Music: Too Expensive to Be Free, Too Free to Be Expensive

MySpace, rumored to be on the verge of purchasing the free music streaming site imeem, is struggling to keep up with its own payments to music copyright holders, according to a top News Corp executive — a problem that has plagued every other licensed free music service.

The digital music doubters could be right with the contention that advertising revenue can’t cover the costs of licensing music. Meanwhile, illegitimate free music sources continue to proliferate, rendering paid music subscriptions irrelevant for most music fans.

Advertising was supposed to be music’s magic bullet, enabling fans to get the free music they’re going to find anyway while contributing at least something to copyright holder coffers. That dream is fading fast. As legitimate sources for free on-demand music dry up, fans will likely head back to file sharing networks, which is bad news for everyone involved in music — except for, perhaps, hard drive manufacturers.

Evidence and rumors are mounting to support the idea that free music websites are unfeasible.

• MySpace Music — the on-demand, ad-supported music service not to be confused with the band pages on the site — is losing money and could soon add subscription option. News Corp Digital head Jon Milleranswered his own questions on the topic last week at a conference in Monaco. “Do I think the freemium model works, consistent with earlier discussions? Yes I do. Has that been figured out? No, it hasn’t, but it’s certainly something to look at,” said Miller. “Is [Myspace Music] profitable? No, it’s not. On an operating basis it’s getting in, but no, because of the payments due to the music companies.”
• Ad-supported music service imeem, which has been the subject of considerable speculation related to its running out of money over the past year, is reportedly in late-stage discussions to be acquired by MySpace, which has its own problems, as mentioned above. Like MySpace, imeem’s biggest challenge has been covering payments to labels.
• MOG, which planned to launch a free, ad-supported on-demand streaming service, decided that was impossible and went with a $5/month subscription instead.
• Spotify pushed back its U.S. launch to early next year, with CEO Daniel Ek admitting that when the service launches in the states, it might not be the same as it was in Europe where music fans enjoy a free, ad-supported version of the software or a 10-euro-per-month subscription option that removes the ads. A bundled version of the service that comes with your smartphone or ISP is an increasingly likely option.
• Google added play buttons to its music search results that allow anyone to listen to a song once for free through Lala or MySpace’s iLike service, after which they have to pay for it. If Google can’t figure out a way to support something with ads, it arguably cannot be done.
• YouTube remains the only licensed, free, on-demand music service that promises to break even, mostly because the visual nature of the services makes users more likely to encounter advertisements on the site. When the labels launch their Vevo YouTube spin-off, they hope to generate even more money from ads than YouTube does.

The upshot of the labels’ licensing demands: Music will continue its transformation into something that accompanies a visual element.