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Will WMG comments affect Spotify's U.S. launch?

February 11, 2010 |  2:12 pm

Spotify_The short answer to the headline is probably not. In an earnings call this week, Warner Music Group Chief Executive Edgar Bronfman Jr. seemed to put free, ad-supported streaming services on notice. In now much-quoted comments, Bronfman stated that the major would not be licensing content to such services.

"Free streaming services are clearly not net positive for the industry," Bronfman said during the earnings call (read a full transcript here). "And as far as Warner Music's concerned, will not be licensed. So, this sort of get all the music you want for free and then maybe we can -- with a few bells and whistles -- move you to a premium price strategy is not the kind of approach to business that we will be supporting in the future."

The comments have generated speculation that Warner Music Group may not play nice with Spotify, the popular streaming music service in Europe that is set to launch soon in the U.S. Overseas, Spotify boasts 7 million users and content from all four majors, and it's a widely held belief within the industry that the company is targeting mid-March to unveil its U.S. service, timed for the annual South by Southwest interactive and music conference in Austin, Texas. 

Spotify took to its Twitter to clarify Bronfman's comments, stating that WMG "is not pulling out of Spotify" and that "the media is taking things out of context." A WMG spokeswoman declined to elaborate on the record on Bronfman's comments, but did state that no current deals already in place would be affected. 

It should be noted, however, that Bronfman's statement doesn't signify any sort of change in WMG policy. The major has been skeptical of the payoff of free streaming services for some time now, and last year lost close to $30 million with its combined investments in iMeem.com and LaLa.com. This also isn't the first earnings call in which Bronfman has expressed doubt about the ad-supported model, as a scroll through the Billboard archives finds a Bronfman quote from last year in which he states that "advertising alone simply is not going to be enough."

Spotify allows users to listen to music for free via their computers, although they are subject to ads. As Pop & Hiss earlier noted, in order to cheaply download tracks, cache songs for offline consumption or access music via a phone, about 250,000 people -- mostly in Scandinavia and the U.K. -- are paying 10 euros or 10 pounds per month (that's $13.97 and $15.98, respectively). Other perks include removal of periodic banner and audio ads.

Spotify offers, at least at this point, a significant up-sell, especially as more users become accustomed to listening to music with a smartphone device such as an iPhone. While details of the company's U.S. plan have yet to be announced, Spotify founder Daniel Ek recently told Pop & Hiss that talks with the labels were progressing well, and that navigating the publishing deals in America was the main holdup. 

Bronfman, in fact, spoke highly of the subscription model during the conference call. He signaled out subscription services offered by European telecoms such as Vodaphone and TDC as growth areas for the major. "The subscription model that we are promoting, or the access models, or however one wants to refer to them, I think will create much more value for us over time than the per-play or per-purchase models," Bronfman was quoted as saying during the call.

Working closely with U.S. telecom operators is exactly what Spotify intends to do, and its higher-priced subscription services would seem to be in line with the kind of companies WMG would continue to work with, as it has, in fact overseas. Ek will deliver a keynote on March 16 at South by Southwest, a day before the conference's music festivities begin and the final day of the conference's interactive sessions. It's the company's ambitions, say knowledgeable major label sources, to announce that it has secured deals with U.S. labels in Austin, although it's still unclear whether that will become a reality. 

It's entirely possible that the free version of Spotify will differ in the U.S., and may offer more restricted access, perhaps, than it does in Europe. Free streaming radio service Pandora, for instance, puts a cap on users after they hit a certain amount of free hours per month. A similar solution is an entirely plausible direction for the U.S. market, but Bronfman's comments likely shouldn't be interpreted to mean that he is going to turn his back on a service that has become a valuable partner for the label overseas.

-- Todd Martens

Photo: Spotify screenshot.