May 27, 2014

Can Music Streaming Be Profitable?

Infographic: Will Music Streaming Ever Be Profitable? | Statista
You will find more statistics at Statista

These days music is everywhere, but that doesn't mean people are necessarily buying it. Streaming services like Spotify, Pandora, iTunes Radio, and even Youtube provide on-demand accessibility along with plenty of controversy. Music news sites are full of posts decrying how little artists make from internet streams and how much the companies providing these services struggle to earn a profit. If music streaming and instant access is to be the way of the future though, it will need a sound, and fair, business model to back it.

Here's a look from Statista at the profits of two of the biggest names in music streaming: Spotify and Pandora.

"Both companies are generating more than $500 million in annual revenue from advertising and subscriptions. Yet both companies share the same problem: As user numbers rise and revenue subsequently increases, so do licensing fees and other costs...An analysis published by Generator Research last year concluded that the streaming business in its current state was "inherently unprofitable" and that "no current music subscription service — including marquee brands like Pandora, Spotify, and Rhapsody — can ever be profitable, even if they execute perfectly...If Apple really acquires Beats Electronics to double down on streaming, the company will have one huge advantage over its competitors: It doesn't need to make money off streaming. Apple will likely be more than happy to take a loss with its streaming service, as long as it gets people to buy more of the company's gadgets."

Is the Beats purchase paving the way for Apple to succeed with music streaming by allowing it to be a loss leader, as big box retailers like Walmart and Target have done with CDs for years? Is this the only way music streaming can actually succeed? What do you think? 
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