SoundTempest

Yesterday, the popular social music & streaming radio website Last.fm announced a new plan to make all music on their website free to stream on-demand, by any user. This encompasses all music available on Last.fm, including complete albums from all four of the major record labels, such as Sony BMG and Universal Music Group. This service, which is technically in a “public beta period”, is already available in the U.S., U.K., and Germany, with immediate plans to broaden coverage.

While Last.fm, as a large internet radio provider, already had license agreements with royalty collection agencies such as SoundExchange to compensate publishers and artists, this new service will add several new layers of monetization. Any artist or label is now able to create a payment arrangement with Last.fm, with a number of options to choose from upon registration. Even unsigned, independent musicians who upload their music can collect royalties directly for random streaming and on-demand plays of their music. Artists can also elect to not participate in the payment program, though their music will still be freely available.

The secondary layer of monetization comes from a premium subscription service which is also already in the public beta phase. This service will be required for users to stream specific tracks more than three times. Other tentative features for subscribers include removal of ads on the site, priority access during peak traffic periods, and the ability to turn a personal profile page into a “portable radio station” that can be accessed by anyone from any location. The subscription service will be offered for €2.50 per month ($3.65 in U.S. dollars.)

This subscription model, in addition to existing advertising revenue, will fund the promised royalty payments to artists and labels. Though it is likely that exact figures will fluctuate, Last.fm has put forth a basic explanation of how money will be paid. There are two variables that determine what category a stream falls into: whether the listener is a free user or paying subscriber, and whether the song is streamed on-demand or part of the radio service.

* One free radio stream will yield a portion of 10% of Last.fm’s net revenue from the free radio service.
* One premium radio stream will yield either a portion of 10% of the net revenue from the premium radio service, OR $.0005 (one twentieth of one cent), whichever is greater.
* One free on-demand stream will yield a portion of 30% of Last.fm’s net revenue from the free on-demand service.
* One premium on-demand stream will yield either a portion of 30% of Last.fm’s net revenue from the premium on-demand service, OR $.0005, whichever is greater.

It is not explicitly stated how Last.fm will distribute the portions of their net revenue among all the artists and labels who could possibly be collecting royalties, though presumably it will correspond directly with the frequency that each artist’s music was played as compared with the total number of streams in any given service.

Additional details on the new subscription service, royalty tabulation and collection, and other information is available at various pages in the Last.fm FAQ.

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To be honest, as an avid music fan and an independent musician, up until yesterday I had paid little attention to serious usage of Last.fm. As a listener, I do still have the software installed on my computer, though I don’t often use it because - frankly - my Winamp playlist is a bit embarrassing. Besides that, the social music concept never quite caught on with me, for one reason or another. As an artist, I was frustrated with the fact that I have limited control over how my music is presented; though I have at least 40 tracks in the system that I have personally written, arranged, or participated in, it is spread over at least 15 separate “artists”, because the system apparently differentiates between “zircon (Andrew Aversa)”, “zircon”, and “Sixto Sounds, zircon”, for example.

However, this announcement has grabbed my attention and interest. Internet radio seems to be a source of frustration for many people in the music industry, as there are millions of interested listeners and perhaps tens of thousands of streaming stations, but very little actual revenue involved. Case in point; in 2006, SoundExchange, the only organization licensed in the U.S. to collect royalties for internet and satellite radio broadcasts on behalf of record labels, artists, and performers, scraped together a mere $20 million from the entirety of the internet and satellite radio industries. Certainly a paltry number compared to the multibillion dollar size of the U.S. music industry, or the nearly $800 million revenue of ASCAP, which collects on more traditional royalty-generating sources.

Certainly, if anyone were to change this, Last.fm would be a prime candidate given their massive user-base, and the accompanying prime-rate advertising income. Now that they’re promising (and delivering) staggering amounts of free music from every significant major source and countless independent and underground ones, I have no doubts that they will attract even more users than even before. I might not ever have been a dedicated fan of the site myself, but admittedly, they’ve got one of the most polished and least obtrusive interfaces in the business. No clunky Flash design, no pop-ups, no “shoot the monkey” ads, no “Jedi vs. Sith” applications, no software to download (unless you want to scrobble.) All things considered, I’d say Last.fm really is at the top of the internet radio game right now.

But in this particular niche of the industry, is being the best even going to be enough? Last summer, I had the opportunity of hearing a talk by Pandora founder Tim Westergren. Though he didn’t give any actual numbers, he explained that Pandora required a vast amount of investment to create and maintain, and that it was not truly profitable yet, especially considering all the royalties that they need to pay. Last.fm appears to be doing better at the moment, but now that anyone can “cash in”, will they be able to sustain a healthy profit? The subscription system is a nice idea, but historically, music subscription services have underperformed. iTunes has maintained massive dominance over the digital music market share, for example, against many subscription-based competitors like Napster, eMusic, and Rhapsody.

Though they have a better shot at it than anyone else, I’m not convinced that Last.fm’s new initiative will truly create a net radio revolution like many in the music industry have been hoping for. I also strongly doubt that it will have any meaningful impact on independent artists. My main “zircon” profile lists over 65,000 plays scrobbled. That’s not a small number, but assuming $.0005 per scrobble (and remember, scrobbles don’t equate to actual streaming plays on the last.fm site) that’s only $32.50 in royalties - a truly nominal amount. Even looking at a major artist, like The Prodigy, their 12 million scrobbles would only translate to about $6000, a negligible number for an established, touring act with Platinum and Gold records to their name.

All that being said, who knows? Maybe thanks to this, Last.fm will be as valuable as YouTube or Facebook a year from now, and listeners and artists alike will be happier than ever. Either way, I’m interested enough to start scrobbling again. And I should probably remove Jock Jams: Volume 4 from my playlist.