Thursday, February 11, 2010

Warner Threatens Music Streaming Model

We have long watched and waited for music streaming to become commercially viable and right back to the days of Spiral Frog we could see the potential, it was just a case of getting the model right.

The big success story of last year was Spotify, who took captured 7 million users across six European countries and presented competition for others such as and We7. The record companies came on board, the consumers came onboard, the advertisers came and importantly they started to break the mould. Some said it was just like having your own radio station, playing your own selections and for a premium payment, you could even switch off the adverts. However the majority selected the free model based on advertising sponsorship over subscriptions. Three mobile even plugged Spotify premium into their contracts and we got it included in ours.

Now Warner, one of the four major labels, have declared that streaming services were "clearly not positive for the industry". The real issue is that they are not lucrative enough for labels and the fact is that the are popular with the consumers and are legal.It obviously would make sense to fight piracy with something that consumers clearly want than acting like a spoilt child and saying ' we don't want to play'.

So 7 million are on Spotify, 2.5 million are on We7 and there are others queuing up to offer the new service and we also have the likes of the mobile operates getting in on the opportunity, but a major label now wants to change the game and move the goalposts. Does it sound familiar to other media markets where commercial controls are being fought over?

Will Warner merely tear up the deals they have and tell 10 million consumers they got it wrong and don’t want to play any more? Will they try to shift the price up, demand subscriptions for all and demand a greater return? Will they honour what is in play today and squeeze future deals out?

What is clear is that Warner are showing the sort of uncertainty and arrogance that has been indicative of the music industry labels since the advent of digital. The one industry not to follow is music and its digital music experts, that is unless you want to know how not to do it.

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 less than a label would earn if that song was downloaded or if they had a greater slice of a listener's monthly subscription.

However just to demonstrate that music is a minefield of contradictions, Rob Wells, senior vice president of Universal Music Group International, said only last month that Spotify was well on the way to proving its commercial viability and had, ‘a very sustainable financial model - full stop’.

Will Warner pick up their sticks and leave the field demanding their new terms are met? Will Spotify delist them? Will consumers go back to downloads and the old model or will they return to the pirates? These are dangerous waters and raise many questions about who controls what? It is also about giving consumers a continuity of service and trust that what they have bought or signed up to will not be withdrawn because someone changed their mind.

It would be a tragedy if Warner renegotiates with Spotify,content is withdrawn and the commercials are rewritten before they have had chance to settle. It isn’t just about getting premium subscriptions but also about the advertising model and shifting to streaming technologies and that takes time and importantly needs consumer confidence to be sustained not played with.

The pirates will obviously be watching with interest as Warner tries to correct what they see is wrong with the model today.

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