November 20, 2014 3 Predictions for the Over-Hyped Music Streaming Business
Music streaming is beating out music downloads, and has made piracy a non-issue.
Companies are jumping on the streaming bandwagon ever since Nielsen's consumer research showed that 68 percent of U.S. consumers reported streaming music during 2013. The U.S. music industry then published its review, showing that streaming consumption grew 42 percent in the first six months of 2014, compared with digital albums sales which decreased over 10 percent year on year. With Generator Research stating that the current 767 million worldwide music subscribers (36 million paying) are set to explode to 1.7 billion (125 million paying) by 2017, there is potential for a $2.9 billion revenue increase in the music streaming business.
Music Streaming Business Competition
As demand takes off on the consumer end, competition in the music streaming space has intensified on the business end. Consolidation announcements stacked up this summer for streaming providers as Google acquired Songza in late June, weeks after Apple announced it was acquiring Beats Music.
To add to the dominant players in the streaming industry, which include Rhapsody, Spotify and Pandora, Amazon recently launched is Prime Music service, offering over one million songs for free with purchase of its Prime membership.
Additionally, emerging player Rdio announced a partnership with Cumulus Media in late 2013. Cumulus has its hand in Nash FM, the only country music station in New York City, and with country music being one of America's most popular music genres, according to NPD Group, this partnership could give Rdio an edge. Recent news leaks also have provided details about a possible YouTube “Music Key” ad-free, audio-only subscription streaming service, reports PC Magazine.
However, the music streaming industry has yet to nail down a profitable business model. Spotify stated that they pay out 70 percent of their revenues in royalties, and despite raising nearly $300 million in capital, their cumulative losses exceed $200 million, claims PrivCo. Companies still have to reach a much larger number of those potential worldwide customers, increase their conversion rates to paying customers and meet their royalty payment commitments in addition to continuing to manage their current costs and future expansion in order to be profitable.
Cutting royalty payments are unlikely to go over very well with the record labels that provide music content, so part of the companies' plans may be to appeal to a more mainstream audience using marketing and partnerships. As a case in point, Spotify announced on Aug. 26 that it added free music streaming to its Windows Phone and larger carriers like T-Mobile also are offering unlimited streaming data for their users.
With so much anticipated, yet unproven, about the potential of the music streaming business, here are three predictions about its impact on the music industry.
Prediction 1: Failure of the Streaming Model Will Take Us Back to the Days of Patronage.
What if streaming fails? Surely, as the laws of economics dictate, music streaming companies cannot carry on in the red indefinitely, so it's not entirely unfair to ask this question. A handful of companies like Patreon may be poised to fill the void if it does. They currently act as a mediator, supporting the theory of old-fashioned patronage, which stems from the days of Michelangelo. Back then, rich patrons like the Medici family were able to commission works from their favorite artists with enough of a financial boon that artists could make a living.
In contrast, our society now focuses on catering to the consumer, which means offering a product for the lowest price possible. Already we have seen music sales decline to the point where, short of multiple streams of income, most less-recognized musicians are hard-pressed to earn a living by making music alone. Platforms like Patreon enable “fans to give support to their favorite creators,” which acts like crowdfunding. This financial support allows talented artists to meet their living expenses while creating their next piece of work.
Prediction 2: Streaming Will Let the Big Get Bigger, But the Talent Will Move Away From Music Labels.
Time reports that the biggest albums on Spotify's service may make more than $400,000 in royalties with payouts equal to a fraction of a cent per stream. However, smaller independent acts can make as little as $3,300 in the same amount of time, explains Spotify Artists.
Even big artists like Beyonce and Britney Spears have their own perfume lines to supplement their music earnings. Therefore, smaller artists are sure to have to work in a different market to earn enough money to make a living. Recognizing the need for supplemental income, Spotify allows artists to sell merchandise on their platform at no cost. Other talented but yet-to-be-big artists may increasingly turn to teaching, scoring, music composition, studio recordings and live gigs to guarantee income and stay away from the major recording labels, explains Digital Music News.
Prediction 3: Streaming Will Lead to Better Music If Artists Want to Get Paid.
According to an analysis by the Wall Street Journal, when an album is initially launched, most money is made through physical purchases or digital downloads. However, over time, the average paid streaming subscription customer in the U.S. was worth $16 per year to the record company, versus about $14 per year for digital or physical purchasers of the album. This means that if a song has long-term viability and is listened to on streaming services for years to come, the royalties paid to the record labels and artists will exceed those earned through song sales. All hail the re-emergence of quality lyrics, rhythm and melodies! So, who will be the next Beatles?
Reader Comments (1)
The whole discussion over whether or not Spotify is beneficial to an artists or not has been interesting to follow, especially with the buzz Taylor Swift has created. I've hear good and bad on both sides of the argument and can't figure out what to conclude. Considering the facts about royalty payouts has been vague, it's hard to figure out exactly how an artists would benefit from using a streaming service. It's another digital monster the industry will have to tackle working with! I liked your prediction number three! If streaming services do grow and become a lasting service, artists WILL have to work harder to produce songs of quality content...at least, we hope! Great post! It will be interesting to see how this all plays out and if any of your predictions will fold out!