Two of the largest online music streaming services in the world have blinked and are now suggesting that freemium services may be flawed.
Non-interactive Pandora Radio had 76.5 million monthly listeners at the end of September. At the end of the third quarter, Pandora had 3.53 million Pandora One subscribers accounting for approximately 4.6% of total listeners. In a December 1st interview with the company CEO, Business Insider quotes Brian McAndrews as saying that the freemium model for on-demand services is unsustainable.
"Free-to-the-listener on-demand services are driving down music’s intrinsic value by creating a 'gray market'. By that I mean a market where listeners can perpetually access licensed, free, on-demand music. An ever-growing number of listeners are happily lingering in music’s gray market, enjoying full access to all music without paying for the privilege and with little incentive or intention to convert to a full-paying subscription.
Continuing: "Defenders of free on-demand music will surely counter by reminding us every song they play is paid for with royalties. I also expect some will argue that free on-demand is an essential on-ramp to a sustainable subscription business. And both of these statements may well be true. But I would argue that an on-demand on-ramp is one thing; a permanent, free on-demand highway is another. The first is good for the long-term health of the music industry. The second is not.
"This gray market is unsustainable," McAndrews says, clearly pointing a finger at competitor Spotify. "If consumers can legally listen to free on-demand music permanently without converting to paying models, the value of music will continue to spiral downward to the benefit of no one."
But Pandora itself is under pressure to stem a rising tide of red ink and the fastest route to financial sustainability is to create a more robust revenue stream from paid subscriptions. It's freemium model is buckling under the weight of investor wrath.
Spotify, meantime, has been under attack with a growing number of acts demanding that their music revenues are being sabotaged by the popular music firm's freemium model. Taylor Swift disallowed the service from cataloguing her 1989 album, the administrators of the Beatles catalogue continue to be circumspect about music streaming services while catalogue sales continue to be healthy, and acts such as Adele and Coldplay have started windowing new albums by making it available for sale before allowing services with freemium offerings the rights to stream.
The growing condemnation of freemium royalty payments or lack thereof by artists, and the movement to block access to superstar new releases by artists and their management arms has Spotify reconsidering its previously unyielding approach to freemium-or-the-highway to recording acts.
According to the New York Times, negotiations between representatives for Coldplay and Spotify have shown a new willingness to make exceptions to the rule that its freemium and fee-based users have equal access to new album releases.
The NY paper states that "during negotiations, Spotify was willing to restrict access for [Coldplay’s] new album, A Head Full of Dreams, to the service’s paid version and keep it off its free tier for a limited time. That strategy, sometimes called windowing, is something that record labels have long been lobbying for... Ultimately, Coldplay and its record label, Warner Music, decided not to split the album’s availability on Spotify" and instead allowed it on other fee-based services more willing to play ball, and withheld it from Spotify for a full week before allowing the service's two-tiered users to stream the album.