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Music Streaming 2.0 Let the battle begin

I think a streaming and subscription model is going to be our future“, so said the top man at Universal Music UK David Joseph in an interview with the Guardian newspaper. It’s evident that much of the development in the music business in the past few years has been in the streaming and online radio service area, but it’s still unusual to hear major label top brass conceding that the business model built upon lucrative sales and downloads is giving way to the more competitive environment of streaming. After all it’s been the major labels who have held up developments in the field with protracted negotiations over royalties and rights management.

image courtest of www.metalinsider.net

With the Internet playing an ever-more-important role in daily life and high speed connections getting ever-more, well, high-speedy, it’s no wonder people are consuming music via free or very cheap online streaming sites. And research by Music Ally / The Leading Question reveals a trend amongst teenage music fans whereby music streaming is fast becoming more important than filesharing. So instead of looking upon digital streaming as the enemy of the music business it makes more sense to view it as the next stage in its evolution.

A graphic from Bain charting the 25 years in sales in the (US) music industry by music release format (see below) would support this view. At first glance you might simply see an industry in rude health in the 1990s thanks to the popularity of the CD, until a drastic decline occurred in the noughties as declining CD sales are not replaced by the new digital format. However spend a little longer thinking about the stats used to make up this chart and you’ll realise that (aside from the issue that the graphic does not adjust for inflation* which is likely to show CD sales in a more favourable light) right about the time that revenue from digital music starts to freefall is also when many music streaming services took off, most notably the 2005 launch of YouTube.

* Update: Some clever folks have calculated those inflation adjustments and charted up the resulting figures – check it out here.

Music sales by format (Bain analysis)

Looking at it from this perspective you can see that the traditional music industry’s failure to properly engage with online streaming is an industry shooting itself in the foot. But no longer; the second decade of the noughties looks to be the time when the majors open up the conversation with streaming providers and a handful of new services scheduled for this year are set to drastically change the music listening landscape. Here’s a round up of some of the biggest news in music streaming this year:

Apple to launch a streaming service which allows music streaming between all Apple-supported devices. Rumoured to launch along with new iPhone in June 2011

Google Music – rumours have been around for over a year about an iTunes competitor from Google which would integrate streaming and cloud-based storage elements. Official announcement could happen in May 2011.

Spotify – the streaming service that has taken the UK and some Euro countries by storm is in talks with US labels with Sony already signed and rumours of an agreement with EMI. Could mean a US launch in summer 2011.

Long time online radio service Pandora continue to go from strength to strength with huge growth in the US in 2010. Now the company want to go global and are raising cash to do so.

French on-demand service Deezer to go global with a business model tied in to mobile phone operators.

Virgin Media to launch a service in the UK which integrates with iTunes and serves up songs from similar genres.

And let’s not forget YouTube which is in essence the biggest music streaming site out there. It’s certainly not going anywhere.

So as new and improved streaming services battle to extract a monthly subscription fee from users, what does this mean for independent artists? Major labels have artist rosters of sufficient size and popularity to yield a healthy cut of subscription fees and advertising revenue but the majority of independents are unlikely to make significant cash directly from streaming sites. What is really going to matter is the opportunity streaming services deliver in terms of exposing music to new fans. Plays on streaming sites will become a more important performance metric and artists will need to work to close the loop to convert streams on, for example, Deezer or Pandora into email sign ups, Facebook connections and eventual sales. An affordable distribution solution which distributes music to all of these streaming services on behalf of independent musicians will also be key; a Tunecore for streaming sites if you will.

And then there’s the most important question, will an expanded landscape of music streaming make artists and labels money, or as the traditional industry has always feared, simply cannibalise the download market? David Joseph of Universal UK is optimistic; “The revenues are significantly growing and I fundamentally believe that streaming and subscription models with unlimited access on all devices are the future of our business. But will people still listen to albums, or just single tracks, or send playlists to their friends? Answer: all of the above.

7 Comments

James Chatman 9:36 pm - 21st February:

We’re experiencing a fascinating stage of the music industry’s development. I think there is a potentially lucrative market out there for streaming. However, it won’t be long before this market is saturated.

On another note, the fundamental issue that deters me personally from streaming sites is the fact that I can’t save the songs to my computer and mp3 player. I love listening to music in my car – streaming services won’t allow me to do this conveniently.

Will streaming save the major labels? In my opinion, no.

eilish 2:58 pm - 22nd February:

Thanks for reading and commenting James!
I agree – in the short-medium term it’s unlikely that streaming will replace downloading but long term who knows?
Physical music and merch ownership will always be a part of the equation and is where musicians can make the highest margins but in the long term digital downloads may be usurped by streaming services. The smartphone / app revolution has shown us this is a real possibility and further developments happening in in-car technology point to a future when we’ll be constantly connected in other environments too.

John 3:06 pm - 22nd February:

You should also include Promusic.fm on this list. They are a new and very innovative free streaming service with a song insertion service for indie artists, and a social game where members create animated festivals and share on Facebook. This is the first time I’ve seen a site combine music streaming with social gaming, sort of like “Pandora meets Farmville”

Chris de Palmer 9:37 pm - 27th February:

” what does this mean for independent artists?”
I’ve built-up a study showing that revenues from streaming services are far from being negligible for artists & labels.
Based on several assumptions among which fans subscribing to 10 euros monthly packages, 1 500 euros monthly revenues could be generated for independant artists with a 10 000 true fans base.
This study is available for free on http://palmrocksongs.com/publications

eilish 4:52 pm - 1st March:

We’ll definitely check that out Chris – thanks for reading!

jossi 9:58 pm - 2nd February:

Yes, there is an immediate problem with how music is incorporated with technology. I remember back in the day when you either went to a concert or had a walkman…. forget discs. My fav music site to stream from is grooveshark.com. Just my 2 cents… http://www.musicnewb.com/2012/02/02/why-the-music-industry-fails-part-2/

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