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.'”