Analysis: Music industry banks on free in effort to get paid

Fri Sep 16, 2011 10:07am EDT
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By Yinka Adegoke

NEW YORK (Reuters) - The future of the music business is social, free -- and hopefully profitable.

After a decade when sales tumbled 50 percent, record labels cut thousands of jobs and more than 35,000 consumers got sued for illegal downloads, the industry is coming around to the idea of giving away songs as a way to get customers to pay.

This week MOG and Rdio became the latest U.S. digital music startups to offer online streaming access to millions of songs for free, hoping that the slick user-friendly interfaces and deep libraries will convince users to become paying monthly subscribers.

They follow London-based Spotify, whose 18-month-old streaming music service has taken Europe by a storm. After numerous delays, it entered the U.S. market in July.

Other digital services with free access to music will emerge in coming months. Beyond Oblivion, a start-up with backing from News Corp, plans the Boinc service, which will take a different approach by enabling free access to music for users who buy special devices.

The key to success for these services -- and by extension the record labels -- is the conversion rate to paid from free. Spotify has said it has more than 10 million registered users with 1 million now-paying subscribers, for a conversation rate of 10 percent.

Music streaming services typically charge $5 to $15 a month to play any song or album the user wants from a library of songs via computers and mobile devices.

The free/subscription trend comes as sales of downloaded songs have begun to slow down at Apple Inc's iTunes, the No. 1 music retailer by far.   Continued...