These two major label bosses disagree over free Spotify… 5 years apart

The battleground of free streamed music threatens to become the biggest entertainment industry story of 2015.

The world’s two biggest record companies, Sony Music and Universal Music, are increasingly questioning how worthwhile the blanket licensing of free streaming services – including Spotify‘s ad-supported tier – are for their businesses.

Interestingly, the third biggest major label, Warner Music Group, has just reassured its investors that it’s fully behind Spotify’s free tier. That is, so long as the digital service comes good on what it claims – that by giving all of its music away for nothing, it maximises the potential audience willing to upgrade to a paid premium account.

But Warner told its shareholders something very different half a decade ago – when it had a zero tolerance view of free streamed music and laid down the law to Spotify et al.

All three major labels continue to license ad-supported free streaming music services including Spotify, Deezer and Rdio. But arguments against this ‘all you can eat’ licensing strategy are growing louder, especially following Taylor Swift’s decision to pull her catalogue from Spotify last year.

Swift’s team were apparently motivated to remove her music when Spotify refused to exclusively place her new album, 1989, on its paid-for tier.

An alternative streaming model, giving consumers a 30-day trial period of free access before freezing them out if they don’t upgrade to premium, is preferred by the likes of Apple‘s Beats and Napster/Rhapsody.

In December, Microsoft’s Xbox Music dumped its free tier and moved to a limited trial model – presumably due to licensing negotiations with the major labels.

Universal and Sony are apparently now mulling the the worth of licensing the blockbuster end of their catalogues to other a la carte free services.

Yet it appears Stephen Cooper, CEO, Warner Music Group, remains largely in favour of the model. Cooper (pictured, right) told WMG investors in mid-December:

“The primary reason we participate in the ad-supported tier is because it provides the means for consumers to discover the advantages of the premium offerings, and thus, leads them to become paying subscribers.There is also the fact that the ad-supported, ‘free-to-the-consumer’ tier – in conjunction with the attractive price-point of paid subscription services – makes streaming a great alternative to piracy.

“The primary reason we participate in the ad-supported streaming tier is because it provides the means for consumers to discover premium”
Stephen Cooper, Warner Music Group, December 2014

“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. We look forward to continuing to work closely with our partners to turbo-charge the adoption rate for subscription streaming.”

This is in stark contrast to statements made by Cooper’s predecessor, Edgar Bronfman Jr., just shy of five years previously. He told investors in no uncertain terms that Warner simply wouldn’t license free streaming services.

Indeed, he showed borderline-disgust towards those digital platforms that operated what he called a “get all the music you want for free then – with a few bells and whistles – move you to premium” strategy.

Bronfman (pictured, left), the former CEO & Chairman of Warner Music Group, is the man credited with signing the first ever major label licensing deal with Apple and Steve Jobs for iTunes.

He told Warner investors in February 2010:

“I think content will play a stronger role in the development of [streaming music] ecosystems than perhaps it did… in helping to build… Apple’s ecosystem over the past seven or eight years. We think a lot about what kind of scale is necessary at what pricing. And we see [any] opportunity to expand music consumption and music purchase – whether that’s by track, by album or simply by service – across a vastly greater number of consumers is net extremely positive for the industry.

“Free streaming services are clearly not a net positive for the music industry. as far as Warner’s concerned, they will not be licensed”
Edgar Bronfman Jr, Warner Music Group, February 2010

“That having been said, free streaming services are clearly not net positive for the industry – and as far as Warner Music’s concerned will not be licensed.

“This sort of ‘get all the music you want for free and then we maybe we can – with a few bells and whistles -move you to a premium price’ strategy is not the kind of approach to business that we will be supporting in the future.”

Will Bronfman’s zero tolerance stance on free streaming services win out this year? Or will Cooper’s cautiously optimistic slant remain the industry’s united viewpoint?

Whichever viewpoint is ultimately adopted by the wider business in 2015, it’s going to have a huge impact on how – and how much – labels, artists, songwriters and publishers get paid in the coming years.

Spotify announced in November that it now boasted 12.5 million premium paying customers. They make up 25% of its total worldwide audience of 50m registered users. Yet according to Spotify’s FY 2013 financial results, more than 90% of its income is derived from paying subscribers. 

For his part, Spotify founder Daniel Ek has been unequivocal in what he sees as the essential need for music rights-holders to back the service’s free tier. In a blog post response to Taylor Swift’s decision to pull her music, he said:

Why link free and paid? Because the hardest thing about selling a music subscription is that most of our competition comes from the tons of free music available just about everywhere. Today, people listen to music in a wide variety of ways, but by far the three most popular ways are radio, YouTube, and piracy – all free.

“Here’s the overwhelming, undeniable, inescapable bottom line: the vast majority of music listening is unpaid. If we want to drive people to pay for music, we have to compete with free to get their attention in the first place.”Music Business Worldwide

Related Posts