Major Labels Realize that Free Music Is not Sustainable

The free model of music streaming, where listeners “compensate” record labels and artists through advertising, is increasingly coming under criticism. A Rolling Stone article explains how major labels have decided that “We need to limit free.”

As music streaming revenue has exceeded that of recorded music sales for the first time, record labels are realizing that giving away their content for free – even if it is compensated by ads – isn’t viable. Ad-supported streaming is a small part of the overall streaming income, at around $295 million, in 2014, compared to nearly $2 billion generated by streaming overall, but the vast majority of people still listen to music without subscriptions. For Spotify, some 20% of users have paid subscriptions, while 80% listen to free.

If you do the math, based on the above numbers, that suggests – just back-of-the-envelope calculations – that paid subscribers inject some 30 times as much revenue into the music economy, per person, than freeloaders. It’s obvious that this cannot last. Just as free content is killing newspapers and magazines, free music is draining income from the music industry.

As the Rolling Stone article points out:

“At least one of the three major labels is in the process of renegotiating its contract with Spotify this year, sources say, and most are pushing for this sort of change to the free service.”

Apple is rumored to be planning to only offer a subscription model for their music streaming service, likely to be launched this year, and based on Beats Music.

Rdio’s CEO, Anthony Bay, told Rolling Stone:

“The view is, ‘Piracy is bad, so legal “giving away for free” is better. But as you see more and more, a lot of managers, artists and executives are saying, ‘Maybe free was too good.'”

10 thoughts on “Major Labels Realize that Free Music Is not Sustainable

  1. Doesn’t that imply advertisers have paid radio stations far too much for far too long? Which, perhaps, means music itself is unsustainable?

    • It opens up lots of questions. This said, artists don’t get paid for radio play; only songwriters, so the rates are artificially low. And this is something artists are trying to get changed.

      It’s a very, very complex business, and comparing different distribution channels is fraught with complication.

  2. Doesn’t that imply advertisers have paid radio stations far too much for far too long? Which, perhaps, means music itself is unsustainable?

    • It opens up lots of questions. This said, artists don’t get paid for radio play; only songwriters, so the rates are artificially low. And this is something artists are trying to get changed.

      It’s a very, very complex business, and comparing different distribution channels is fraught with complication.

  3. A very simplistic view they’re taking. I use Spotify Free. I used to pay, but I can handle the occasional ad and I only use it in the desktop. Regardless, this free listening led me to purchase 180 different releases in 2014, a good 80% of which I previewed in full on Spotify first.

  4. A very simplistic view they’re taking. I use Spotify Free. I used to pay, but I can handle the occasional ad and I only use it in the desktop. Regardless, this free listening led me to purchase 180 different releases in 2014, a good 80% of which I previewed in full on Spotify first.

  5. I’m disappointed that Kirk is blaming the customers, which he calls “freeloaders”, for using a service whose entire structure and operating principles were decided unilaterally by corporations. How can you blame and insult the users for accepting the terms dictated by the content “owners”? “Draining income from the music industry”??? So all that money, rightfully owned, and already properly in the bank accounts of the industry, is being siphoned off by greedy listeners? I don’t think it works like that.

    The industry has long held the view that it is entitled to consumer dollars, regardless of consumer interest. This is completely backwards. The music industry, like every other, needs to figure out how to attract consumer interest and spending, by providing products that the public wants. If the industry’s last six ideas have failed to be sustainable, the blame falls on the industry, not the consumers.

    Part of what is draining the industry is the corporate side of the industry itself, which wants to pay as little as possible to the artists and creators, while maximizing profits for the non-creative side. It will be interesting to see if a new, sustainable business model comes about, which gives more to the music makers, who are creating the music that people want to listen to.

    • You’re right, of course. I don’t mean to say that listeners are really cheapskates; but they’ve been given that option, so, naturally, they choose the cheap method of listening to music.

      One of the biggest problems of the music industry is the CD. It inflated incomes of record companies, as they convinced us (in some ways, rightly so) to buy our albums again. If you remove this artificial, temporary increase in music sales, the figure isn’t as bleak.

      But the issue now is that free music is killing music, literally. I had a conversation with a friend who’s a classical performer on Facebook, and he was explaining how miserable the situation is. The stars – mostly pop music, of course – get the big bucks, but others get exploited. This said, I think part of the problem is that musicians and artists have simply allowed this to happen for too long, rather than fight back.

      But it’s a very, very complex issue.

  6. I’m disappointed that Kirk is blaming the customers, which he calls “freeloaders”, for using a service whose entire structure and operating principles were decided unilaterally by corporations. How can you blame and insult the users for accepting the terms dictated by the content “owners”? “Draining income from the music industry”??? So all that money, rightfully owned, and already properly in the bank accounts of the industry, is being siphoned off by greedy listeners? I don’t think it works like that.

    The industry has long held the view that it is entitled to consumer dollars, regardless of consumer interest. This is completely backwards. The music industry, like every other, needs to figure out how to attract consumer interest and spending, by providing products that the public wants. If the industry’s last six ideas have failed to be sustainable, the blame falls on the industry, not the consumers.

    Part of what is draining the industry is the corporate side of the industry itself, which wants to pay as little as possible to the artists and creators, while maximizing profits for the non-creative side. It will be interesting to see if a new, sustainable business model comes about, which gives more to the music makers, who are creating the music that people want to listen to.

    • You’re right, of course. I don’t mean to say that listeners are really cheapskates; but they’ve been given that option, so, naturally, they choose the cheap method of listening to music.

      One of the biggest problems of the music industry is the CD. It inflated incomes of record companies, as they convinced us (in some ways, rightly so) to buy our albums again. If you remove this artificial, temporary increase in music sales, the figure isn’t as bleak.

      But the issue now is that free music is killing music, literally. I had a conversation with a friend who’s a classical performer on Facebook, and he was explaining how miserable the situation is. The stars – mostly pop music, of course – get the big bucks, but others get exploited. This said, I think part of the problem is that musicians and artists have simply allowed this to happen for too long, rather than fight back.

      But it’s a very, very complex issue.

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