Online music: Is freemium model dying?

Online music (or online music streaming) is for sure a tough business, that I enjoy a lot as a musician and tech aficionado. I often wrote about it on this blog, so I decided to update the story as several milestones occured in the last monthes. My last post on this topic was in January, with a vid interview of Jonathan Benassaya, Deezer’s founder. At that time, he explained why the freemium business model (which is the same as a TV or a radio, in fact) was not working in the United States, whereas more successful in Europe.

So what happened exactly among the 2 main competitors, Deezer and Spotify (we could argue that iTunes music store makes part of the market, because it’s not really a pure-player – standard user comes from preinstalled software on Apple computer & devices):

  • Majors are buying shares to gain leverage (small share @Deezer and close to 20 % @Spotify)
  • New limits on catalog (songs you can listen with a free plan) and monthly free listening time : now 5 hours / month for Deezer and 10 hours / month for Spotify Free (with a 5-time listening cap on each song)

Revenue is the main problem to solve: according to Pascal Nègre (Universal Music France Manager), free streaming is a lot less profitable than paid streaming at present conditions (which is not very surprising, though). That’s why he sued Deezer recently, as the company was still giving access to songs not included in this year’s bargain. He also successfully managed to put pressure on Deezer. That’s why the freemium model applied to music is at stake now.

All in one, Spotify seems to be a winner this year. The company might be in close talks with Facebook to become a first-tier music provider. In addition, they raised another $100 million round in February with the russian DST fund. As is not in the race any more – since its acquisition by CNet, it seems that nothing can stop Spotify.

As a conclusion, we might say that content owners are more powerful than ever inside the web economy. In a constant struggle to put brakes on and control innovation. Staying passive is not positive either. But that wouldn’t be the first battle between companies that control distribution, and those that control production so, new developments can always take place (like for instance right now with online video – see recent ISPs stories that unilateraly limit bandwith from your home towards Netflix & Youtube).

External sources : AllthingsD, Frenchweb