Starting next Tuesday, February 15th, Last.fm's "radio service" in its mobile apps, and some home entertainment devices will "become an ad-free, subscriber-only feature" according to an official blog posting . It'll remain free-to-access on its website in the U.S., U.K., and Germany and for U.S. and U.K. Xbox and "Windows Mobile 7 phones" and through its desktop app.
What's the reasoning here? Money, of course. The blog posting explains why the change is due to a desire to move to an ad-supported model. In the U.S., Germany, and U.K. the free streaming model for desktop access to Last.FM's tracks works, with enough eyeballs-on the adverts to bring income to Last.fm. But in "other markets and on emerging mobile and home entertainment devices, it is not practical for us to deliver an ad-supported radio service." Last.fm spins it as a move to deliver "what we believe is the highest quality, lowest cost ad-free music service in the world," which may or may not be true. What is certainly true is that the experimental ad-model just isn't delivering enough cash.
In some senses, this move is not at all surprising: Similar services are already using a paid-only model to deliver streaming music, and Last.fm notes this "change brings us in line with other music services that already charge you." To maintain its user base, Last.fm is pricing the service carefully--"for the cost of a fancy coffee" ($3) you'll get one month's access over "all platforms."
But the move could be taken as a bad sign for Last.fm itself, and also for Spotify's oft-delayed entry  to the U.S. market. For starters, erecting a paywall hasn't exactly been a smart move for the newspaper industry, and though a paid subscription music service beats digital music industry-leader Apple to the punch (it's long-awaited subscription service has yet to surface) it's not as attractive to consumers as free-access, even given Last.fm's strong brand reputation.
Negotiations with the recording industry are apparently a big barrier to Spotify's U.S. entry, (with free access to content being a large stumbling  block), and the music business may become more reluctant to license its music if that's proven to be an unsuccessful financial model.
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