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Some insiders say paid streaming represents as little as 10% of streaming music at the moment.

WHY YOU'RE NOT GETTING PAID
ON STREAMING

How the "Freemium" Model Turns Millions of Streams Into Not Much Money
“Streaming will save the business.” We’ve all been hearing such prognostications for some time now, and it’s clear that consumers have been migrating to music-streaming  services like Spotify in droves. But where’s the money? Why do millions of streams translate into so few dollars?

Here’s the deal: Free, ad-supported audio streaming (as opposed to purely subscription-based streaming, such as Beats Music) generates marginal revenue at best—and is the lion’s share of the streaming happening now. Indeed, some insiders say paid streaming represents as little as 10% of streaming music at the moment. So even for superstar artists generating hundreds of millions of streams, only a fraction of that activity is producing income worth talking about.

On this issue, industry folk and many artists appear to be very much on the same page.

In the words of UMG ruler Lucian Grainge, as quoted by The Wall Street Journal, unlimited “ad-funded [streaming] is not a sustainable business model.” Sony Music CFO Kevin Kelleher, meanwhile, noted on a recent investor call (also reported by WSJ), “The key question is, are the free, ad-supported services taking away from how quickly and to what extent we can grow those paid services?"

 “Valuable things should be paid for,” declared Big Machine megastar Taylor Swift, surely one of the most-streamed artists before she pulled her music from the services. “It’s my opinion that music should not be free.”

Spotify head Daniel Ek has argued that free streaming is the path to paid. It would seem that industry folk agree—provided that some kind of time limit or cap on total streams exists on the free part, to motivate subscription activity. Beats has extended a free trial period; certainly its international competitors could impose some kind of sunset on unlimited streaming.

At the same time, the end of “freemium” streaming—or at the very least the end of its dominance of the market—means that premium/paid offerings have to get much better. Consumers need to be incentivized to make the transition to a subscription model.

What tactics might be most effective in achieving this end? Stay tuned.

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