Free streaming contributes a pittance to the overall music industry. So why not just kill it?
Right now, the music industry is losing its war against YouTube. But maybe that’s because they haven’t yet deployed the nuclear option.
That is, turning the lights off entirely on free music streaming.
According to separate sources at major music content groups, a free streaming shutdown is now on the roadmap. More specifically, the plan would involve a concerted effort by the ‘big three’ major labels to terminate free access on both YouTube and Spotify.
The terminations would occur after an agreed-upon threshold of paying streaming subscribers is reached. In just 2-3 years, that threshold could materialize.
In order to enforce the transition mandate, the labels will threaten pullback on critical music licenses. That is proving a highly-effective tactic, and one used successfully against Spotify several months ago to implement ‘windowing’ for high-profile releases.
Accordingly, terminating free isn’t a new thought — just as windowing was simmering for years. In fact, a second source said ‘shutting it down’ has been actively under discussion for years. But tricky politics between artists, YouTube, Spotify, and internal debate made that impossible.
On top of all of that, a faction within the industry has strongly felt that free streaming has marginalized piracy, and that this ‘starvation process’ should continue.
But not indefinitely.
Fast-forward to 2017, and piracy is waning. One industry source says it’s become ‘like speeding’ for many rights owners. “It’s always going to be there,” the source relayed, while noting it’s “no longer the focus” for many major label execs.
All of which is shifting the momentum towards streaming stage two, which involves a ‘hard transition’ away from free tiers. And the logic behind the move is this: more and more people are paying for premium streaming accounts. At a certain point, those subscribers will be contributing enough money to keep the industry healthy.
So why not shut down the ‘bad customers’ and make them pay?
Actually, this plan isn’t such a secret. Back in February of 2016, Sony Entertainment CEO Michael Lynton etched out the broader agenda. “I think [free access] stops probably when you get over a — I don’t want to say the number, but… many, many-fold bigger than what we have in the current paying subscription world,” Lynton told Re/Code.
That was back when Spotify had 25 million paying subscribers. And for the record, Lynton also pointed to premium windowing as well. Several months ago, major labels started inking deals with Spotify that called for ‘gated access’ to content from popular artists like Taylor Swift. Just like clockwork.
“They’re going to window,” Lynton relayed. “So you’re going to first hear the music in a subscription service, and then later in a free service, rather than the other way around.”
Bye-bye ‘freemium funnel’
And what about the ‘freemium funnel’? Historically, Spotify CEO Daniel Ek has reportedly been adamant about protecting the existence of freemium. Basically, the ‘funnel’ theory states that paid subscribers typically start as free users. According to Spotify, it’s a critical stair-step towards getting people to pay. And there’s plenty of data to suggest that this is true.
Then again, Ek was also strongly opposed to windowing (at least according to our sources). Ultimately, he was forced to concede against heavy label pressure.
And major labels seem to be deciding when — not if — they should pull this trigger.
So what’s the magic number? At present, the industry counts more than 100 million paying subscribers worldwide. But what if Spotify itself had 100 million? That’s just one ‘sweet spot’ that was tossed around.
Currently, Spotify has 50 million paying subscribers, a number that could theoretically double by 2019. At that stage, a massive percentage of music fans are paying. And it would offer ample justification to ‘build the wall’ a-la Apple Music.
The YouTube problem.
Actually, ‘shutting down YouTube Music’ is easier than we thought. On Google Search, links to torrent hubs and MP3 download sites are difficult to scrub, simply because of DMCA abuse. Google removes a link, and it returns the next day. It’s a longtime loophole that Google protects with its life.
But on YouTube, a sophisticated ContentID infrastructure can both identify and remove content on the spot. And according to the tech CEOs we’ve spoken with, part of the secret is simply knowing how to properly use ContentID (hint: the majors haven’t really learned that part yet).
All of which opens the distinct possibility that YouTube will soon be forced to transition towards paid. Or, pay a lot more for the content they’re using.
Piracy concerns.
But won’t shutting down free simply revive piracy?
According to our sources, that’s a serious consideration. But it’s a counterargument getting overruled, especially since the industry will have more money to shut down pirates. Still, it remains uncertain whether a ‘hard stick’ enforcement regime can actually work. Just recently, a study concluded that major label anti-piracy efforts have had little effect on broader piracy levels. Instead, the ‘fix’ came from ad-supported streaming.
Enter the Nordic countries, which continue to offer an alternative glimpse at this future. According to a study just released, nearly half of the populations of both Sweden and Norway are paying for streaming music. Even more astounding is that more than 60% of them are using YouTube — concurrently.
All of which suggests that a free tier can coexist with profitable, robust paid subscription levels. Maybe there’s room between the extremes?
Ads and subscriptions, even at $19.99, WILL NOT MAKE music industry!
Time to excuse Sir Lucian and his UMG from the table and STOP ongoing MUSIC SUICIDE.
Subs and ads will culminate as $25B COMPOST of $300B of music goodwill.
The solar eclipse has damaged your head, son.
Why not?
Isn’t that similar to the average music consumer buying 1 CD per month?
Of course, it depends how that money flows and is apportioned.
What matters is that artists who are truly talented no longer have the incentive to create music because the money they receive for the music they create is nothing. From the viewpoint of the consumer, buying a cd and spending money for a month of Spotify may be comparable, but where that money is going is very important for keeping good music alive and providing an environment for artists to thrive
If I have to hear ads with a subscription I will cancel everything I buy subscription so I dont have to listen to ads. I get it they need to make money but everytime I go out and buy a new tv or phone or purchasses a concert ticket I am supporting that company so I dont need to be told about their product every 3 minutes out of 30 minutes its annouing and makes me not want to buy anything.
And oh yes, PRAISE BE TO SPOTIFY.
I love spofity, I uses to be a huge supporter of pandora from the beginning and still have an account but dont use it much because of the format sometimes I just want to listen to an album I can do that on Spoitfy I cant on Pandora and for that reason I have both
I agree that streaming services shouldn’t offer free music to non-paying members, but there has to be alternatives.
Fans, at least true fans, are more than happy to pay for music from their favourite band or artists. What they don’t like is to pay a third party “corporate company” 9.99 a month to listen to their favourite band’s music.
If there is no alternative to paying, then music listeners will find it free anyway.
The least that the fan should pay is their personal data (e.g. email address) to listen.
That’s part of what we do at We give the artist a platform to stream their own music, but before they can listen, they have to register. Not much to ask is it?
Disclosure: For the sake of transparency I am CEO for GigRev
Freemium needs to go. Netflix doesn’t have a free tier – and you can’t find Netflix made/owned shows on YouTube for free.
Good point.
Once again, we need to understand why the video industry is managing to thrive in this Internet age while musicians are suffering and struggling.
It’s an important comparison. One major difference is that people were file-sharing MP3s for 4+ years before the ‘iTunes Music Store’ went live. And even then, the IFPI was estimating that 90-95% of music downloads were free. Apple wasn’t dumb, they knew what a 160GB device was for. I’d argue that only until the past few years has streaming (free, paid, video, audio) been able to curb that appetite.
Step over to film and TV, and there are also major piracy channels. Look no further than torrenting, free streaming sites, etc. But the files are bigger, and the platforms aren’t has big. Plus there’s considerable policing from both Hollywood and TV.
But perhaps most importantly, there wasn’t a 10+ years of largely unabated swapping while the industry tried to figure out a workable response model.
“Plus there’s considerable policing from both Hollywood and TV.”
I suspect that’s the key. Also: video from iTunes store, Amazon, etc. has DRM; why did they do away with DRM for music but not for video?
Netflix and Hulu are both great for the price and I dont mind paying for no ads and being abke to binge watch showes there just is not enough time in a day to record or stream and than have if you can fast forward through 20 minutes of comerical to watch 2 minutes of show regular tv is all ads that we already pay for, dont mess with Netflix and Hulu they work just fine.
Emerging artists need fee to help develop fan bases. Established artists def fall into the paid sub category
FAN BASE is a total BULL CRAP! Very few folks will become Madonas or Cold Plays so building a fan base to win a music lottery is hopeless or outright stupid!
It is overdue to make music a merchandise again. Discovery Moment Monetization will allow single tune from unknown artist to rake $10M in first week after global release.
Time to convert 100,000 Radio stations, 5,000,000 public places and 4 STUPID Ek style streamers to simple discovery based music stores! Play the best, regardless, Radio, bar or Spotify and charge 49 cents for addition to the playlist.
No, emerging artists don’t need free. That’s a “race to the bottom” that undercuts everyone, including themselves. What’s next? Pay people to listen to your music? Oh wait people even do that…
well, i’ve been missing grooveshark. fortunately there will be 10 of those if the free legal option no longer exist. these streaming sites will pay the artists a good round number of dollars.
there are good reasons why the movie industry has a huge problem with piracy and free streaming atm, while the music industry doesn’t .
In fact, there is still illegal downloading out there not only with torrenting, but also with Soulseek still going with old Napster style file sharing.
Wait, the music industry has no problem with piracy??? I think we have a massive problem with that, and the devaluation of music by music streaming services is a result of it as well.
Great article?
Right now, free streaming is diverting energy away from piracy. But the government needs to strongly enforce copyright law, otherwise a forced transition away from free will move energy back to piracy.
Exactly. Why are intellectual property rights not being enforced?
Considering that (from a US perspective) intellectual property is one of our only last great exports, it seems madness to allow it to be pirated.
Fairly obviously, this move is courtesy the Pirate Bay’s marketing department.
Music Industry brought this on themselves, they we quick to ditch physical formats tape, cd, vinyl in an attempt to squeeze even more profit and it back fired! I still buy physical format cd and vinyl and always will.
What? I thought music industry was criticized for being too slow to make the move to legitimate “digital” (i.e. virtual/online) formats, whether downloads or streaming, and that slowness was often used as the all-too-convenient rationalization for piracy
I agree and I too still buy cds,dvds,believe it or not VHS tapes not music tapes anymore however I am thinking about reel to reel for musuc because that in my opinion was the best sounding for some of the earlier artists back in the day. So weather it free, paid, or free with ads people who are going to buy are still going to buy all streaming did was make it convenient to access within seconds.
There are tons of great classic recordings that aren’t available legally nowadays as lots of times this happens: A small label that deals with reissues licenses or a major label for that matter issues a compilation of a classic artist or an obscure artist or a long out of print album, it gets on the market and only staying in print for a few years, and once the license expires and the reissue label didn’t make enough money on that title, they go out of print and sell for nearly a whole paycheck on Amazon, eBay, Discogs, etc. Many of these out of print recordings do not even get put up on iTunes, etc. as downloads. If a recording is from 1962 on back and no matter if they remain in print legitimately or were at one time among the sought after collectibles, the recordings end up getting issued by European reissue labels as public domain with only publishing royalties being required to be paid but these are very minuscule amounts and do not amount to much in royalties. There are many albums that are available on used vinyl but have never been on CD, yet they are available for download on iTunes, Amazon, etc. Special editions of an album where the physical media can only be purchased if you buy a $200 boxed set devoted to the album with vinyl, CD, expansive booklets and other memorabilia, and others where they physical CD is only available in a complete albums collection boxed set with mini-LP sleeve reproductions, etc. and only available standalone as a download.
I doubt removing free streaming will actually bring more money to musicians. It’s just going to be that much more money being pocketed by everyone BUT the musicians.
The problem with free streaming on YouTube and Spotify today is that it gives away the farm, based on the fear that all the music would otherwise be pirated. I’d be ok with a free service as long as it’s either time limited (i.e. what Apple Music is doing), or content limited, in that you can’t listen anything on it that’s less than a year old, with the exception of content that’s made available on a promotional basis.
The thing is, the fear of piracy is an irrational fear, not because it won’t happen (because of course it will), but because it DOESN’T MATTER if it happens. I truly believe that the music industry will make more money without the existence of Spotify and YouTube’s free tiers than it would with those services, irrespective of any increase in piracy.
Look at Netflix. They don’t have a free tier. All the movies and exclusive content on Netflix are all readily available on torrent sites, and anyone with a cheap VPN service can pirate them without consequence. How is Netflix doing these days? Pretty damn good, last I heard. So why can’t we do the same?
If you make paid only content available, enough people will pay for it to make it worthwhile. We need to stop being afraid of piracy that comes with making content paid only.
Would be justifiable if the artists saw a substantial increase in revenue from this, but whether that will be the case……………..? (I somehow doubt it :() ………………….Call me cynical, but looking at the track record of streaming providers, it’s probably just another money grab………….I hope I’m wrong TBH.