The Labels Hate The Free Streaming Tier, But That’s Not The Problem

From various reports, the major record labels would like to eliminate the free tiers of on-demand streaming services like Spotify, a feeling that’s for once united with their artists as well. According to a post on Rolling Stone, the labels want faster revenue growth and feel that unless some adjustments are made to the freemium model, streaming revenue will never offset the death spiral of the CD and download.

Here’s the problem with eliminating or crippling the free tier though; the genie’s out of the bottle, the horse has left the barn and the ship has already sailed. A whole generation (the very generation that consumes the most music) already feels that music should be free, and they’re going to find a way to get it for free whether the major labels and artists like it or not.

Consider the fact that the computer networks of some of the most powerful corporations  in the world are hacked on a daily basis, and that our own government can’t seem to eliminate the formidable social media presence of ISIS, and you see the problem at hand. Streaming has made music piracy a footnote, but there are lots of clever hackers out there that can bring it back again with a roar if those free tiers are either done away with or severely restricted.

Yes, everyone would like the paid tiers of the various streaming networks to increase subscriptions more rapidly, but that part of the business is growing at a pretty good pace already, having increased 26% in the U.S. last year according to the RIAA.

The fact is, the biggest impediment to streaming revenue growth is because of the price barrier of the paid tier, which hovers around $10 per month or $120 per year for most of the major streaming services. The problem is that the average music consumer is comfortable paying no more than half that, with the average now right around $48. What we have here is a bad price point. Read more on Forbes.

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The More You Give Away, The More Your Sell

In yesterday's post I mentioned the strange fact that several studies and real life scenarios have shown the strange paradox of "the more you give away online, the more you sell."

Now comes word that thanks to the General McChrystal story, Rolling Stone sold at least 5 times the number of copies it normally sells even though it's available for free online at Time.com and Politico.com.

That's the reason why it's too early to give up on legacy media formats like CDs, newspapers and magazines. Consumers will never buy these in the amounts they previously have (other than an exception here or there), but they will buy them under the right circumstances, like the McChrystal Rolling Stone issue.

What's needed is a reset in thinking. If you think that you'll make the same kind of big bucks that were once made in those businesses, you're living on a false hope. If you think that you can make a business of it with more modest expectations, maybe you've got a chance. The strategy is to keep the costs as low as possible in order to be able to give some away, use it as promotion, and make it up on the subsequent and ancillary sales. That's what the record industry has done since the 30's with radio. Of course, you still need a product that people want in the first place.

Actually, magazines and newspapers have a much greater chance of surviving than CDs, which is a format that will die a lot sooner. Newspaper subscriptions aren't falling at the levels they once were. In fact, a few are even increasing, and people read the newspaper much more in Europe than they do here. If we should ever have a prolonged Internet outage for any reason, newspaper readership and subscriptions would shoot up overnight. Plus, the most in-depth and competent news reporting still comes from the major dailies.

E-readers like the iPad could soon mean a revival for magazines, providing they adapt to the format and charge a reasonable price. And certain high-end specialty magazines still do well.

Regardless, the basic premise still stands. In today's brave new world, the more you give it away online, the more you sell

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Sellaband and Rolling Stone Updates

The Sellaband website described in yesterday's post has been off-line for the last 3 days. Now it appears that the company has been declared insolvent, which is the Dutch equivalent to bankruptcy (Sellaband is a Dutch company).

There's no word on what will happen to the funds raised by Public Enemy and other bands through the site, which could spell bad news for both bands and investors. Sellaband now seems to be one of those great Internet ideas that just can't be monetized. Too bad.


In other news, Rolling Stone Magazine's website has also been down for a few days, but speculation is that they let they're name registration lapse because of the error message that's displayed. Whether that's the case or not, it's a good lesson to every artist and band that owns their own website - always keep up with the name registration. Once it lapses, it may be tough to get back.