Debate over the economics of music streaming has flared in recent weeks following Taylor Swift's abrupt withdrawal from — and subsequent, remarkably pointed campaign against — Spotify and other streaming services that offer music free to consumers without requiring a paid subscription. "I'm not willing to contribute my life's work to an experiment that I don't feel fairly compensates the writers, producers, artists, and creators of this music," she told Yahoo. "And I just don't agree with perpetuating the perception that music has no value and should be free."
Spotify has since responded by reaffirming its commitment to free music, but Swift's salvo has had a galvanizing effect on streaming skeptics who have long questioned the wisdom of "freemium." Earlier this month, country superstar Jason Aldean pulled his latest album from Spotify; on Tuesday, Sony Music Entertainment EVP and CFO Kevin Kelleher suggested that his company was considering withdrawing its support of free streaming services.
Standing to gain from all of this are premium services like Rhapsody and Beats Music, which don't offer a free option and have struggled to compete with Spotify's growth and visibility. Here, Rhapsody CFO Ethan Rudin makes the case for why the backlash against freemium is not only good news for his company, but for the music industry at large.
Ethan Rudin: When we were pioneering streaming 13 years ago, it was a time that music was really worth something. Back then, most people paid for compact discs, but we thought the digital streaming model was more convenient and provided a great value. Then, as now, we felt like music was not something that is given away for free. We believe that music is very valuable and artists should be fairly compensated for it. It's why we behave the way we do and always have.
It's now clear that streaming is a format that's here to stay. It provides convenience and access that all consumers want, and it's reliable for artists. The revenue for streaming music has crossed over $1 billion, tripling since 2010. But as streaming continues to grow, everyone in the music industry has a choice to make: We can be productive members of this transition and support paid streaming that fairly compensates artists and incentivizes them to create great work, or we can continue to devalue music by giving it away and training consumers to think that music isn't something to be paid for.
Free streaming services send the wrong message to consumers. If you continually offer somebody the perpetually free model, they're always going to opt not to pay for it. Streaming services like Spotify offset the cost of their free tier with ads, so at the end of the day, someone is paying for that content. But there are two things we think are wrong with this model:
1) We feel that music is not something that should be interrupted. It creates a mood, and an emotion, and a setting — it's not an advertising opportunity unless you're looking to cheapen the experience. Rhapsody has always been an ad-free service and it's something that we're proud we've been able to maintain.
2) There's the matter of what you're training consumers to be doing. Are we teaching future generations that albums are not important? Are we teaching young people to think that music is perpetually free?
It's been exciting to see in recent weeks that people are now starting to delineate between streaming services and to think through who in the music industry is doing right by artists and rights holders. Whenever we hear about artists complaining about their streaming rates and how difficult it is to make a living, it's upsetting. We've always taken it upon ourselves to make sure that artists and rights holders get paid appropriately for their work.
At Rhapsody, we doubled our subscriber base to over 2 million this year and we feel that there's a huge opportunity for growth and that paid streaming services can work for the whole industry. We work very closely with our label partners to be good stewards and to help everyone think creatively about how to grow their share of the pie, grow the pie itself, bring in new revenue, and break new artists.
Over the last year, we've seen several exciting new entrants to the premium streaming space, validating the work we've been doing for the last 13 years. To artists and labels out there, if you want to be with a streaming service, go with a paid one. We're interested in maintaining a sustainable, competitive music business for everybody to participate in and earn a living.
Comments have been condensed and edited from a phone interview.