Warner Music Shoots Self In Head; Says No More Free Streaming

from the you-can't-be-serious dept

A few years back, it seemed like Warner Music actually had a better handle on where the music industry was heading than its 3 major label rivals. In the last two years, however, it seems like WMG has consistently gone further and further in the opposite direction. It may have hit a new low today with the announcement that it will pull out of all free streaming music licensing offers. Yes, Warner Music just told the one thing that was effectively competing with unauthorized downloads to shove off. Brilliant.
"Free streaming services are clearly not net positive for the industry and as far as Warner Music is concerned will not be licensed.

"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."
And thus, WMG will go out of business that much more quickly. That is the model that the market is moving to, and Bronfman and WMG appear to have decided to ignore what the market wants, to cover their eyes, stick fingers in their ears and go down with a ship that could easily be righted. Incredible.

Now, Warner may be a bit gun-shy after its investment in iMeem (a free online music streaming service) became a total disaster, but what Warner doesn't seem to realize is that a big part of why it failed was the ridiculous demands Warner put on iMeem in terms of how much it demanded in payment per stream. The problem is that WMG has totally unrealistic expectations of how much money should be paid per stream, and that's because the company's top execs still don't seem to handle basic economic modeling particularly well. And thus, the company will fail.

You don't compete with "free" by taking your ball and going home. You don't compete with "free" by pretending that old artificial scarcities are coming back after the wall has been broken down. You don't compete with "free" by suing customers. You don't compete with "free" by shunning those who have business models that work. You compete with free by offering a better product and a better business model. WMG is choosing to go in the other direction. Best of luck to them...

Filed Under: business models, edgar bronfman jr., free, licensing, music, strategy, streaming music
Companies: imeem, last.fm, spotify, warner music group, we7


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  1. identicon
    Music Guy, 16 Feb 2010 @ 4:10am

    Dare I give an alternative view?

    I work for one of the big 4 labels. I hold a senior position in finance. So I'm not a creative, I'm one of the guys in suits you self appointed music gurus hate, so I expect some abuse. But here goes anyway in trying to explain some of this.

    To paraphrase Lars Ulrich, a record company's primary role in the industry is to be a bank. The labels scout for talent and then lend money to new (and often established) artists, give them access to studios (less of an issue in the digital age) and provide the marketing, promotion and distribution. All of these expenses are then set off against the royalties earned until the advance (loan) is paid off and then we take a cut of future earnings.

    You can argue that all of this can be done by small indie labels or by the band itself using some laptops and Facebook. And that's true and good luck to them. But only the large labels have the financial muscle to bankroll a large number of potential artists in the hope of revealing a few stars who make music that people want to hear.

    Like a bank who lends money to small business or mortgages, labels are supposed to have expertise in picking enough winners to offset the loses from the losers. That's what is supposed to make them profitable. You can scream all you want about faceless suits and evil corporations screwing artists and profiteering, about it being money and not the music etc etc. But at the end of the day, profit only comes from finding artists that the public wants to hear.

    Now of course the model is broken. The labels don't make profits because no-one pays for music. The artists don't make money because no-one pays for music. It hasn't hit yet as the labels are still paying artists but are going bust. But you lose the Big 4 and most of the successful artists around now will be broke. This rubbish about concerts filling the gap ignores the economics of touring I'm afraid.

    The industry is only surviving on catalogues. The only artists still making money are people like the Rolling Stones, Depeche Mode, The Beatles, Queen etc who were invested in and supported in the bad old days when people paid for music.

    With no profit in making music, the quality of artists will fall (if it hasn't already) and all you will get are bland, generic, safe bands and singers who pump out low risk stuff so they can at least get 500k sales and make a modest living. You will never get the geniuses and iconic music makers of the past as no-one will take a risk on anything other than established artists or those that sound like them.

    Why? Because no label will be big enough to take the financial losses from the bad calls necessary to sustain them until they make a very right call. Small indy labels can never pick up this slack and will similarly have to look for safe, generic stuff or go bankrupt pretty quickly.

    In 5 years time when there are only 2 or 3 big labels, look at the music available and when you see it's all rubbish you will see I'm right, but by then it will be too late.

    Right now we are getting by on the fumes of talent nurtured in the bad old days when labels made money and could invest. Those times are coming to an end as we speak.

    So to all those simpletons who like automotons bash the big labels and rub their hands with glee when the Big 4 report losses and one of them looks like disappearing, thanks for helping make modern music rubbish and for dancing on the grave of the creativity you claim to worship.

    I'm not saying free is bad or that any of this is not inevitable or in fact a bad outcome, but people who refuse to pay for music need to understand that there is a cost and the cost is quality, diversity and choice. If you still chose to steal music after considering that, then fair enough, it's a free world. But only chose to do so after considering the cost because once the music industry is dead, it won't come back.

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