If you’re new to the streaming game, there are two ways you can access music on Rdio, Spotify, Deezer and all the rest of them. You can pay the full fare (usually $9.99 a month) for a version of the service that allows maximum control. Or you can opt for the free (or “freemium” version that doesn’t give you as many features and forces you to listen to commercials.
Artists and rights holders make money from both, although the rates for the paid service are substantially higher than for what they get out of freemium streams. However, the more people who sign up for the freemium tier, the bigger the revenue bucket and (theoretically) will eventually result in larger payouts. It’s just going to take time for that customer base to build up.
That base is getting larger. Music piracy is way down because streaming services are easier to use and more convenient than stealing. Hey, getting paid something is way better than piracy, which pays nothing. And if they do it right, the streaming services can convert freemium customers into paying subscribers.
Record labels hate the idea of the freemium services, saying that they want it to die. “Everyone should pay!” they say. That drumbeat is getting louder, too. From Billboard:
Free streaming is being portrayed, by some, as the end of the music business.
Start with the latest articles to feature anonymous quotes from label sources, yesterday (Mar. 22) in the Financial Times (“Streaming sets off a painful debate in the music industry”) and Friday (Mar. 20) at Rolling Stone (“‘We Need To Limit Free’: Major Labels Begin to Question Spotify Model”). A Billboard article earlier in the month had the same comments from industry sources; labels have changed their opinions on unlimited free streaming and have become more vocal about their desire for subscription services to turn free listeners into paying customers.
The timing of these articles’ publications isn’t a coincidence. The Financial Times‘ work seemed to suggest Spotify is currently in licensing negotiations and might not renew some contracts. “Now the record companies have weighed in, led by Vivendi’s Universal music label, arguing that the company’s free service is not sufficiently distinct from what customers pay for. They have real clout: their catalogue licenses are up for renegotiation and without permission to use them, Spotify has nothing to sell,” the article says.
That particular calendar comes to an end this summer, when Spotify’s deals with major labels are likely to expire in the United States. Spotify launched in the United States in July of 2011. Whether Spotify and the labels had two-year deals or four-year deals, the contracts would need to be renewed at that time.
Ah. Now it makes sense. Keep reading.