Spotify’s free music streaming tier was meant to be the first step in saving the music industry. Since 2009, the streaming service has offered a free tier that uses an ad-supported model to bring in revenue.
But now, The Verge reports that Apple is trying to kill off free music streaming for good. So what went wrong?
The music industry gambled on free music streaming
Free music streaming wasn’t always seen as the enemy. In fact, record labels saw it as the first step in selling people on the idea of paid music streaming. Back in 2009, when Spotify launched its free streaming service, the whole idea of keeping your internet collection on line, and logging on to listen to it, was a strange concept. But the fact that you could do it all for free was a nice sweetener.
Vinyl died. CD sales are dying, and even digital downloads are on the way out. The music industry needed to embrace the internet somehow, and streaming was its next big hope.
Record labels hoped that people listening to streaming services for free would work their way into a paid tier. That works for both the streaming services and record labels — they both get more money from paid tiers than free ones.
But the record labels seem to have changed their tune on streaming. They used to see it as good thing, because Spotify and Pandora paid royalties and licensing fees (from ad revenue) even when listeners were listening for free. But with digital downloads decreasing, and few people moving into paid subscribers, record labels appear to have concluded that all free streaming has done is teach consumers that music is free — and in the long run that threatens the basis of the music industry.
Universal Music Group CEO Lucian Grainge summed up the way the record labels think about music streaming in an interview at the Code/Media conference in February: “We want to accelerate paid subscription,” he said. “Ad-funded on-demand is not going to sustain the entire ecosystem of the creators as well as the investors.”
RCA Records President Tom Corson was also optimistic about free streaming, telling the New Yorker in 2014 that “the all-you-can-eat access model is starting to make sense to people. And we expect that free is going to roll into subscription and that is going to be a really huge part of our business.”
Music labels fell out of love with free streaming
But the record industry has turned against free streaming. It clearly feels that the great experiment of turning free users into paid ones isn’t happening, or at least, it isn’t happening fast enough. Now, Apple is offering to help the record labels end free streaming by paying them music licensing fees.
A Financial Times report in March said that record labels are trying to pressure streaming services like Spotify into modifying free streaming. Universal Music Group reportedly felt that free streaming was leading to a decline in music sales, and the lack of differentiation between Spotify’s free and paid services may be to blame. The man inside Universal Music Group who acted as one of free streaming’s biggest advocates, Rob Wells, left the company this year. That could be a sign of a disagreement inside Universal about how best to deal with the rise of music streaming.
Spotify, however, remains positive about free streaming, and doesn’t seem prepared to drop its free tier. Spotify’s head of communications, Jonathan Prince, told Quartz in March that 80% of its 15 million paying customers started out on a free tier. “The idea [that] you would talk about cutting off a free service that has a clear proven path to subscriptions, when you have all these other free services out there, it just doesn’t make any sense to us,” he said.
Make no mistake, record labels hate free music streaming. “I equate ‘free’ with the decline of the music business,” said Sony Music CEO Doug Morris told Hits Daily Double in March. “Why should anyone pay for anything if they can get it for free? In certain instances, it’s worth a discussion. But in general, free is death.”
Morris also laid the blame for the failure of free music streaming on YouTube, another site that lets people listen to music for free: “Free has been way overdone, and the biggest culprit is YouTube, with their links to free sites. This has to be curbed if we’re going to have a successful business.”
But later on in the same interview he praised the CEO of Spotify, saying “Daniel Ek from Spotify deserves a tremendous amount of credit for pushing the rock up the hill. Everybody’s trying to find the magic key to open that box. But no one’s done it yet.”
Even artists have spoken out on free music streaming. Singer Taylor Swift wrote an op-ed for the Wall Street Journal, saying that “piracy, file sharing and streaming have shrunk the numbers of paid album sales drastically.” Swift went one step further and pulled her music from Spotify, explaining in Time Magazine that it was because she felt the service’s free tier devalued her music.
The rhetoric around music streaming changed in 2015. It has gone from record labels politely hinting that free music was part of a roadmap towards a paid tier, through to record labels openly slamming free streaming. A source at an unnamed major music label told Rolling Stone in March that “we need to accelerate the growth of paying subscribers — that’s a slightly more positive way of saying we need to limit free.” They went on to suggest some ways that streaming sites could go about that: “You can make the subscription service more attractive, with high-resolution sound or exclusive albums, or you can make the free version worse, by limiting the amount of stuff you can listen to.”
Apple is seen as the industry’s saviour
So if record labels have turned against Spotify and Google, who can they trust to keep the money flowing in? It looks like Apple is being touted as the next big hope in music.
Apple acquired headphone manufacturer Beats in 2014 for $US3 billion. But that acquisition didn’t just include the Beats headphones — it also included the company’s Beats Music streaming site, as well as its star cast of music industry players. Beats was co-founded by respected music industry executive Jimmy Iovine and rapper Dr. Dre. It also boasted a well-known chief creative office in Nine Inch Nails frontman Trent Reznor. That all-star cast has been put to work inside Apple on developing its very own music streaming service.
Music industry sources told Business Insider in February that Apple has reached out to artists about curating their own channels for its streaming service, which is expected to be unveiled in June at the company’s WWDC event. This isn’t going to be a new piece of software, but a complete relaunch of iTunes to move away from paid downloads to a paid streaming service.
Record labels are publicly optimistic about Apple’s streaming site. Sony Music CEO Doug Morris said in his Hits Daily Double interview in March that “If there’s a subscription model that gives people what they want, it will work. I believe Jimmy Iovine will do well with Apple Beats.” He went on to say that “[Iovine] knows how to market things brilliantly. He’ll make it sexy enough to have a real chance. They have got 850 million credit cards and $US160 billion in the bank — that’s a good start.”
Universal Music Group CEO Lucian Grainge is also optimistic about Apple’s upcoming music streaming service: “I think Apple has been a fantastic partner to all of the content industries. They have been around for a long time. They have done phenomenally well with music. They ended up with a tremendous share of the pie,” he said in his Code/Media interview.