The business model of free on-demand music streaming services like Spotify is "silly," a rival told CNBC, adding to the controversy about the site sparked by artists such as Taylor Swift.
Sweden-based Spotify operates a "freemium" service, with a free tier and a monthly $9.99 charge for a version without ads. And Apple Music also said it would offer a three-month free trial.
But Anthony Bay, chief executive of radio and music streaming company Rdio, said the models employed by the likes of Spotify were cannibalizing the music industry.
"The idea that giving it away for free leads more people to buy is flawed. You will convert a large number of people who would normally pay for something to the free service," Bay told CNBC by phone on Thursday.
Rdio allows people to stream radio stations as well as play individual songs. It also offers a free tier to stream radio stations and a $9.99 unlimited version to stream songs as well. The company also released a stripped down $3.99 tier recently in order to draw more people into paying.
Being a radio platform, Rdio it says it operates in a traditional way where users are not in control of what is played and if they like a song they can go out and buy it.
"You tune into a station and someone else picks the song and you pick the station. From a listening experience it is passive. And people say they like the artist and buy the record. It supports and doesn't cannibalize people spending money," Bay told CNBC.
User ‘land grab’
Bay's comments come as music streaming was thrust into the spotlight once more this week when Taylor Swift slammed Apple's plans to not pay artists during a three-month trial period of the company's Music streaming service. The criticism from Swift saw Apple quickly reverse this policy. The pop megastar has been an outspoken critic of music streaming services and last year pulled her entire catalog off of Spotify in protest over the amount it pays artists.
Spotify says it has 75 million users with 20 million of those being paying subscribers but the service – which was recently valued around $8.5 billion – is still posting a loss. Analysts said all of the streaming services are currently in the phase of acquiring as many users as possible.
"What they are all trying for is user acquisition, it's a land grab for users. A lot aren't focused on immediate profitability. That will come after users increase," Jack Kent, senior mobile analyst at IHS, told CNBC by phone.
Spotify has previously stated that as its user base grows artists will eventually get paid more.
Market ‘noisy not crowded’
Rdio does not release user numbers but its analysts said it has a relatively small market share compared to its bigger competitors. The U.S. start-up has been expanding: It recently launched in India, and Bay told CNBC that plans to launch its $3.99 version in Europe are almost complete.
Despite competition from deep-pocketed rivals, Bay says Rdio will be able to compete.
"The market is more noisy than crowded. There are a small number of companies that operate on a global basis. So we see this business as having room for multiple players," Bay said.
"Our premise is that by being a very music focused company. We believe we are a good position as that independent voice that stands differently in the market."
Clarification: This article has been updated to reflect that Anthony Bay was referring to on-demand free music-streaming business models.
