with services with a free-to-fan component, to exiling them altogether.

“There are different values for free in the market and it seems strange that a company like Spotify – which is delivering the most promising results – is the one getting castigated, rather than a service such as YouTube, which currently delivers the most music to the biggest audience for a fraction of the value.

“Certainly the [recorded music] market leader’s abrupt switch in policy is to be cautiously welcomed, but not at the expense of those mixed model services that have regenerated the consumption of music.”

Daniel Glass, Founder, Glassnote Records

“Streaming services at this time have become a significant player in the music fan and consumer experience.

“I believe we’Ve now reached the moment when artists should have the right to choose whether their music is on free, paid or both.”

“I believe that we’ve now reached the moment when Artists should have the right to choose whether their music is available on free, paid, or both tiers.

“I do think that free on Spotify has helped as an entry point and an education level for fans as they convert into happy, paid music consumers.”

Kenny Gates, CO-founder & CEO, [PIAS]

“Whilst it is undoubtedly true that the ‘freemium’ model is flawed we have to look at it in the context of the overall business before condemning it as a wholly bad thing.

“[PIAS] has seen a significant uplift in international streaming activity for the labels we represent in recent times and whilst the current streaming rates are a long way from ideal it is clearly a growing revenue stream.

“We do see real benefits from working with those streaming companies who want to engage collaboratively with us, who respect our rights and who add value to our work and the work of our labels and artists.

“We have, for example, always had a good relationship with Spotify whose ‘freemium’ model does lead to discovery of new music and does drive fan engagement. There are, however, other streaming companies who view the music we represent as merely a tool to be used for their own benefit; to drive investor profits and increase user numbers.

“Spotify respect our rights and add value: their freemium model does drive fan engagement…  I’m yet to be convinced that youtube respects the work of labels and artists.”

“For example, I remain to be convinced that YouTube really care about respecting the work of labels and artists or that they are truly committed to working with us in a way that works for anyone but them. They are by no means the only company that should place more emphasis on the value of music but they are the biggest and therefore more open to scrutiny.

“It is also important to consider the alternatives to ‘freemium’. Sure, in an ideal world we would have no free music, everyone would pay for consuming it and we would all be happy. If we’re honest though, it’s highly unlikely that we are going to migrate music fans back to that model. And that leaves us with piracy.

“We have seen a dramatic fall in the number of people stealing music as they move to ‘freemium’ services. Again, that’s not ideal but getting those consumers to engage legally is better than them stealing music – we just need to find a way of making that engagement work for everyone.

“We all want to get paid because we want to continue to invest in new music but this is a transitional period for the industry and we need to exercise caution before making rash decisions about something I don’t think we fully understand yet.”

Willard Ahdritz, CEO, Kobalt Music Group

“It’s very clear that a lot of music services need to get better at selling advertising. There is an art to showing your value, and I believe they will improve.

“We can choose to trust Daniel Ek or not trust him. He believes that Freemium is the entry door to premium service, and has shown us that 25% coming through that door upgrade to premium.

“MBW reported the stats from Norway: In 2009, 80% of the music market was illegal. Now it’s 4%. Similarly, in Sweden, we were home to The Pirate Bay and some of the world’s biggest torrent sites! Sadly, the culture of not paying had become the norm. But since Spotify began offering a real alternative, the transition to a healthy, legal marketplace has been remarkable.

“The music industry failed to capture legitimate digital music buyers the first time. We need freemium now to convert those people again.”

“The music industry failed to capture legitimate digital music buyers during the Napster era. They missed the boat. I believe we need to accept freemium now to convert those people again. Bring them in, teach them how it works, wow them with the service, show them the premium benefits and they will upgrade.

“How can we expect to convert someone who’s accustomed to obtaining music illegally straight to paying £10 a month? Maybe you could have captured them with a compelling legal service the first time around, or the second time. But now it’s too late. For example, now they can find everything they want for free on video streaming services.

“Without transparency, how do we know all this fuss over freemium isn’t just corporate games? Music is clearly important to the DSPs, they have as much stake in it as we do. If we get into a short-term battle over Middle Earth, fighting for today instead of tomorrow, no-one wins.

“As in all markets it will be a segmentation: people will use whatever music model they like – subscription, radio, streaming, high quality or downloads. I think whichever option the fans choose to enjoy legal music is great – but to kill freemium, I believe, would be a big mistake.”

Charles Caldas, CEO, Merlin

“From Merlin’s perspective, the emergence of streaming services that provide a genuine path from free to paid has been a positive, and increasingly lucrative addition to the market. For many of the labels we represent, streaming now represents their number one digital revenue stream.

“These services have also created a more direct and immediate way for our labels to connect with fans.

“Freed of the tightly controlled media channels of the past, music consumers are more than ever discovering and enjoying independent repertoire, and the financial results are tangible.

“We do not buy into the oversimplification that there is no place for free-to-the-user music in a healthy digital market.”

“We shouldn’t lose sight of these facts, or the role that services with “free” ad-supported entry points have played in bringing lifelong fans from piracy into the fold and in converting them into high-value paying subscribers. Merlin will continue to support those partners that respect the value of our music, and bring lasting value to our sector.

“We, along with the rest of the industry also have a vested interest in creating a diverse, competitive and fully-functioning digital music market. We of course want to see greater numbers of premium subscribers, and we welcome the entrance of new services into the market.

“However, it is imperative that those services benefit the entire industry, and music consumers, not just the self-interests of its largest players. We do not buy into the oversimplification that there is no place for free-to-the-user music in a healthy digital market, particularly when significant services are proving otherwise.

Martin Goldschmidt, CEO, Cooking Vinyl Group

“Lohan makes some great points.  Personally I support the freemium model so long as it is proven as a significant up-sell model for premium, and we have both eyes open about consumer consumption cannibalisation.

“It is a complex question!”Music Business Worldwide

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