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Big Music Labels Want to Make Free Music Hard to Get, and Apple Says They're Right

Spotify and YouTube say they're wrong.

Radu Bercan /
Peter Kafka covers media and technology, and their intersection, at Vox. Many of his stories can be found in his Kafka on Media newsletter, and he also hosts the Recode Media podcast.

Right now it’s easy to stream any song you want, whenever you want, legally, without paying a penny.

The big music labels want that to change. Apple says it wants to help them.

Apple executives have been telling the music industry it can help them roll back the tide of free digital music by relaunching its own subscription streaming service this year. Unlike Spotify and YouTube, Apple’s service won’t offer a free “tier” of music interspersed with ads — after an initial trial period, you’ll need to pay to play.

Apple executives, led by media head Eddy Cue and Beats Music founder Jimmy Iovine, have been arguing that the music business “needs to get behind a paywall,” say people who have talked to them. Apple bought Beats last year, partly to help it gain a foothold on streaming music just as iTunes sales of digital downloads had started to drop.

Now Apple is negotiating with the music labels for licenses for a revamped version of Beats. Sources say Apple would like to make a splash by getting high-profile artists to distribute their music with Apple before it makes its way to other services.

And as I’ve previously reported, Apple wants to lower the $10-a-month price that has become standard for subscription services; $8 a month is a likely target, as 9to5 Mac reported earlier this year.

Apple’s anti-free pitch syncs up with public and private comments from top executives at the big music labels in recent months. In November, Sony Music’s CFO told reporters the company was rethinking its support for free streaming music; in December, Warner Music Group CEO Stephen Cooper said that free music services need to convert more users to paying subscribers.

And Universal Music Group CEO Lucian Grainge, who runs the world’s biggest music label, has also been the most vocal about getting the industry to focus on paid services instead of free ones. “We want to accelerate paid subscription,” Grainge said at the Code/Media conference last month. “Ad-funded on-demand is not going to sustain the entire ecosystem of the creators as well as the investors.”

Privately, music executives say, Grainge and his top executives have been much more direct. The label is in the midst of renegotiating its deal with Spotify, and is pushing the service to change its freemium model.

Spotify currently lets users listen to anything they want via a laptop or PC for free. It serves those users ads, and hopes to convert them to a paid, ad-free model that lets them listen on mobile phones. More than a year ago, the company also launched a free mobile version that gives users more limited access to songs.

Spotify’s free-on-demand model was controversial when the company launched in 2008, and Grainge was an early supporter, striking a deal with the company when he ran Universal’s International arm. But industry sources say Grainge, who became Universal’s CEO in 2011, has now concluded that free music on Spotify is one of the big factors for the decline in download sales at Apple’s iTunes and other digital stores, and thinks Spotify isn’t selling enough subscriptions to make up the difference.

Spotify, which says it has 60 million users worldwide and 15 million paying subscribers, disagrees. “We think we know pretty well how to run a streaming service that converts subscribers,” said Jonathan Prince, who heads up communications and public policy for Spotify.

Prince says Spotify’s research shows that 12 percent of former iTunes customers have become Spotify users, and about 40 percent of that group are paying for Spotify subscriptions — that is, the company doesn’t think it’s responsible for the decline. “The great majority of our users are not coming from iTunes,” Prince said. “We’re bringing people into the ecosystem who haven’t been paying for music.”

Meanwhile YouTube, which by many accounts is the world’s largest music service since many users effectively use its videos as a free jukebox, is also getting pressure from the labels.

Last year, after a long delay, YouTube soft-launched its own subscription service, in part to satisfy the labels’ demand for a paid option. But that service remains in beta, and some label executives say they want to pull back the amount of free music on YouTube as well, and will push to do so when they renegotiate licenses soon.

Not surprisingly, a YouTube rep says the company thinks offering free music videos is good for both the service and the music industry. In addition to the ad revenue the clips generate, YouTube provides worldwide distribution, and can generate enormous reach for hit songs.

Label executives I talk to agree that free music provides valuable promotion for them, and they don’t want to turn it off entirely. Different labels — and different executives within the labels — seem to have different degrees of dissatisfaction with a free option.

Sony, for instance, is replacing its home-grown music service with Spotify, which will offer its free version to people who use the company’s PlayStation gaming consoles and other devices.

And Apple itself isn’t entirely against free music. Sources say the company intends to keep its free iTunes Radio service running, since it doesn’t think Web radio services compete with music sales.

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