The Changing Face of Online Music

In the wake of Apple shutting down Beats and Rdio filing bankruptcy, the industry is taking stock of the online music business models, trying to suss out who will be left without a seat in the next round of musical chairs. With the record labels clamoring for larger tributaries of the streaming cash flow, and the big players like Apple and Google consolidating, indie players like Spotify and Pandora are reassessing their strategies.

Pandora has purchased the technology assets of Rdio, which had a small but devoted following, and reportedly plans to launch a new on-demand service with the asset. Spotify, meanwhile seems to be doubling down on sponsorship efforts as it opens a treasure trove of data that its using to tantalize Madison Avenue, and packaging in a dashboard for artists and executives eager to learn more about their fans.

Earlier in the year Pandora bought its own analytics service, Next Big Sound, while Apple acquired a competing firm, the U.K. startup Semetric, which tracks music sales, illegal downloads and social media mentions.

Website TheVerge.com has tracked the financial fortunes of the streaming services in some detail, concluding that while each Spotify and Pandora generate revenue of more than $1 billion annually, but still struggle with profitability, due largely to record label payouts amounting to tens of millions of dollars and as much as 70 percent of ad revenues. Apple and Google have comparable terms, but as large, multi-tiered companies can more easily offset the costs.

As cord-cutting becomes rampant among television users, it’s hard to believe subscription services are going to swell among music fans, who more than any other entertainment consumer have become accustomed to getting content “free.” That makes innovative sponsorships the logical area for growth. Combined with the emphasis on mobile and video, the data cache streaming services are collecting positions them nicely for an expanded advertiser relationships.

“Because of the intense personal nature of music, Spotify knows as much or more about its users than even Facebook or Google,” Dan Rowinski writes on arc.applause.com, concluding that such companies “can take that data and apply it to advertising, music discovery and distribution in an unprecedented fashion.”

Apple acquired Beats in 2014 for a whopping $3 billion, and announced that it will discontinue the curated subscription service on Nov. 30, because it simply doesn’t need it any more, having successfully launched Apple Music. It remains to be seen whether its $10 per month paid model will take hold. Spotify’s subscription service is also $10 per month, and an estimated 70% of its users are on the “free,” or ad-supported plan. Pandora — which is technically delivers music via “internet radio” rather than “streaming” — has a larger overall audience, though only about 10% of its users subscribe in order to enjoy the service without advertising.

In a crowded market Tidal, the streaming service taken over by Jay Z in May, appears to be struggling to find its niche. One thing is certain; with competitors that can afford to view $3 billion investments as disposable, this is a cut-throat space where only the fittest will survive. At the same time, it’s pretty clear that innovative thinking will go a long way, and market leaders will be in the interesting position of helping to reinvent the music business.

 

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