Streaming music gets one thing right. Services like Pandora, Rdio and Spotify are amazing for the consumer, and in that singular way, the music industry hasn’t been better in … probably ever.
At long last, we have the celestial jukebox we dreamed of a decade and a half ago. Nearly any song is at our fingertips in seconds and that privilege costs far less than what an album used to, if it costs anything at all.
This bubble of end-user bliss comes at the expense of almost everyone else, from artists right down to the people who pioneered the idea of renting music over the Web to begin with. How long can it last?
License To Ail
Streaming services are ailing. Pandora, the giant of its class and the survivor at 13 years old, is waging an ugly war to pay artists and labels less in order to stay afloat. Spotify, in spite of 6 million paid users and 18 million subscribers who humor some ads in their stream, has yet to turn a profit. Rhapsody axed 15% of its workforce right as Apple’s iTunes Radio hit the scene. On-demand competitor Rdio just opted for layoffs too, in order to move into a “scalable business model.” Hmm… no one wondered about that business-model bit in the beginning?
Meanwhile, Turntable.fm, a comparatively tiny competitor with what should have been viral DNA, just pulled the plug on its virtual jam sessions this week—and it just might be the canary in the coal mine.
Not-So Disruptive Disruptors
Streaming services rely on a weird conceit, but it's not a new one. Like record labels, these companies can’t exist—they literally have no product—without musicians. Yet hardly any musicians are pleased with the advent of digital streaming, and understandably so—they were already screwed by greedy record labels back when people went into actual brick-and-mortar stores and walked out with albums; so screwed in fact, that it's entirely possible to sell four million albums and not make a cent. Meanwhile, record labels are happy to throw their weight behind anything that isn't the old iTunes model, even if it's Apple's own Pandora copycat.
In our already thoroughly broken pre-digital music system, many, many people got paid before the artist themselves. Digital music services elbowed their way into a crowded room, cut what seemed like a good deal with the major labels and started handing music out. And now there’s not enough money to go around. Who’s surprised? Everyone except the record labels. Huh.
A Broken Model
These companies just aren’t bringing enough cash in compared to what they pour out in royalties. Ironically, approximately no one thinks that streaming services pay enough to license the music that they rent out to listeners, except the companies themselves, of course.
Poor them, shouldn’t they pay less? But for every Rihanna-level talent that gets paid out $3 million annually (that's to her label, not the artist herself as Spotify might like you to think), there are a thousand artists furious at music’s brave new business model. And even Rihanna is pissed, though that anger is arguably misdirected.
Beyond their broken business model, these companies share a lot of dubious promises to investors, shareholders and artists. Rdio hopes to get in the black by luring in more ad-supported subscribers. Spotify promises that when it scales up to 40 million paid users—it’s currently at 6 million—that artists will get paid five times what they make from the service today (the math works out, but that 40 million figure is a big “if"). Pandora, unprofitable and crippled by royalty fees as its user base grows, promises that mobile ad revenue can offset the revenue it’s hemorrhaging.
The Cockroach Lives On
For digital music to really be disruptive, it needs to change something—not just add another cook to the kitchen.
Considering how artists have suffered under the thumb of the major labels (now down to Sony, Warner and Universal), they're rightfully suspicious of anyone willing to hop into bed with their trifecta of sonic overlords. As an avid music listener, I have to believe that music-distribution platforms like Pandora, Spotify and their ilk are less evil than the stalwarts of the recording industry. But as they continue to spiral, it seems that these would-be digital disruptors might have underestimated the business savvy of the guys who've been running the show for decades.
The label lords have seen the likes of Napster come and go. As soon as streaming services start becoming more trouble to deal with than they're worth—or a bigger player comes along and cuts a better deal—they're happy to starve you out.
Ultimately, the record labels are still calling the shots. And upstarts like Spotify, Rdio and the rest are learning that lesson the hard way, calling for sympathy while the shot-callers wring them out. In this old game, the dealer always wins. That is, unless you're a company with an excellent poker face and deep pockets to boot—and only Apple, Google and Amazon spring to mind as that kind of player.
After the rest of the hands are dealt? Winner takes all. Game over.