Warner breaks ranks

Free online streaming music — a bandwagon that once carried a happy collection of artists, labels, and consumers — has lost a big passenger. Warner Music Group will no longer license artists to online streaming services such as Spotify, Last.fm, and We7, and has blasted the companies for being “not positive for the industry.”

Instead, Warner CEO Edgar Bronfman Jr. has called for streaming services that require payment. That is one tall order, and other industry players aren’t willing to share Bronfman’s assessment either. Officials with Universal Music Group and UK Music Manager’s Forum were quick to defend Spotify and its ilk as legitimate, sustainable financial models for moving the music industry forward.

However, Warner isn’t the only company to decry the state of streaming services. In a recent interview with Billboard, Larry Marcus, managing director of Walden Venture Capital, likewise notes that on-demand streaming requires high licensing costs and leaves labels with “no economic basis to do it.”

But in an age of rampant piracy, streaming services are the only large-scale stab at getting consumers to listen to music (and potentially purchase it) without having to steal it. Streaming services make money primarily from running advertisements on their websites; MySpace, for one, recently started interspersing radio-style ads throughout streaming albums. That said, some industry observers think the music industry should give these services time to flourish.

“Too often we hear of legitimate services being hampered by licensing difficulties and barriers to entry,” says Gregor Pryor, a partner at Reed Smith, in a recent edition of New Media Age. ”Even if streaming services don’t yield the immediate value that labels and publishers demand, they certainly provide a legal alternative for the next generation of music lovers, who aren’t in the habit of paying. Demanding tough licence terms or bleeding legal services dry will ultimately result in less legitimate music.”

Warner apparently is ready to throw in the towel over an industry segment that’s not going away anytime soon. Pryor suggests labels focus less on the ratio of streaming royalties to ad revenues and more attention on what people want. That just might be an axiom the music industry can take to the bank.