Making Free Work (Hint Cannibalize Radio Not Sales)

2015 started with freemium fighting for its life. 7 months in and it’s still alive and well but the free debate rages on. It is clear that some form of free experience drives paid subscription uptake but it is also clear that too much free reduces the conversion opportunity. A one month trial is probably too little but a year of free is too much. 3 months is emerging as the free, or close to free, sweet-spot as evidenced by Apple’s 3 month free trial and Spotify’s 3 months for $1 a month. In fact Spotify’s cheap trial strategy underscores the constrained ability of unlimited free to convert to paid. Free is crucial to ensure the acquisition funnel is filled but a new approach is needed, one that is more sophisticated than simply stating it is all free or no free.


One of the biggest concerns about free streaming is that it cannibalises sales. Just for the record, it undeniably does. At least on-demand free does. Free has always been part of the music industry, mainly in the form of radio. But the crucial difference with radio is that listeners do not choose what they are listening to. Free streaming needs to start behaving much more like radio, to follow the Pandora model. Crucially it needs to compete head on with traditional radio. Radio is a $46 billion industry globally yet less than 10% of that flows back to labels and publishers, and then on to artists and songwriters (see figure). By contrast the majority of music sales flow back to rights holders and creators. So the music industry needs to optimise streaming to cannibalise radio more than it does sales. To make the majority of free streaming only partially on demand.

The number one streaming metric that the music industry should be paying attention to is the share of total radio listening time that Pandora accounts for. The more that that increases, the more direct revenue flows into the industry.

free decision tree

But at the same on-demand time free streaming’s role in converting subscribers must be protected, albeit within very strictly defined parameters. Subscribers have two key user journey entry points: 1) a trial 2) free. Streaming services need to make better use of their analytics (which are increasingly sophisticated) to identify which free users to invest time and effort into trying to convert and which to side line. Neither Spotify or Deezer is in the business of free music, they are in the business of subscriptions and simply use free as a marketing tool. So they have no reason to cling doggedly to free users that show no sign of converting. Instead after a sufficient period of free music has been offered users should be pushed to subscriptions or onto a radio tier (see figure). There is no business benefit to the streaming services nor rights holders to have perpetual on demand free users.

The assumption that free music is some sort of internet right is symptomatic of the internet’s growing pains. In terms of market development we’re probably at the adolescence stage of the internet, the stage at which carefree childhood starts to be replaced by responsibility and consequences. We’re seeing this happen right across the internet economy, from privacy, data, free speech, jurisdiction etc. Because music has been free online for so long consumers have learned to accept it as fact. That assumption will not be changed any time soon, and try to force the issue too quickly and illegal services will prosper.

Of course YouTube is, and always has been the elephant in the room, buoyed by the schizophrenic attitude of record labels who simultaneously question its impact on the market while continuing to use it as their number 1 digital promotional channel. While the tide may finally be beginning to turn, don’t expect YouTube to go anywhere any time soon. But should the screws tighten do expect YouTube to stop playing ball. As they have made clear in various rights holder conversations, an onside YouTube, warts n’ all, is far more appealing prospect than a rogue YouTube. But implicit threat or otherwise YouTube must be compelled to play by the same rules as everyone else. As I’ve said before, YouTube needs to look more like Pandora.

Competing against radio needs to become the modus operandi of streaming. Only when free music on the internet evolves to more closely resemble radio will the industry be able to fix the apparent paradox of increased consumption translating into reduced revenue.

7 thoughts on “Making Free Work (Hint Cannibalize Radio Not Sales)

  1. Pingback: Free streaming must look act more like radio: Maki… | The Richard W. Hendricks Experience

  2. Radio might be free to the punters, but airplay pays way more via the PRS than streaming does. Obviously you need to be a songwriter to benefit, but PPL pays out to the players as well.

  3. Interesting post. However, being in the business of subscription, what’s the role of telco bundling? If users arrive to premium subscriptions via cellphone plans, what happens if the telephone company decides not to renew a deal with the streaming platform? How can the subscription model be competitive if your premium users aren’t really “yours”, but the telco’s?

    Thanks for all the insight always. You should consider coming to Colombia, South America for the Bogotá Music Market. It would be very interesting to have you here. Let me know via email if you’d be interested.

    Many thanks

    Alejandro Marin

  4. FREEMIUM and FREE are a relentless virus. it has to be eradicated. THE ARTISTS, not the labels, not the publishers, MUST be liberated by the regulators. the buck has to BEGIN and END with the creators. the creators should be the ones rewarding those worthy of compensation, not the other way around. lobbyists and political representatives don’t give a shit about artists rights, and never will until the artists are in control and all HAVE the fat wallets. lobbyists and the representatives in political circles they influence, only understand one thing…MONEY & POWER. until the MAJORITY of (real) music artists ARE liberated, fairly compensated, and controlling their own destiny, the recorded side of the business is DOOMED.


  5. Pingback: Start up: a huge new Android security risk, Google+ downgraded, iTunes’s giant mess, and more | The Overspill: when there's more that I want to say

  6. Give me some form of monetization from SoundCloud, YouTube, and I’ll be fine. The internet is too vast to rely on Spotiguys and similar. In the end, people want to search for a particular music, hit play and go. There’s too much intermediation right now in this whole streaming game, and much of it will only benefit the 3 music conglomerates… Because they feel the need of still getting in control. The only sign of new breathe for the indie artist who wants to distribute content through a major platform, in my opinion, comes from Google Play, which lets you create an artist profile and provide your content direct to their servers and without any agregator. All the rest is just about generating revenues, atracting shareholders and speculation from the press.

    People, just keep providing good music and that’s it. There’s nothing to get hung about; rivers will continue to flow and the music will live on.


  7. Pingback: The Global Implications of VKontakte’s New Music Licenses | MUSIC x TECH x FUTURE

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