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Spotify, though, has it can't make exceptions to its give-everything-away model. "Any content you restrict on your free service is going to be all over those places where no one pays for content like piracy," Jonathan Prince, Spotify's global head of communications and public policy, tells Rolling Stone. "We believe that our free tier is a critical element to driving subscriber growth, and, frankly, we're so committed to the freemium model because we agree so much with the labels that subscribers are key to bringing the industry back to health and we need the free 'funnel' to drive subscription."
A YouTube rep adds that the free service encourages users to make mash-ups and home videos, and ad revenues have grown 50 percent annually over the past three years; plus, rightsholders can pull their songs if they don't want to monetize them with ads.
Spotify pays out more than 70 percent of its revenues, from $10-a-month premium subscriptions and advertisements, to artists, labels and song publishers which means artists must often split a minuscule $0.006 to $0.0084 per stream with their labels. Services like the upcoming Beats Music and Rdio, which added a Pandora-style free radio service last September, are pointing the way to a potentially more profitable music-streaming model. "The view is, 'Piracy is bad, so legal "giving away for free" is better,'" Anthony Bay, Rdio's chief executive, tells Rolling Stone. "But as you see more and more, a lot of managers, artists and executives are saying, 'Maybe free was too good.'"
Major-label executives have predicted the "freemium" model could disappear by the end of this year. (Spotify's Prince disagrees.) "It's inevitable," says Gary Stiffelman, a veteran music-business attorney who has represented artists from Michael Jackson to Lady Gaga. "If you want Spotify to pay more per listen, they have to charge more."
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