Menu
Music industry sucks life from subscription services

Music industry sucks life from subscription services

The music subscription sector is intrinsically unprofitable, report states

Subscriptions to music services are expected to more than double by 2017, but because those services pay 60% to 70% of their revenue to record labels and artists, the entire sector is intrinsically unprofitable, according to a new report.

The report, from industry analyst firm Generator Research, offered an analysis of the top services, including Pandora, Spotify and Rhapsody.

The report stated that unless the services can monetize their user base by entering new product and service categories, or they can sell themselves to a larger company that can sustain them, they're doomed to fail.

Pandora's cash flow compared to other music streaming services

"We cannot see any conceivable market scenario where the music industry would buy any of these players, let alone the whole sector," said Andrew Sheehey, co-founder and chief analyst of Generator Research, in an email reply to Computerworld.

Generator Research's analysis shows that no current music subscription service can ever profitable, even if it executes perfectly, because the music industry will never agree to significantly reduced royalties.

"For a listed company like Pandora this would mean that the company would need to be taken off the public market (as has happened with Dell)," the analysis stated.

Roads to profitability

One method that subscription services might be able to achieve profitability is to upsell mobile deals or bundles to subscribers. For example, a select package of mobile services would be sold through the music service provider, the report suggested.

Bundled services will likely begin to surface when the music subscription market reaches a certain critical mass. Then, users will see the arrival of a kind of "super bundle" where, for an additional monthly fee, paid-for downloads, for example, would be bundled with the base subscription offer.

"Services like iTunes Match and Google and Amazon are already heading in this direction," Generator research stated.

Music subscription services could also sell anonymous user behavioral data to advertisers and ad platforms that could use that information to better target their advertising, the report said.

Growth industry

The number of subscribers to both paid and unpaid music services is expected to more than double over the next three years, Generator Research stated.

The company estimates that last year, there were 767 million individuals worldwide using a music subscription service. Of those, 36 million paid for subscription-based access.

Pandora listening hours -- online versus mobile.

By 2017, the number of subscribers overall is expected to leap to 1.7 billion, with 125 million of those users paying for the service to access premium features while avoiding ads, the researchers said.

The increase in paid subscriptions means revenues earned from music subscription services will represent $2.9 billion, and "will be by far and away the most important source of growth that will, at last, allow the music industry to return to a period of growth, albeit modest."

From 2013 to 2017, the total revenue earned by all record companies worldwide will increase from $16.7 billion to $17.2 billion, or 3.2%. Yet, revenues from physical formats will fall by $2.09 billion and revenues from digital download sales will fall by $663 million. Revenues generated from performance and synchronization rights will increase, but only by $322 million, the report states.

Seeing marked growth by subscribers, private investors over the past decade have injected more than $1 billion to create a music subscription market. However, the only beneficiaries of those investments to date have been the music industry and users.

"Music subscription services providers are all losing money, and that is going to remain the case until they find a way to monetize a worldwide user base," the report states.

"Putting to one side the quality of the actual service, which most users would rate very highly, the facts show that Pandora -- when viewed objectively as a business -- is in dire straits," the report stated. "We are at a loss to know why the company's stock has performed so well, especially over the last 12 months." Over the past year, Pandora's stock price has jumped from $11.48 to $37.95.

This article, Music industry sucks life from subscription services, was originally published at Computerworld.com.

Lucas Mearian covers consumer data storage, consumerization of IT, mobile device management, renewable energy, telematics/car tech and entertainment tech for Computerworld. Follow Lucas on Twitter at @lucasmearian or subscribe to Lucas's RSS feed. His e-mail address is lmearian@computerworld.com.

See more by Lucas Mearian on Computerworld.com.

Read more about e-business in Computerworld's E-business Topic Center.


Follow Us

Join the New Zealand Reseller News newsletter!

Error: Please check your email address.

Tags consumer electronicsSpotifye-commercePandoraRhapsodyPersonal Technologye-businessinternet

Featured

Slideshows

Kiwi channel comes together for another round of After Hours

Kiwi channel comes together for another round of After Hours

The channel came together for another round of After Hours, with a bumper crowd of distributors, vendors and partners descending on The Jefferson in Auckland. Photos by Maria Stefina.​

Kiwi channel comes together for another round of After Hours
Consegna comes to town with AWS cloud offerings launch in Auckland

Consegna comes to town with AWS cloud offerings launch in Auckland

Emerging start-up Consegna has officially launched its cloud offerings in the New Zealand market, through a kick-off event held at Seafarers Building in Auckland.​ Founded in June 2016, the Auckland-based business is backed by AWS and supported by a global team of cloud specialists, leveraging global managed services partnerships with Rackspace locally.

Consegna comes to town with AWS cloud offerings launch in Auckland
Veritas honours top performing trans-Tasman partners

Veritas honours top performing trans-Tasman partners

Veritas honoured its top performing partners across the channel in Australia and New Zealand, recognising innovation and excellence on both sides of the Tasman. Revealed under the Vivid lights in Sydney, Intalock claimed the coveted Partner of the Year 2017 (Pacific) award, with Data#3 acknowledged for 12 months of strong growth across the market. Meanwhile, Datacom took home the New Zealand honours, with Global Storage and Insentra winning service provider and consulting awards respectively. Dicker Data was recognised as the standout distributor of the year, while Hitachi Data Systems claimed the alliance partner award. Photos by Bob Seary.

Veritas honours top performing trans-Tasman partners
Show Comments