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Taylor Swift’s Spotify shake-off has Sony rethinking ad-based streaming music

Just how powerful is pop superstar Taylor Swift? Powerful enough to make Sony, a music industry titan, rethink streaming music. The singer/aspiring music mogul’s decision to walk away from what she called the “grand experiment” of Spotify caused Sony to pause when it comes to ad-supported streaming music, according to chief financial officer of Sony music, Kevin Kelleher.

“Actually, a lot of conversation has taken place over the last few days in light of that,” Kelleher said in a briefing Tuesday about the state of Sony’s recent restructuring, according to the Wall Street Journal. Sony is looking to find the best route to profitability for its entertainment arm, and Kelleher said Swift’s move away from the format raised questions about the value of streaming for both “the music company and the artist.”

Swift’s sudden move to pull all of her music from Spotify was a call to arms of sorts for all artists in the industry, many of whom have railed against the low dividends that come from streaming services. Swift is just the latest — and perhaps most powerful — voice to join the fight against the current streaming distribution model, which has recently begun to take a larger share of the overall profits in the industry, helping to push digital downloads to its first dip downward since the birth of the iTunes era. And Sony is taking notice.

However, far from walking away from streaming services altogether, Kelleher said that Sony is looking deeper into the subscription-based model of streaming, such as Spotify Premium, which has grown its membership recently to just around 12.5 million listeners, according to the site. Still, that number pales in comparison to the 50 million plus users of Spotify’s ad-based service.

Sony’s decision about ad-based streaming could have vast implications for streaming music as a whole

“The key question is, are the free, ad-supported services taking away from how quickly and to what extent we can grow those paid services?” Kelleher said, according to the report.

Sony’s concern about the profitability of streaming services for artists is highly intertwined with its own bottom line. As the struggling company looks to steer its massive bow back into more profitable waters, Sony is looking to avoid cannibalism of profits for its own streaming service, Sony Music Unlimited, and seeks to chart a better course toward profitability for artists under its own music label.

As one of the top three major music labels, Sony is in a powerful position in the industry. Its decision about ad-based streaming could have vast implications for streaming music as a whole, not only for Spotify’s ad-based arm, but also for ad-based streaming from competitors like Pandora, Rdio, and others, all of which depend on ads to shore up revenue.

And although Sony is not immune to the ripple effect felt by the total rejection of the streaming medium by an artist who has the hottest record in the country — a third platinum album in as many releases — in contrast to ad-based free services, Kelleher says the company is still “very encouraged” by the growth of subscription-based streaming in recent years.

Today’s response regarding Sony’s navigation of the ever-volatile entertainment industry is just part of Sony’s attempts at pulling back into the black. While Sony turned a profit in the last fiscal year for the first time in 5 years, the mega-giant, which has its hands in everything from music and movies to TVs and gaming consoles, expects to lose another $2 billion this year. Still, the company was confident about the future of its music arm, predicting it will pull in $4.8-5.2 billion in revenue by March 2018, up from a $4.8 billion revenue forecast for the end of the fiscal year this March.

Sony will have its eyes on the unpredictable digital music industry looking forward, holding tightly to its content as it looks to find the most profitable avenues for which to license its massive music catalog. And just like Swift’s recent decision, services like Spotify can only standby and watch as Sony decides whether ad-based music is worth the investment.