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MIDEM – Labels and Digital Services panel


The panel featured two music services – Spotify and we7 – three labels – WMG, Sony and Beggars Group – and The Orchard. It focused on the deals being struck between labels and digital services, in as much detail as the participants are allowed to talk about. In particular, the way the streaming model has been evolving.

The panel: Simon Wheeler from Beggars Group, Steve Purdham from we7, Michael Paull from Sony Music Entertainment, Richard Gottehrer from The Orchard, Stephen Bryan from Warner Music Group, and Paul Brown from Spotify.

Moderator Paul Brindley (Music Ally) kicked off by pointing that digital income was up 12% in 2009 – “okay, but we’re still not there in terms of making up from the overall shortfall in recorded music sales”. However, he pointed out that streaming services HAVE been gaining traction, citing Sweden as the key example, where digital recorded music income rose by 10.2% last year.

Paul Brown from Spotify kicked off, talking about how the streaming music company is going. Having launched in Sweden in October 2008, then in the UK in February 2009, it now has more than 250,000 paying subscribers.

The company now has a 40-strong ad sales team – “a double-digit million Euro business now on its own” – but he agreed that there’s a well-established view in the industry now that “free drives pay” – getting people to sign up for the premium service, fuelled by the launch of Spotify’s mobile apps.

“It’s been a big driver, but every little thing you do can move the needle a bit,” said Brown, citing Spotify’s offline mode, and the catalogue as key selling points for the premium version.

we7’s Purdham said his service has also been commercially available for a year, following a year of technology development, then a year to get the licensing deals. “All of the economics are driven by the audience,” he said. “By telling nobody about we7, we’ve got two and a half million people who come to the site!”

Ad-funded is we7’s main business model, but the company is introducing a subscription model next week – 1st February – via PC and mobile. “Mobile subscriptions shouldn’t be a freemium model,” he said, warning that music fans are happy to pay for the mobility of their music collection.

It’s notable that neither service has spent a lot on marketing – neither has Pandora, pointed out Brown (who used to work there) – and Spotify doesn’t even have an external PR agency. “Ultimately it’s about the consumer, and if they love the product, that’s the biggest marketing you’re going to get in this day and age,” he said.

So has a corner been turned now with streaming – is this how consumers want to get their music? Wheeler said à la carte isn’t over by any stretch of the imagination – streaming is just another way to discover and consume music.

“We want a very wide and diverse musical ecosystem out there, where everyone can find what they feel comfortable with,” he said. “The rise of the streaming services is a really welcome addition to the landscape… but these services are going to continue to evolve and diversify. We need more players like that in the market.”

Sony’s Paull agreed that not all music lovers want the same thing – some want to own and some just want to access. “I don’t view one model as a substitute for the other, they’re complementary,” he said. “The two businesses? I don’t really see them as separate.”

Bryan pointed out that current web technology is providing a better experience than ever for streaming music. “The question is what is the right business model that you layer on top of that underlying technology?” he warned.

The concern, though, is whether streaming models won’t just cannibalise download revenues – people don’t pay as much, so the overall revenues will be less. Or will they? Bryan thinks not – saying that streaming has the ability to reach a wider base of consumers.

Wheeler agreed. “The industry is just going to have to deal with all these different models that are coming through. It’s no good saying: ‘That’s our business – selling a cylinder disc…'” He said the business needs to be structured around all these new models, with everyone – labels, publishers and other elements of the ecosystem – adapting rather than digging their heels in.

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