In a week where Warner defended the freemium model, David Balfour wonders if Universal's reported dislike of that model is anything like as simplistic as many have suggested

14 May 2015 - Press release

It's been a watershed week for the growth of the streaming or 'access' model in music. On Monday, Warner Music made a landmark announcement that its Q1 revenue figures had seen streaming-based income overtake downloads-based income for the first time. This was the first time that a major label has gone on record to state that it is now making more money from streaming than from downloads. It's not an unexpected moment but it still feels like a very significant one. 

Further interest was added by Universal Music's Q1 statement, which followed shortly behind Warner's. Whilst Universal made no similar claim about streaming income overtaking that from downloads, it did state that streaming income had grown to such an extent over the period that it had more than offset the concurrent declines in both download and physical revenues. 

We're no longer at a point where anyone doubts that the streaming/access model will be the single biggest music industry revenue source of the future. This has seemed logical for some time. The steady and impressive growth of Spotify, in particular, has proven that there is real consumer demand for streaming services, as well as massive revenues to be made for rightsholders. Leaving aside the important debate over how and if businesses such as Spotify can become profitable, there's no doubt over the future appeal and importance of access-based models. With Apple expected to enter into the market very soon, there could hardly be more confidence about the continued growth of streaming.

Perhaps more surprising was the announcement from Sfx Entertainment this week that its music downloads platform Beatport had actually enjoyed a growth in Q1 sales year on year. This seems to buck the widely-accepted expectation that streaming growth both leads to - and somehow perhaps is also dependent on - a fall in download sales. It has long been a trend, especially amongst journalists, to suggest that digital must replace physical, or that downloads must replace streaming. The reality, of course, is that we do not exist in a binary business where one new model completely replaces another.  All of these models can co-exist to some extent. Beatport, for example, offers high quality downloads which are popular with DJs. For these DJs, the streaming model hasn't yet offered a reliable new way of guaranteeing HiRes playability in clubs. As a result, Beatport is still very relevant to this group, which also happens to be its core user-base. Similarly, physical sales, whilst no longer being the industry cash cow they once were, remain highly relevant to a very large number of people. We're finally seeing the emergence of a more nuanced and interesting music market that we desperately wanted to become a reality.

Talking of nuance, Warner Music CEO Stephen Cooper made some pointed comments this week about his company's strategy on digital services. He defended the freemium model which has been so much questioned in recent times. “First of all, there are any number of models out there, and all of those models – ad-based, subscription-based or with both are better than piracy,” he said. His point was clear: the idea that freemium automatically equals bad is very misguided.

Cooper talked of Warner's desire to work with services to further “ encourage the movement of subscribers from ad-based models to subscription-based models over time”. He noted: “We are working with a number of our digital partners to see in fact if there are ways in which that adoption, that is the movement from the ad-based model to a subscription… can be turbo-charged through modifications of service offerings or more sophisticated approaches to the consumer market.”

Many have interpreted Cooper's comments as a direct pop at Universal Music, which has reportedly – though definitely not publicy - changed its stance with regard to freemium tiers and sought to reduce the freemium offering wherever possible. Perhaps Cooper and Universal are more closely allied than some would respect however.  Whilst certain commentators have been quick to eat the idea that Universal Music is now 'anti freemium', such a stance seems highly simplistic and unlikely.

You don't get to be the world's largest music company by taking the kind of binary approach that we complained about above. Far more likely is that Universal are following a strategy closer to Warner's than some would suspect – not seeking to shut down freemium per se, but seeking to explore means by which the rate at which free users can by migrated to better-monetised tiers can be increased. The possibly digital music models are not simply piracy or freemium or paid. It's likely that the biggest labels are all invested in trying to create new possibilities beyond these three, where the options for users include a greater number of tiers at a greater range of prices, all of which ultimately look to encourage users up to the most valuable tiers, if they wish to have the most comprehensive streaming music experience. Whilst the ways in which the future models will shake out are anything but certain, no one can doubt that establishing a sophisticated range of consumer-friendly yet effectively monetised offerings is the only logical goal.