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Warner Music Says It Loves Streaming Music -- As Long as Listeners Are Paying for It

Free is less interesting than it used to be.

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Like other music labels, Warner Music Group thinks the boom in streaming music services is a good thing. But like other music labels, Warner is really interested in the music services listeners pay for — and is growing less interested in the free ones.

Warner CEO Stephen Cooper spelled this out last week, during the company’s earnings call.* Like the rest of the music industry, streaming services are becoming increasingly important to Warner’s financials, because download sales are in free fall — which may well be at least partly due to the boom in streaming.

In Warner’s case, streaming revenue was up 74 percent over the last 12 months, while download sales dropped by 12 percent.

Here’s an extended chunk of Cooper’s scripted remarks from the beginning of the call, which are worth keeping in mind as Warner, along with Sony Music and Universal Music, start to engage in a new round of licensing talks with streaming services like Spotify. Read along, and we’ll discuss a little further down (emphasis added):

As we have said before, streaming – and particularly the subscription model – more fully captures the true demand for music. In the streaming universe, consumption drives the economics — so the more that people listen to music, the better it is for our artists and our business.

Much of the recent controversy has been around some on-demand digital services described as “freemium” because they have an ad-supported ‘free-to-the-consumer’ tier as well as a ‘premium’ subscription tier.

The primary reason we participate in the ad-supported tier is because it provides the means for consumers to discover the advantages of the premium offerings, and thus, leads them to become paying subscribers. There is also the fact that the ad-supported, ‘free-to-the-consumer’ tier – in conjunction with the attractive price-point of paid subscription services – makes streaming a great alternative to piracy.

We continue to believe that the long-term sustainability of the “freemium” model is predicated on high levels of conversion from ad-supported “free” to paid subscription. Of course, in order to achieve those levels, the benefits of paid subscriptions must be clearly differentiated from the ad-supported offerings.

A little later, Cooper got a little more pointed:

In our view, right now, enabling meaningful global growth in the number of paying subscribers is the best option for artists, for songwriters, for copyright owners and for the services themselves. Subscription streaming is not only a fantastic offering for music fans, it will propel the long-term health of the music industry. We look forward to continuing to work closely with our partners to turbo-charge the adoption rate for subscription streaming.

We were pleased that two of the biggest streaming services in the world have taken meaningful steps to convert segments of their massive customer bases into paying subscribers.

So to be clear: The praise Cooper is offering is for YouTube, which used to be entirely free but has launched a subscription business, in part to satisfy the music labels, and SoundCloud, which is also free and and is also launching a subscription service, which is also being built with label demands in mind.

It is reasonable to assume that some of his comments are also directed at Spotify. Spotify has always had a free offering, designed to drive users to its paid offering. Now it says it has 12.5 million people paying some $10 a month. But there has always been grumbling from certain corners of the music industry that Spotify ought to be signing up more subscribers, and making more money for the industry.

And now, as Spotify begins to renegotiate contracts with the big music labels, you might view this as the beginning of a conversation about how that might happen.

Bear in mind that Apple, which got into the free streaming music business with iTunes Radio last year, got into the paid streaming music business this year by buying Beats Music.

And recently Apple has been telling the music labels that they could get more money in the long run by taking less money now, and lowering the prices they charge for streaming music subscriptions. Cooper’s comments don’t necessarily preclude a price cut for Apple (and the rest of the streaming services). But they do show that he’s not interested in any more giveaways.

* Warner went private in 2011, but still holds earnings calls to communicate to the large base of investors who own the company’s debt.

This article originally appeared on Recode.net.

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