Spotify and music labels clash over free streaming

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The music industry has certainly suffered somewhat in today’s digital age. Popular streaming services such as Spotify, Rdio and Pandora have propped up a declining market with the support of the music labels, but those labels are now becoming nervous about their revenue streams.

Music labels unhappy with Spotify “Freemium” model

Universal Music, the largest music label, has started to question the so-called “freemium” (i.e. ad-funded) model that has brought in over a billion dollars in revenue from US streaming last year. The Financial Times says that Universal is in current contract negotiations with Spotify and is pressuring the service to put harsher limits on its free service.

The row comes after Taylor Swift, one of the world’s best-selling pop singers, removed her albums from Spotify, arguing that its free service was undervaluing her music.

The record label hopes the move would convert more free users to paid subscriptions at $10 per month. Company CEO Lucian Grainge has publicly voiced his concerns with the freemium model last month when he said “ad-funded on-demand is not going to sustain the entire ecosystem of the creators as well as the investors”.

Apparently, the other labels are also coming to the same conclusion, that the ad-supported free music services need to be tweaked. Sources tell Rolling Stone that most labels want additional limits on the free music streaming, with one reportedly saying that paid free subscriptions need to be more clearly differentiated.

Spotify Apps

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The labels might want to limit the amount of music users can listen to without paying, or perhaps limit all free streaming to radio stations instead of on-demand music. Both Spotify and Rdio allow unlimited free on-demand streaming on computers but limited mobile streaming to a kind of shuffled, radio-like service. Paid subscribers get full mobile streaming, offline access, higher quality and no adverts.

Music labels have been supportive of free streaming in the past, as they saw it as a way to attract new customers. As streaming grows and the cash flows away from digital downloads (and physical media such as CDs), the labels are becoming less comfortable.

Spotify says a substantial free service is the only way to get new paid subscribers and says that streaming isn’t affecting proven revenues such as iTunes. They claim that “Spotify is monetising people who have never been monetised before”.

It remains to be seen what happens between music streaming services and the record companies, and whether the existing model survives in its current format.

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