Taylor Swift thinks streaming service like Spotify could hurt music sales, and now it appears Sony is taking that warning to heart. During a recent company briefing, Sony Music’s top bean counter said the recording giant likes subscription-based music streaming, but isn’t so sure about free, ad-supported options.
“The key question is, whether or not the free, ad-supported services are taking away from how quickly, and to what extent, we can grow those paid services?” Sony Music CFO Kevin Kelleher said. “That’s something we’re paying attention to… It’s an area that’s gotten everyone’s attention.”
Why this matters: With CD sales sluggish and digital music sales declining, streaming services are the one bright light for the recording industry. But there are a lot of questions about whether the free, ad-supported model is sustainable. Companies like Pandora and Spotify routinely lose money due to a combination of high royalty fees and low revenue—an imbalance that appears to be due to poor return on ad-supported tiers and not enough premium subscribers. The sorry state of music streaming revenue may even be one reason Microsoft is dumping its ad-supported tier from Xbox Music in December.
What’s next?
While Sony says Taylor Swift’s move made the company sit up and take notice—Swift is not a Sony artist—it doesn’t appear to be interested in changing the dynamics of the music streaming world just yet.
Streaming is becoming an increasingly popular way to consume music, and Sony says it is “very encouraged with the pay streaming model.” Approximately 27 million people worldwide pay for streaming subscriptions, Sony says, and the company is focused on helping that number grow.
Free tiers are a great way to bring in new users on the surface. At least a fraction of those listeners will eventually pay a monthly fee for ad-free streaming and other paid features, such as unrestricted mobile listening or Uber integration. And free tiers work well for monetizing listeners who would turn to pirated torrents if services like Spotify weren’t around.
But with sales of physical CDs and even digital music sales declining, the industry is scrambling to keep cash incoming. What happens down the road if offering those free, ad-supported tiers are seen as an obstacle to gaining more paid subscribers? Three quarters of Spotify’s subscribers never actively pay a dime to listen to music—and that’s what’s keeping Sony from embracing ad-supported listening wholeheartedly.
[via The Wall Street Journal]