The Key To Making Free Music Services Work
In a previous post I explained how free music services such as Spotify were making premium rental services such as Rhapsody and Napster increasingly irrelevant. Why pay $9.99 for unlimited on demand streaming music when you can get it for free? It seems that Warner Music
This article originally appeared in Music Industry Blog.
“The original Napster started the free-music race, but if the industry doesn’t enable the likes of Spotify to pick up the baton and run with it, BitTorrent et al will continue to do so regardless.”
glad to see at least the implicit understanding that “piracy” is nothing more than market intelligence: i.o.w. the behavior of current and potential customers demonstrating what they are looking for in a marketplace to existing product and service vendors.
you might want to look beyond the “napster started this” meme and look closely at the economics of digital distribution and promotion and how an innovative company and/or personality can embrace new models to exploit the leverage “free” provides to a greater business model.
The model of a free music service is an oxymoron because record labels like WMG want to receive a premium for their intellectual property. I don’t think we can even have this discussion until we discuss the record label current position as they are the ones who hold the keys to whether or not a free music service can work.
I believe a bigger revolution is in the works where artists who are signed to relunctant labels like WMG are going to find themselves at a bigger disadvantage than an artist who is signed to a label that promotes “free music” distribution.
There is also a big factor here missing from the argument – terrestrial radio. Right now, radio stations in the US can play recordings at a lower expense than online streaming services and they have worked with “hyperlocal” advertisers and “social networking” before the Internet came into fruition. If the Performing Rights Bill does not pass in Congress, terrestrial radio will have a strong advantage over online streaming music in the USA.
“And there is a very real threat that these services are educating mass- market consumers that music online is free.” This is a serious threat to the industry. Though labels may profit from selling the licenses to ad-supported services like Spotify, the end result is consumers getting music for free, devaluing all music recordings in the eyes of consumers . The industry needs to find a way to make music valuable again. Fans are looking for more than just a recording.
Google’s online audio ad sales product will help in this area, bringing new advertisers and new display ad budgets into the online music space through an audio display ad unit. The more revenue that can be generated from the free streaming portion of these services through ad sales, the lower the premium conversion rates need to be in order to achieve profitability.
One possibility is for music to be accompanied by creative video mash ups. This would be randomly edited video material in synch to the music but with advertising creatively embedded into it. That way people would “watch advertising” that was interesting as they listened to the music.
It also generated some revenue…
The music industry just has no direction right now. They have used the current business model for so long and now it just is not working anymore. I think it happened during that whole time they were fighting free downloading. They focused so much on that at the time that they failed to realize that free downloading was changing the youths view of music. Instead they should have figured out a way to use something that worked with napster. The day napster started charging for its music it just lost relevance for so many people. So the court ruling did nothing. I don’t even hear people talk about napster anymore like they did back before the ruling. Now it is limewire. So many just moved to something else instead. It is just to hard to get people to pay after they didn’t for so long. It seems to me it is happening like the analogy a film made between free downloading and the rise of printing several centuries ago. Once a better form of information exchange begins it is almost impossible to stop it. The music industry is so in trouble now and if they even get out of this, it will take a very long time to do it.
I’m sorry, but I stopped reading at, “Free and subsidized services are quite simply part of the future.”
To say this as a foregone conclusion is short sighted and naive. The future will be whatever turns a profit. Because if no one’s making any money there won’t be any media to stream on those free services.
So IF we can find a way to monetize this it will no doubt be a part of the future. Otherwise free services will have no content and so will dry up and disappear.
The “Big” recording companies are reaping what they sow. These giants have been stealing from the musicians their entire existence. The cash cow has left the building! May they all crumble in flames of greed. I have sympathy for the artists, not the millionaires at the helm of these soul snatching machines. Musicians have come to embrace free music and are enjoying the ride without a label. Keep stealing World! Its what separates us from frogs!
Keep in mind that the largest category of music service today is — by far — ad-supported radio, which generates ~$39bn in revs globally, about TWICE that thrown off by recorded music.
On-demand streaming at today’s royalty rates ($.005/stream at the low end) requires direct consumer payment to be sustainable. As Pandora has shown, an internet radio service taking the compulsory license can, despite rates that are still really expensive ($.001/stream), achieve profitability.
Fundamentally — and as Jobs has noted in the past — music is different from video content in that its utility continues over time; as such, it lends itself to an ownership model. Cable TV works just fine as a subscription b/c you don’t have much need to “save” the programming.
While I think music acquired illegally (P2P, iPod-swapping, CD-burning) will likely always remain the largest component of the market, and internet radio may well take over from iTMS and other a la carte download services to become the second-largest category over time, an on-demand subscription could gain some traction if it also incorporates downloads at a reasonable price/track, i.e. either eMusic incorporates something like Rhapsody, or vice-versa.
I think the real key to getting subscriptions services like Spotify to be more attractive to the average person is offering more of an incentive, a few adverts every now and then is nothing. If there was a genuine incentive to paying £9.99 a month then people would be much more attracted to doing so, of course what this incentive could be depends on the person, as everyone will place a varied value on the music.
Wayne Rosso discusses some more theories in this interesting article from The Music Void http://bit.ly/bvOmFa