Global Market Data
Global News Journal
Pakistan: Now or Never?
Front Row Washington
The Great Debate
Personal Finance Video
Life & Culture
Royal wedding sets Internet record
Brad Pitt clarifies thoughts on Aniston
A's tame Tigers as Rays close on Red Sox
"Hysteria" sex toys stir crowds at TIFF
Top 10 toilets around the world
Stealth key to Olympic security: expert
McCartney posts wedding banns in London
MediaFile: Disney’s channel chief exits
Video: Behind the scenes at wax museum
Slideshow: Backstage in NY
UBS trader weeps as charged with $2 billion fraud
Scarlett Johansson naked pictures leaked on Web
14 Sep 2011
RIM shares battered as questions swirl about future
London Police charge man over $2 billion UBS fraud
Nude Scarlett Johansson Photos Pop Up Online -- FBI's Hot on the Trail
14 Sep 2011
Al Gore in 24-hour broadcast to convert climate skeptics
Number of poor hit record 46 million in 2010
Egyptians demolish Israel embassy wall at protest
Scarlett's naked pics, Tyler Perry is highest paid
Wed, Sep 14 2011
Lessons with Lego: the EU crisis
Thu, Sep 15 2011
Buenos Aires Fashion week sizzles
Mon, Aug 22 2011
Analysis: Music industry banks on free in effort to get paid
Netflix lowers U.S. subscriber forecast; shares fall
Thu, Sep 15 2011
App-up for seamless business travel
Wed, Sep 14 2011
Developers get early taste of Windows 8
Tue, Sep 13 2011
Twitter ramps up ad efforts, no rush for IPO
Thu, Sep 8 2011
Exclusive: Facebook doubles first-half revenue
Wed, Sep 7 2011
Analysis & Opinion
U.S. religious publishers reap rewards with Justin Bieber and the Bible
Facebook’s ads: now 68 percent more likely not to be forgotten
By Yinka Adegoke
NEW YORK |
Fri Sep 16, 2011 10:07am EDT
NEW YORK (Reuters) - The future of the music business is social, free -- and hopefully profitable.
After a decade when sales tumbled 50 percent, record labels cut thousands of jobs and more than 35,000 consumers got sued for illegal downloads, the industry is coming around to the idea of giving away songs as a way to get customers to pay.
This week MOG and Rdio became the latest U.S. digital music startups to offer online streaming access to millions of songs for free, hoping that the slick user-friendly interfaces and deep libraries will convince users to become paying monthly subscribers.
They follow London-based Spotify, whose 18-month-old streaming music service has taken Europe by a storm. After numerous delays, it entered the U.S. market in July.
Other digital services with free access to music will emerge in coming months. Beyond Oblivion, a start-up with backing from News Corp, plans the Boinc service, which will take a different approach by enabling free access to music for users who buy special devices.
The key to success for these services -- and by extension the record labels -- is the conversion rate to paid from free. Spotify has said it has more than 10 million registered users with 1 million now-paying subscribers, for a conversation rate of 10 percent.
Music streaming services typically charge $5 to $15 a month to play any song or album the user wants from a library of songs via computers and mobile devices.
The free/subscription trend comes as sales of downloaded songs have begun to slow down at Apple Inc's iTunes, the No. 1 music retailer by far.
MOG and Rdio announced their new free features just ahead of Facebook's developers' conference next week in San Francisco, where sources have said the No. 1 social networking website will launch a music platform.
Those two companies, along with Rhapsody and Rootmusic, are expected to be a part of the launch, which is designed to make it easier to share music and hopefully win paying subscribers from Facebook's 750 million users.
MOG's free service gives users more songs as they engage other users, particularly if they log on using Facebook's Connect platform.
"It allows us to reward the tastemakers and influencers," said MOG Chief Executive Officer David Hyman, a former senior MTV executive.
Nervous about appearing to encourage the idea that music should be free, music executives privately argue these services are more limited than they initially appear.
"It's not a shift to free," said a label executive who requested anonymity because negotiations with the services were private. "We're building a larger funnel and driving more consumers to a subscription service."
USERS AREN'T BUYING
Typically, the free portion of these services feature advertising, but revenue from that does not yet cover the licensing fees that major labels charge.
But Rdio is going a different route. It will not feature advertising and, unlike MOG, will not manage free music based on users' engagement.
"We won't ask users to spam their friends," said Chief Operating Officer Carter Adamson. He added, however, that user engagement data will determine the number of songs a given user can access on its free platform.
The company's founders, Janus Friis and Niklas Zennstrom, invented one-time music industry file-sharing nemesis Kazaa and communications service Skype.
So far, subscription music services have struggled to capture the collective imagination of everyday music fans. Industry sources estimate MOG and Rdio each have fewer than 100,000 subscribers.
Rhapsody, the biggest U.S. music subscription service, has been in business for 10 years and only has a paltry 800,000 subscribers, according to its last publicly stated numbers.
This week the company added a new social focus that makes it easier for users to follow each other and share music within the Rhapsody community and around the Web.
Rhapsody spokeswoman Jaimee Steele said the company would consider an advertising-supported service if the economics made sense, but added that there has been little evidence of that to date.
While free might appeal to users, it can be expensive for start-ups that could easily burn through all their funding by paying labels' licensing fees.
"We have no intention of going out of business in six months," Rdio's Adamson said, emphasizing that the company will be careful not to give away free music to "serial abusers."
"All of these services have VCs, investors and boards -- all of whom expect some sort of return on their investments," said a second record executive who isn't permitted to publicly discuss private negotiations. "As a result, limited free tiers are being offered to get people in the doors. The emphasis is on 'limited.'"
Meanwhile, major labels are starting to share the risk from innovative business models after years of suing grandmothers and children for illegal downloading, shutting down game-changing start-ups like Napster and demanding hefty upfront fees from entrepreneurs who tried to work with them.
Label executives are eager for music fans to sign up for subscription services, if only because these businesses promise steady guaranteed revenues similar to the cable television industry.
(Reporting by Yinka Adegoke; Editing by Peter Lauria and Lisa Von Ahn)
Related Quotes and News
Entertainment News From the Wrap
Stephen Colbert Ends His Bromance with Jimmy Fallon (Video)
Stephen Colbert gets a potential new BFF as he and Jimmy Fallon end their bromance on "The Colbert Report"
Charlie Sheen Wants to Guest on 'Two and a Half Men' (Video)
Which might be complicated, after his character dies
Fat Mac No More: 'Always Sunny' Star McElhenney Loses Most of the Weight
Actor quickly losing the 50 pounds he gained because he thought it would be funny
The Best Tricks in 'Straw Dogs' Are the Old Ones
Nobody needed to remake the Sam Peckinpah classic, but this potboiler offers a few sleazy thrills
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Be the first to comment on reuters.com.
Add yours using the box above.
Social Stream (What's this?)
Back to top
New York Legal
Support & Contact
Advertise With Us
Connect with Reuters
Our Flagship financial information platform incorporating Reuters Insider
An ultra-low latency infrastructure for electronic trading and data distribution
A connected approach to governance, risk and compliance
Our next generation legal research platform
Our global tax workstation
About Thomson Reuters
Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.
NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here.