The Stupidity of Label Deals With Streaming Audio Sites
There are a number of sites like Myspace, Last.fm, Spotify (in the UK), defunct Imeem, and Yahoo Music that essentially provide music on demand1. One logs on to these sites, finds the song they want or creates a playlist of their favs and can return whenever to play/listen to those songs. All of these sites have signed licensing agreements on their content and are accordingly paying agreed upon royalties.
In our view, this business model on the part of the record labels is a form of slow suicide and patently stupid. Why? Because this business model cannibalizes album sales.
Many folks look at this business model as akin to radio, but it is not. A key distinction is the "on demand" part. You can not turn on the radio and demand anything. You sit there and listen to what they play. If you like it these days, you either steal it, listen for free on these ridiculous streaming sites or maybe, third down the list, you actually buy it. With the existence of these sites, why ever buy anything? If you want to listen to it, you just click a bookmark, find your play list and click play. We suspect all of these sites will be dropped eventually by the labels.
Music industry sales from this "new" music delivery approach are laughable. In 2008, as reported by the RIAA (in their "New Shipment Statistics Database"), "Digital Performance Royalties" were $57.83 million versus total industry revenue of $6,001.38 million—that's .0096461469 or LESS THAN 1%!!! Moreover, the first year the "Digital Performance Royalties" category was picked up by the RIAA was 2004. So, after 4 years, this new music delivery avenue is still minuscule and in our view likely to stay that way.
Warner Music Drops Spotify and Other Streaming Services
Well, we rest our case. Warner got the message. (Story here.)
Warner Music, one of the Big Four labels, says that it will stop licensing its music for use on all streaming services. 'Free streaming services are clearly not net positive for the industry and as far as Warner Music is concerned will not be licensed,' said chief executive Edgar Bronfman Jr. '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,' he added.
