MIDEM 2010: Labels unhappy with legal; want more money

It's MIDEM time again - when hundreds of music industry executives fly to expensive hotels in the South Of France to tell each other how poorly their industry is doing.

As is now traditional, the event has kicked off with MIDEM Net. PaidContent are there, reporting that labels are starting to get tired of legal services which pay them small, but regular sums:

Indeed, sitting next to Spotify’s [SVP Paul] Brown on stage in Cannes, Warner Music Group (NYSE: WMG) digital biz dev SVP Stephen Bryan, suggested advertising returns from free are not enough to satisfy labels…

“We believe that the ad-supported services are most important in terms of aggregating an audience that can then be converted in to a premium service,” Bryan said. “We want to do more as a music company to make the paid services as attractive as they possibly can be relative to free options."

Warners, it seems, is worried that a legal-but-free service that is convenient and usable offers no reason to pay for a subscription.

That might be true. Spotify, to be fair, kind-of wish more people would pay for subscriptions as well:

"The real aim for us is to grow a real strong subscription service as well,” Brown acknowledged, perhaps keen to meet the label’s concern. “That’s becoming more of what Spotify is about.”

Spotify currently claims a quarter of a million subscribers out of a user base of seven million, which seems like pretty good going - but not good enough for Universal:

Universal Music Group’s international digital SVP last week said Spotify needs to convert 10 to 12 percent to make enough money to pay the record labels: “That to me equates to a sustainable business model.”

Hang about a moment, though: Spotify pay based on their users - so it might not be handing over as much money as the labels would hope for (labels always hope for more and more; they are corporations, after all) but it's not up to a supplier to tell a retailer where their sustainable business point is.

The trouble is, if you take the free services out of the marketplace - or, if you break them to a point where it's unpleasant or pointless to use them - you might very well increase the percentage of paid users against free users, but only because the user base will shrink. The free audience will just go elsewhere - and that means nobody will get paid anything. They don't learn, do they?