The debate over streaming music for free

By: Ted Kritsonis

May 21, 2015


It’sspotify_02 hard to find any average consumer who doesn’t like streaming music for free. As consumption continues to shift from downloading music a la carte to streaming it buffet-style, does offering any music for free portend a dystopian future for artists and the recording industry?

Mega-wealthy rapper Jay-Z certainly thinks so, acquiring streaming service Tidal, and refusing to offer anything for free outside of a 30-day trial. Despite a contrived press conference that was supposed to promote the concept of fairer compensation for artists, the increasing popularity of streaming music services has shed light on the economic disparity that pervades it.

Jay-Z’s power play and Apple’s anticipated entry into streaming music (likely with Beats branding) has put a spotlight on the notion of offering people the option to stream music for free. Generally, streaming services offer a trial period but not a free tier. Popular ones like Spotify and Pandora (which is not available in Canada) continue to offer free tiers that anyone can tap into. These free tiers are ad-supported, and pay less per stream than those from subscribers who pay $5-$10/month.

Spotify says it pays out an average $0.006 and $0.0084 per stream to rights holders, though it’s “considerably higher” when the revenue comes from paid subscribers. Of the 60 million users Spotify claims to have, it says only a quarter of them are subscribers. For Pandora, there were as many as 81.5 million active listeners recorded in 2014, yet only 3.6 million of those paid a monthly fee for its Pandora One service.

These numbers don’t make the record labels very happy, despite the fact the lion’s share of revenue goes to them. They generally own the rights to the music, while the artists, songwriters and producers get a smaller piece of the pie. The trickling revenue stream (no pun intended) prompted pop star Taylor Swift to take action and remove her music catalog from Spotify in a highly-publicized row with the company last year.

The underlying argument wasn’t so much about what the payout per stream was, it was the fact the entire Spotify library is free to stream, albeit with ads interrupting playback here and there. Pandora uses a similar approach. Should they be doing that though, or is the better option to offer a free trial and incentivize consumers to sign up that way?

On the face of it, the fact revenue is higher when people actually pay for music shouldn’t come as a surprise. But the counterargument to that is that if no music is offered for free, an illegal download is the next best option for the consumer who refuses to pay. Streaming is compelling because there is no downloading. A library of 25-30 million tracks are readily available to play at a moment’s notice. Subscribers can even cache music to playback offline.

The audio quality of the stream is also better for subscribers, another major point behind Tidal’s service, even before Jay-Z took over. And yet, the ones who don’t pay outnumber the ones who do by a significant margin. Competing streaming services, like Rdio, Deezer, Xbox Music, have varying numbers of subscribers, though Rdio doesn’t disclose how many pay for its premium services.

The labels and artists are unhappy about offering any music for free for a sustained period of time. It’s the reason why Spotify has been especially singled out, whereas other competitors aren’t mentioned, probably because the music stays behind a paywall. Apple has reportedly lobbied the labels to not renew licensing agreements with competitors who offer free streaming, helping it lure users over to its anticipated service expected to launch this year.

It begs the question of whether they have a reasonable point. If an artist has created something that has market value, shouldn’t consumers have to pay to access it? It’s interesting because the monthly fee for these streaming services is nothing more than a rental. There is no actual ownership involved, like there is with music downloads via the iTunes Store and other services. It’s the difference between paying $10 per month to access millions of tracks every month, and paying $10 to download an album of 10-15 songs. Naturally, a label and an artist would make far more cumulatively in the latter instance.

Jay-Z’s grandstanding didn’t articulate this point very well, and it never fully addressed the fact that the biggest creditor artists face are the labels themselves. They ultimately own the music and negotiate the deals that give services like Spotify the rights to stream artists’ content in the first place. Traditionally, artists never really made much money from album sales anyway, as it was live concerts, merchandise and endorsements that generated real revenue for them. It’s partly why solo artists and bands still tour today — the royalties alone aren’t enough.

So, the issue of streaming music for free is worthy of debate, but for anyone on the outside looking in, it seems to be only a part of what is an antiquated business. Independent artists can negotiate with Spotify and other services through intermediaries, whereas those signed to record labels are part of an extensive library worth hundreds of millions of dollars in streaming revenue every year.

Everyone involved wants that pie to get bigger, and the argument that it won’t happen so long as the music is available for free is a complicated one that looks to get a lot more interesting.


Leave a Reply

Your email address will not be published. Required fields are marked *