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Summary:

Warner Music Group president Edgar Bronfman articulated yesterday what we’ve known for awhile: Major record labels have lost confidence in the free streaming model for music consumption. But while WMG may not be ready to pull content from Spotify, it can stall its stateside growth.

Edgar Bronfman Jr.

Warner Music Group president Edgar Bronfman this week articulated what we’ve known for quite some time: that major record labels have lost confidence in the free streaming model for music consumption — and, by extension, the freemium model. A BBC story this morning, and other reports since that time, amplified Bronfman’s conference call statement to imply that WMG plans to pull its songs from existing streaming music services, naming several candidates.

Bronfman put it this way:

“[F]ree streaming services are clearly not net positive for the industry, and as far as Warner Music is concerned will not be licensed. So the ‘get all your music you want for free, and then maybe with a few bells and whistles we can move you to a premium price’ strategy is not the kind of approach to business that we will be supporting in the future.”

Based on the context of his original quote, Bronfman appears to be willing to experiment with paid subscription models, but is pained by free streaming services and their freemium counterparts. That said, I doubt that WMG plans to cripple existing services like Spotify or Pandora by yanking its songs – at least not in the short term. Spotify, for one, has already told its Twitter followers, “WMG is not pulling out of Spotify,” and that media outlets are overreacting. And while the BBC story and others name non-interactive streaming service Pandora in the same breath as on-demand ones, the spirit of the quote seems far more squarely aimed at the freemium model than at Internet radio providers. Pandora should be just fine.

But while WMG may not be ready to pull content from streaming sites just yet — particularly after withdrawing from YouTube for several months last year — it may be ready to stop some services from growing, especially in new markets. Bronfman’s quote didn’t name Spotify, whose entry into the U.S. has been anticipated (and delayed) for months, but it might as well have. Spotify’s free ad-supported version, which has created fanatical fans across the pond, now seems unlikely to appear in the U.S., which would mute a lot of buzz around the company. With the premium edition used by only about 3.6 percent of its installed base in Europe, there are still a lot of freeloaders for every paying customer — too many to produce satisfactory returns for content owners.

At least one record executive said recently that Spotify’s model is sustainable in some territories, but Bronfman’s quote sounds like a vote of no confidence that the same thing will happen in the States, from someone who can effectively stop a launch singlehandedly. The trouble is, while free streaming doesn’t work well enough to please record labels, it sure does work for consumers — and taking away what used to be free has never sat well with them. Back to the drawing board.

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  1. not only does this put a major damp in spotify’s spirits, but grooveshark’s continued rise from obscurity could take a major blow.

    either way, as opposed to just explaining that they won’t work, i’d love to hear him suggest ideas that are promising. innovation palease!

  2. Frankly, I never quite got the streaming model from a business perspective. We need internet radio models that can promote business, and we tried to develop application models for promotion, but Apple got in the way. iTunes must be the end-all.

    I use Pandora to essentially listen to music I already own. An ad hasn’t been seen in I have no idea how long, and there are no audio ads. At least inserting new music as a “you may like this” would be useful and worth the cost of lost revenue.

    Two things I see is a return to programming and applications as marketing with the ability to download songs from the app. In both scenarios, I believe that mobile will be the primary sales mechanism in the 3-5 year span. Apple needs to open up — the labels can help here — and Android needs to get some better programming mechanisms so we can port our model over.

    Piracy isn’t going to be solved without some really good products, and aggregation apps like iTunes will only perpetuate the situation. If stuffing your face with audio calories is the goal, the labels lose.

  3. FYI, Pandora wouldn’t be affected either way, as it is classified as a “webcaster” and therefore is required to pay blanket license fee to songwriters and publishers (via ASCAP, BMI or SESAC) and SoundExhange (the digital performance right in the sound copyright; royalties go to label AND performing artist[s]).

    Meaning, PAndora NOT have to negotiate individual licenses for the music it “broadcasts” — the labels agreed to a blanket license for non-interactive digital transmissions like webcasting and satellite radio back in 1995. So WMG can’t just take its toys and go home.

    Definitely could spell trouble for true freemium services like Spotify, though, which did the right thing and negotiated all of its licenses from the beginning. This is different with Grooveshark, which seemed to pursue the “make available, license later,” approach.

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  8. Tristin | Download Music Tuesday, April 13, 2010

    Sounds like this was played out in the media just a tad…Spotify is apparently safe with WMG.

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