Why do the major labels want to kill free music streaming?

Hey Biz talkers!

The music industry is buzzing over recent reports that the major record labels (in particular Universal Music Group) are putting major pressure on music streaming services like Spotify to modify free streaming to the point of essentially eliminating it. This would mean that everyone using a music streaming service would have to sign up under a paid subscription offer.

Wow! What a major change of opinion by the major labels. Back in the dark ages of 2009, the labels embraced free streaming as a means of attracting users to the streaming music format, and as a means of making a paid subscription more attractive to the consumer. But now, the major labels feel that they are not making enough money from ad supported streaming combined with subscription services to sustain their growth. This is very odd. Especially, since the money has appeared to be enough for the majors for the last 6 years, and since streaming revenues accounted for 27% of total music industry revenues in 2014 as opposed to only 5% in 2009! Could there be a  greed monster growing in the hearts of the major labels? It sure seems like it.

Time will tell how this battle will play out. The good news for now is that Spotify is strongly resisting the pressure to move away from free streaming. It appears that Spotify has good reason for taking this position since its 2014 revenue was just over 1 billion dollars and the company has been recently valued at 8.4 billion dollars which is higher than the 2014 total music industry revenues of 6.97 billion dollars.

The head of communications for Spotify, Johnathan Prince said in March that 80% of its 15 million paying customers began using Spotify on a free listening tier. Mr. Prince went on to express that in view of this fact, it wouldn’t make sense to move away from free streaming offers especially since there are many other services that offer free streaming options.

I completely agree with Mr. Prince. I feel more inclined to buy a product after I give it a try to fully understand what I’m paying for. I compare it to taking a car for a test drive before buying. Also, I think consumers like to have options as opposed to being forced to pay “or else” no service. I think consumers will still pay for a subscription service based on its enhancements and value offered beyond the free tier.  This method has obviously worked for Spotify. I say if it isn’t broke, don’t fix it. Also, I am concerned that, if a service like Spotify only offered paid streaming, that the streaming industry will lose significant revenues as consumers will seek to stream for free from other services rather than feel like they are being fee gouged by paid subscriptions to satisfy the greed of the major record labels. This fight will rage on; but round 1 goes to Spotify on my scorecard. See you next time!

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