Why Record Labels Hate Free Streaming Tiers So Much

Labels hate free streaming tiers on the Music 3.0 blogIf you were to poll record label execs off-the-record on which music streaming service they like the most in a strictly business-sense, chances are that Apple Music would end up as the clear winner. Why? Apple has steadfastly refused to institute a free ad-driven tier.

Even though labels, artists, songwriters and publishers realize revenue from a free streaming tier thanks to the attached adverts, it results in only a fraction of the income of a paid monthly tier. In the case of YouTube, the revenue is even less than from the streaming services, resulting in what the industry likes to refer to as the “value gap.”

That may well be one of the reasons why YouTube is launching yet another new paid service with its YouTube Music and pricier YouTube Premium tiers. Even if it fails to gain marketshare as its previous Music Key and YouTube Red services have done, at least parent Alphabet can point to the $9.99 and $11.99 monthly fee and say, “We’re trying, but people still like free a lot better.”

But free ad-driven tiers represent a hidden historical predicament that record labels have faced for about a hundred years now. When their product is played on the radio, they don’t get paid for it. Unbelievably, the United States is one of only four countries that doesn’t pay artists (and therefore labels) when their songs are played on the radio. The others? North Korea, Iran and China!

Songwriters and publishers have always been paid for airplay, but despite the best lobbying efforts of the RIAA, the National Association of Broadcasters (who has much deeper pockets and contributes to many political campaigns) time and again managed to thwart any legislation that threatens the status quo.

With that piece of institutional knowledge ingrained in the legacy of the three major and some of the older indie labels, anything with the “free” label subconsciously points back to the fact that radio got all that free product for so long, and all the labels got was free marketing.

The irony here is that despite what the latest surveys and studies say, radio has less influence on music than ever before. With an ever limited playlist dictated by station group program directors who are actually taking their cues from the latest streaming trends, radio is only helpful pushing a song to super-hit level. Hits are not “broken” on radio these days. It’s probably not even possible, thanks to the fact that radio has virtually turned its back on local music (or anything else local, for that matter).

If you look at it from the point of view that artist and label get paid at least something for most streams (there are numerous exceptions on YouTube, but we’re speaking in generalities here), then it might look like everyone comes out ahead with ad-driven streams.

On the other hand, free airplay helped move a ton of expensive plastic products with a much higher net value in the past, and that meant a lot more money in someone’s pocket (yes, the artist always got the short end here too). Those days are now long gone and not coming back.

So coming back to the premise of the post, the real problem is how those streaming tiers are described. Had they been described as “ad-driven” instead of “free” from the beginning, there might have still been some debate as to the royalty payouts that were forthcoming, but at least there wouldn’t be the collective executive shudder that occurs whenever the word “free” is tossed about. And the only one that needn’t take notice is Apple Music.

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