Free music streaming shouldn’t be so free, Rob Stringer, CEO of Sony Music Entertainment, suggested Wednesday during a presentation to Sony Corp. analysts and investors.
The value of paid subscription “remains incredible,” said Stringer in prepared remarks during parent company Sony’s Business Segment Meeting 2024. But recent price increases — by Spotify, Apple Music, Amazon Music, YouTube and, most recently, Pandora — have widened what Stringer called the “price gap” between free and paid streaming. Now, Sony wants streaming companies to get more from their free listeners.
“In mature markets, we hope that our partners close that gap by asking consumers using ad-supported services to additionally pay a modest fee,” said Stringer. “This would help develop this segment of the streaming business to be more than just a marketing funnel for paid subscription and still be a tremendous value for users. We have a shared interest in better monetization of free tiers. At Sony Music, we think everyone is willing to pay something for access to virtually the entire universe of music.”
Free streaming provides an opportunity to attract paying subscribers but returns far less per listener than subscriptions. Even though Spotify has 62% more free listeners than subscribers, advertising accounted for just 10.7% of first-quarter revenue compared to 89.3% from subscriptions. Another round of price increases by Spotify this month in the U.K. and Australia portend additional price increases in the U.S. and other major markets. Further subscription price increases will widen the gap between premium and free streaming, and “even if advertising will become a better part of the story, it’s still a relatively small part of our overall revenue mix,” Spotify CEO Daniel Ek said during the April 23 earnings call.
Charging for ad-supported music would break from a long tradition of providing listeners with a free, on-demand streaming option. YouTube and Spotify are the two largest on-demand, ad-supported platforms that stream music. Amazon Music has a free tier with limited functionality. In the U.S., Pandora has about 39 million monthly active users for its ad-supported internet radio service that has less interactive capabilities than YouTube or Spotify. But paid, ad-supported streaming is common in the video world. Video on-demand services such as Hulu and Netflix offer low-price tiers with advertisements and charge higher prices to eliminate advertising altogether.
Sony Music also wants to extract more revenue from short-form video platforms such as TikTok that command huge audiences but provide relatively few royalties. “Premium-quality artistry drives the appeal of these services, with music being central to approximately 70% of videos created on them,” said Stringer. “These companies play a larger and larger role in music discovery and engagement amongst young listeners. More and more, these are primary consumption sources, and they need to be valued accordingly.”
Stringer, who does not comment during the parent company’s quarterly earnings calls, spoke and answered questions for 40 minutes about Sony Music artists, chart successes, growth opportunities and efforts in emerging markets. After highlighting Sony Music’s efforts in Latin America, India and China, he focused on the newest — and most vexing — technology on the music industry’s horizon. Artificial intelligence, he said, “represents a generational inflection point for music” and Sony Music will take “an active role” in creating a “sustainable business model” that respects the company’s rights.
But Stringer was clear that Sony Music is taking a hard line in the battle to shape AI in music. “We won’t tolerate the illicit training of AI models by reckless and unlicensed misuse of this art,” he warned. “We believe strongly that permission is the only way AI models can be trained with our content, and followed protocols of the EU AI act by sending over 700 letters to AI developers to opt our copyrights out of training.” Sony Music has also issued “over 20,000 takedowns of AI generated soundalikes over the past year,” he added, while working with legislators around the world “to shape policy and rights” on AI issues.
“With the right frameworks in place, innovation will thrive, technology, music will benefit and consumers will enjoy your experiences,” Stringer said. “We have prospered from disruptive market changes before so we are confident we can navigate this chapter successfully.”