Future dim for music streaming
Everybody loves subscription music services but the good times may be coming to an end,
These may be golden years for streaming digital music, so enjoy it while it lasts. Hundreds of millions of listeners have made the leap to streaming, abandoning CDs and downloads for free and monthly subscription services like Spotify, SoundCloud, Apple Music and Amazon Prime Music.
Consumers love them, gladly swapping ownership for access to a massive, on-demand universe of songs.
But the business has been treacherous, at least when it comes to turning a profit. The latest reminder came when Spotify recently detailed how big payouts to music labels have made it tough to turn its 71 million subscribers into a profitable concern.
Late last week, internet radio station iHeartRadio moved closer to bankruptcy, according to two reports.
And last year, Pandora, the originator of the personalised music station for the web and mobile devices, shut its New Zealand and Australian service to focus on the US market.
In fact, analysts expect to see a big shakeout in the coming years among on-demand music services, which have subsisted on a mix of ads and monthly feeds.
‘‘It’s an impossible business due to the high royalties that have to be paid out to the record labels, music publishers and artists,’’ notes Michael Pachter, an analyst with Wedbush Securities.
The good news for consumers is that as long as Apple and Amazon make plenty of money selling you other things, they can probably afford to keep offering streaming, no matter the costs.
The bad news is that the variety listeners have enjoyed for the past five years, as heavyweights counter offerings from independent services, may not last.
Music subscriptions are ‘‘great for consumers’’, says Gene Munster, an investor and analyst with Loup Ventures, because you get to listen to unlimited music. ‘‘You get a lot for your dollars.’’ But it’s ‘‘just a bad business. It’s hard to see how they will make money.’’
The strained dynamics of this business is nothing new for followers of early internet streaming pioneers.
Pandora has been struggling to turn a profit since its founding in 2000. The ad-supported service, which has more than 75 million monthly listeners, lost US$518 million (NZ$710m) last year, replaced its founder and chief executive with new management and has been paring back to basics after shedding its ticketing unit.
It’s looked into selling itself, according to news reports, and is also the target of an activist investor. Pandora declined to comment for this article.
Spotify, the No 1 music subscription service, told would-be investors that it generated US$4.5 billion in sales last year from its unlimited Premium service. However, its loss more than doubled from the year before as it paid money to music labels.
The Sweden-based company’s road map to profits includes scale – selling more subscriptions and bringing in additional revenue, primarily by reaching the large segments of society that have yet to subscribe to a service.
Spotify ‘‘could be profitable today if it wanted to,’’ says ParJorgen Parson, who had been an early investor in Spotify but no longer owns shares. ‘‘But it needs to invest to grow. That’s why it lost money in 2017.’’
But it’s going up against some deep-pocketed competitors who might not flinch at losing money, as long as it keeps customers on their own phone, operating system, shopping site or social network – where the real money is made.
Apple Music is the No 2 streaming service with 36 million paying subscribers. It doesn’t break out revenues for the unit, but tech analysts say the streaming music division is just a part of the overall picture, which is to primarily sell iPhones, iPads and computers.
Amazon also doesn’t break out sales for the Amazon Music Unlimited offering. Many music fans are choosing to listen for free on YouTube, which has deals with all the music labels and offers on-demand selections of hits and library material.
It’s free, and many of its 1 billion monthly users choose to listen without watching the video. YouTube gets more than 1 billion visitors monthly.
YouTube also offers a subscription service, YouTube Red, which allows for listening to music in the background, without ads - like when reading email or other functions on the phone. YouTube throws in a free subscription to Google Play Music, Google’s music service, as well.
Meanwhile, on the sidelines, several smaller companies are struggling to keep afloat with their digital music offerings.
The iHeartRadio music app, which offers personalised music, could be headed into bankruptcy, according to the Wall Street Journal, as it deals with a crushing US$15b debt.
SoundCloud, a privately owned Germany app that had been popular just a few years ago, was just referenced to by Twitter in its
2017 annual report, saying its
US$70m investment in the service had been mostly written off, as it was ‘‘not expected to be recoverable within a reasonable period of time’’.
Firms can only struggle for so long. Analysts who follow the music business expect some acquisitions, say one of the big tech companies eventually buying Spotify or Pandora for other means.
Such deals mean listeners could keep choosing from several services. But (cue the Bowie): these are still likely streaming music’s golden years.