Sustainability of music streaming

In the past, I have written a couple of articles with relation to music streaming services and their impact on the music industries. Sweden and Norway announced a growth of their recording industry due to streaming services.

However, a few days ago, the established music industry researcher Peter Tschmuck published an analysis about the question whether music streaming services are sustainable business models. The article is in German language, which you can find here: Is streaming the next big thing.

Tschmuck investigates different models of music streaming, as there are types like Spotify as a typical streaming service, YouTube as a video streaming website, Cloud Drive, Google Play or iTunes Match as cloud-based plattforms, personalised webradios like Pandora and Last.FM and classic webradios.

The critical aspect in making streaming services sustainable are the conversion of free / freemium users to paying customers, because the licensing costs of music are too high for ad-financed business models. However, this is not caused by too high licensing rates by the content providern (e.g. record labels) or collecting societies. Tschmuck provides an example of the royalty costs of Pandora to the US collecting society SoundExchange, which reveals that the rates are lower than originally set by the US copyright board.

Tschmuck expects a market consolidation, because the competition is high and the market doesn’t provide high profit margins currently, because of the low percentage of premium/paid users.

A lot of people call music streaming as the next big thing in the music industry. There is no doubt that streaming has a large impact on the current music industries. For consumers, streaming services offer a fantastic opportunity to explore and listen to music. The revenues for artists and labels, however, are quite low, which also questions the sustainability of streaming for artists and labels. It must be noted that streaming requires a long-term analysis regardings its revenues, because the services pay for each stream, even next or in a few years, contrarily to the download purchase. It is one question whether songs are streamed that many times in the consumer lifetime that they make the same revenue as the purchase. SpotiDJ reveals a number of 140 streams as equal number to one download. With the high amount of releases and fast moving music industries, this is a quite high number to reach.

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