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Music industry banks on free in effort to get paid

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

Yinka Adegoke

Monday, September 19, 2011

NEW YORK, USA: 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.
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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.

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