Page last updated at 18:20 GMT, Wednesday, 10 February 2010

Warner retreats from free music streaming

By Ian Youngs
Music reporter, BBC News

REM singer Michael Stipe
Warner artists like REM may no longer be available to stream for free

Record label Warner Music has said it will stop licensing its songs to free music streaming services.

Companies like Spotify, We7 and Last.fm give free, legal and instant access to millions of songs, funded by adverts.

Warner, one of the four major labels, whose artists include REM and Michael Buble, said such services were "clearly not positive for the industry".

That raises questions over the future of free streaming, which is popular with fans but not lucrative for labels.

Spotify has seven million users in six European countries and is in negotiations to launch in the US.

Ninety-five per cent of those fans use its free service, hearing adverts between songs, while 250,000 pay a monthly fee to get it on a mobile and with no ads.

[It] is not the kind of approach to business that we will be supporting in the future
Edgar Bronfman Jr, Warner Music

Two-and-a-half million people use We7's free offering, while Last.fm is also free in the US and UK.

Other popular audio services include Deezer, Pandora and Grooveshark.

Warner chief executive Edgar Bronfman Jr said: "Free streaming services are clearly not net positive for the industry and as far as Warner Music is concerned will not be licensed.

"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."

It is not clear whether Warner will remove its music from existing services or decline to do deals with new outlets.

He said the focus would be on promoting streaming services that require payment, which he said could appeal beyond those who currently pay for downloads in stores such as Apple's iTunes.

Spotify
Spotify is free with ads, or fans can pay 9.99 a month in the UK

"The number of potential subscribers dwarfs the number of people who are actually purchasing music on iTunes," Mr Bronfman said.

Fans could pay a monthly fee direct to a streaming service, as with Spotify, or get access to the music as part of a deal for a mobile phone, broadband connection or another gadget.

Such subscriptions could be taken up by "hundreds of millions if not billions of people, most of whom are not today either buyers or certainly heavy buyers of music", Mr Bronfman said.

And they would be much more profitable than per-track downloads in the long term, he added.

The main legal streaming services have deals with most major and independent record labels and pay royalties for each song played.

But the amount is far less than a label would earn if that song was downloaded or if they got a slice of a listener's monthly subscription.

It would definitely be a tremendous blow to a service like Spotify if Warner were to withdraw their catalogue from the free service
Paul Brindley, Music Ally

Mr Bronfman's comments come just weeks after another major label, Universal, said Spotify was well on the way to proving its commercial viability.

"Spotify is a very sustainable financial model - full stop," Rob Wells, senior vice president of Universal Music Group International, said in January.

Paul Brindley of digital music consultants Music Ally said the other major labels were unlikely to follow Warners' lead.

"There's a fairly widespread suspicion that free streaming services just aren't ever going to make enough money," he said.

"But it does seem to be that Warner is taking a firmer stand than the other major labels in terms of opposing a free ad-funded model.

"It would be an absolute tragedy if they were to adhere to that to such a degree that in their renegotiations with Spotify, they withdrew their content without even giving them a chance to see how well they could convert their users to the premium version.

The consumer is in a world where they want things right here, right now, and if you don't give it to them they'll steal it
Jon Webster, Music Managers' Forum

"It would definitely be a tremendous blow to a service like Spotify if Warner were to withdraw their catalogue from the free service."

A Spotify spokesman told the BBC: "We would like to make it very clear that WMG is not pulling out of its current agreement with Spotify in Europe".

We7 chief executive Steve Purdham said Warner and the other major labels had always been "consistent in their concerns" about ad-funded and free services.

"But they have also been very supportive of us. I think Edgar's comments are more a reflection that subscription services is currently the key focus for the industry and I strongly support that view, especially in the mobile arenas."

Jon Webster, chief executive of the UK's Music Managers' Forum, which represents artist managers, said the industry must support services that tempt fans away from piracy.

"Anything that's going backwards is denying where the world's going," he said.

"New media has to give the consumer what they want and the consumer is in a world where they want things right here, right now - and if you don't give it to them, they'll steal it.

"There are new business models out there and they are beginning to work and we are in a transition phase."



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