It's going to be an interesting year in online music. The all-you-can-stream music subscription space is set to heat up, with rumored Spotify competitors from Google and Amazon potentially in the offing and an already-huge European service called Deezer planning to launch in the U.S. 

In the meantime, there are already a number of music subscription services to choose from, depending on where you live. None of them are perfect. Spotify and Rdio generally the lead the pack, each with its own impressively massive library of music. Spotify wins points over Rdio for letting you import your own MP3s, whereas Rdio's interface design, especially on mobile, is vastly superior to that of any other offering.

Then there are solid offerings from Grooveshark and MOG, both of which face an uncertain future, for completely different reasons. MOG was acquired by headphone maker Beats Audio, which plans to launch a new service called Daisy this year. Meanwhile, Grooveshark has faced a barrage of lawsuits from record labels, who accuse the startup of copyright infringement, but remains standing... for now.

Which service is right for you? It depends on how much you value things like audio control, design aesthetics, music selection and user control. 

A year from now, the landscape may well look totally different and we'll be updating this post accordingly. For now, here's a comparison of the major all-you-can-stream music services. 

Spotify

Rdio

Deezer

Rhapsody

Grooveshark

MOG

Do music subscription services threaten music sales? Not if you ask Justin Timberlake.

The rise of all-you-can-stream services like Spotify have made some artists nervous about the model's potential impact on music sales. It's why bands like Coldplay have delayed the arrival of new albums on Spotify and others, like the Beatles and AC/DC, are holding out all together. Logically, it makes sense: If you make your music available to stream for free, people are less likely to buy it.

Right? Not always.

Ahead of its release on March 19, Justin Timberlake's new album The 20/20 Experience was streaming in its entirety not just on Spotify and Rdio, but at the iTunes store itself. Anybody who wanted to could quickly and legally access the album for a week. Then it was released. And it became the most pre-ordered album in iTunes history, surging past his record label's sales expectations by 63%.  

It's good news not just for Timberlake himself, but for the music subscription model that he plans to embrace when MySpace — of which he is part owner — launches its own service later this year.  MySpace will join Google, Amazon, Beats and God knows who else in entering the digital music subscription market in 2013. 

Timberlake's experience would seem to debunk the thesis that streaming can't support artists and thus isn't in their best interests. Indeed, his success will likely make him a poster child for the music subscription revolution as the industry marches toward a future in which music is rented more than it's owned. 

Music Subscription Services: Not a Silver Bullet

But hold on a second. For one thing, we're not all Justin Timberlake. The pop megastar released his first solo album over a decade ago, after years of global success as a member of a massively popular boy band. In the same way that Radiohead's 2007 experiment in "pay-what-you-want" record sales didn't create a new model that worked for everybody, artists can't necessarily look to Timberlake for cues about where their careers might be headed. 

It's also worth noting that streaming alone wasn't enough to constitute "success" in this case: Selling individual copies is still the ticket to revenue and publicity for artists. Timberlake's new album quickly became one of the most streamed records on Spotify, but that's not what everybody's talking about. It's the sales numbers. That's where the lion's share of the revenue for this record is going to come from. 

What The 20/20 Experience launch does show is that subscription services, while not ready to replace paid downloads as a revenue stream for the industry, can be a critical tool for marketing and ultimately driving sales. In time, the revenue available to streaming services may reach more sustainable levels. In the meantime, it's nice to know the artists who embrace them aren't shooting themselves in the foot by doing so. 

Streaming may have promise, but it's no silver bullet. The music market's digital future is going to be a hybrid of approaches, some of which will work better than others in particular circumstances. Timberlake's success is interesting — meaningful, even — but the way forward still isn't a simple one.

Photo via Flickr user Edward Kustoff, CC 2.0

For an industry that has such a hard time making money, digital music sure is hot right now. Everybody wants in. Amazon is now the latest tech giant rumored to be eyeing a slice of this increasingly tempting pie, according to a report on The Verge. But why? 

News that Amazon is in negotiations with music labels comes mere weeks after Google was revealed to be having similar discussions of its own. The search giant already has a huge presence in digital music thanks to YouTube, but seeks to solidify its role by launching a Spotify-style subscription service on top of its existing music products.  Like Google, Amazon already has content relationships and infrastructure in place that will simplify the process of entering what is typically a very challenging and cost-prohibitive marketplace.

It will still be an expensive endeavor, given the high cost of licensing music from the major labels, but companies like Google and Amazon are well-positioned to negotiate those dollar figures down and, if necessary, operate at a loss without discernibly denting their bottom line. 

Fine-tuning the financial details is what these negotiations are all about. And it's important to note that they are just that: negotiations. They could wind up hitting a roadblock, as has allegedly happened with Apple in its rumored quest to launch a Pandora competitor. However it pans out, it's now known that Google and Amazon are at least attempting to enter the streaming music space. If all goes according to both companies' plans, they'll soon be in direct competition for digital music subscribers.  

Google vs. Amazon: From Frenemies To Rivals

The rivalry between Google and Amazon is expected to heat up this year, and this would just be the latest source of competition between the two companies.  While they started as two very different, seemingly unrelated businesses, the companies have both evolved into new territories, occasionally bumping into each other in the process. Today, both companies sell digital content like ebooks and music, as well as the hardware required to read and view that content. Like Google's arch nemesis Apple, Amazon is now rumored to be building its own mapping service as well. 

Digital music is not an easy business to be in. Six million people are now paying for Spotify,  with 18 million more listening for free on the desktop. That's stellar growth in just under two years and an impressive conversion rate for any freemium business. Still, Spotify isn't touting massive profits, and nor are any of its competitors.

That's because they're all paying a massive chunk of their revenues to rights holders (record labels, mostly) and struggling to find ways to drive those costs down. Pandora's legislative efforts haven't met with much success on that front.

Why Streaming Music? 

A company like Amazon might be able to use its might to negotiate better licensing deals. Even if it fails to do so, running an unprofitable streaming service (or bundling music with Prime) could rope enough additional people into Amazon's ecosystem to make the effort worthwhile. 

Or, if nothing else, it could prevent Google from getting a leg up on Amazon in the broader digital music space, in which both companies are already present. In an excellent post, The Verge's Tim Carmody points out that "few of these larger tech companies embracing streaming music seem to be doing so as an affirmative strategy, because they ultimately believe streaming music will help sell their other devices or services. Instead, they're primarily worried that if they don't offer a streaming music service, they'll be seen as deficient in some way."

It's also worth keeping in mind the mobile aspect. Google's stake in mobile is obvious, and Amazon's is expected to get even more serious if, as expected, the company eventually unveils a smartphone of its own.  As Wired's Mat Honan wisely points out:

Subscription and streaming only took off once 3G made it possible for you to carry your music with you everywhere. Pandora, Spotify, and Rdio have proved there’s an attractive market. But imagine what happens when a streaming-music app ships with your phone, with every phone, and all you have to do is turn it on, using an account you’ve already set up for billing. Or even worse (if you are an existing streaming-music provider) if it’s a free, advertising-supported service.

All this action in the streaming music space leaves little doubt that this model will be a crucial component of how we consume music in the future. It's the "music like water" model that music futurists once dreamed about. Exactly how it takes shape will depend on economic questions: how the business model evolves, how artists get paid, which companies will dominate distribution.

This year was already poised to be an interesting one in digital music with the impending U.S. launch of Deezer, the arrival of Daisy and ongoing rumors about Apple's plans to build a Pandora competitor. Now Google and Amazon are also both gunning for Spotify.

Who says freemium doesn't work? For Spotify, the hybrid free/paid business model has reeled in 6 million paying subscribers out of its 24 million total listeners. Not bad. But as the music streaming space heats up, the company will face some enormous challenges, both in the short term and down the road. 

Spotify is growing fast. The company added 1 million new subscribers over just the past three months, according a report from CNET. Spotify confirmed those listener and subscriber numbers in an email to ReadWrite, but declined to comment any further on how its total revenue breaks down. Still, for just about any freemium product, a 25% conversion is pretty damn impressive. It would be even more impressive if Spotify can maintain that growth and the paid conversions well into 2013 and beyond. 

Spotify's Growing Competition: Google, Deezer and Daisy

The company really needs to keep these numbers up, because its neighborhood is about to get a whole lot more crowded — and complicated — this year. Deezer, another wildly popular European streaming service, is expected to launch in the U.S. this summer. Deezer offers roughly the same amount of music as Spotify, but has a much stronger foothold across the globe. Whereas Spotify is available in 17 countries, Deezer has launched in 182 countries as of last month. That means that connected users in 92% of the world's nations can access Deezer.  Spotify still has more paying subscribers, but that gap may start narrowing once Deezer secures the licensing deals required to go live in the U.S.

Of course, Spotify has the advantage in the U.S. Its launch here was preceded by at least a solid year of anticipation and buzz. Its growth since has been huge, fueled in part by a tight integration with Facebook. For being so young here, Spotify is practically a household name in the U.S., whereas very few people here even know what Deezer is. Meanwhile, the longer Deezer waits to enter the U.S. market, the stronger Spotify's numbers get. 

The more daunting threat is going to come from Google. The search giant has confirmed that it's looking at a subscription model for its digital music products, which include Google Music and YouTube. That makes sense. Google already plays a massive role in online music thanks to YouTube, which is now the most popular source for music among teenagers. Google also has relationships with big content providers, which it has been placating with increasingly aggressive anti-piracy measures over the last several months. 

Coming at Spotify from yet another angle will be Daisy, the music subscription service being launched this summer by Beats Electronics. The new venture will combine the popular headphone manufacturer's name recognition with some high-profile music industry personalities and some hefty funding from well-connected investors. 

Combined with digital album sales, streaming is shaping up to be something of a savior for the music industry, which is finally seeing increases (albeit minor ones) after a decade of decline. Industry-wide, revenue from streaming music was expected to grow 40% last year, according to IFPI's Digital Music Report (PDF)  Spotify's success suggests that the optimism wasn't unwarranted, although we're still waiting to see the next installment of numbers from IFPI. 

The pie is growing, as are the number of forks surrounding it. The question for Spotify is how big of a slice it can realistically hang onto. 

Is Spotify's Business Model Sustainable?

Since its launch, Spotify and services like it have faced fundamental questions about their business model. First, there's the ongoing debate over artist royalty payments. The financial deals are obviously satisfactory for record labels, but some artists have been frustrated with a trickle of funds that's decidedly slower than the revenue they see from digital or physical album sales.

There are two basic defenses to these complaints:

1. The model is different. Streaming is not the same as purchasing, and therefore it makes sense for each stream to generate a fraction of what a download brings in. Over time, frequently-streamed tracks can earn real money, sometimes even more than sales could generate.
2. Yes, it sucks, but this will get better in time as the listener base - especially the paying subscribers - grows. Hang tight.

Then there's the other side of equation: How much money is Spotify making? It's hard to tell, because we don't know how many of these subscribers are paying $5 to silence the service's ads and how many are shelling out $10 to get mobile access on top of that. (CNET reports that roughly 90% of subscribers are paying the higher fee.) We also don't know how much money Spotify makes per listener from advertising (they wouldn't tell us).

Inching Toward $1 Billion (Profit Is Another Story)

At Evolver.fm, Elliot Van Buskirk did some semi-educated guessing a few months back and predicted that Spotify could reach $1 billion in revenue this year.  The logic is sound, but it relies on too many unknowns for us to tell if it's realistic or not.  

Based on current subscriber rates, Spotify is bringing in somewhere between $360 million and $720 million per year from subscriptions alone. If Buskirk's theory that most users opt for the pricier premium subscription is true and the company is making a few hundred million from ads, he may well be right: Spotify is inching toward $1 billion. 

Profit is another story. The company says it pays out about 70% of its revenue to rights holders. So, if it does hit $1 billion this year, it will be paying out $700 million of that to labels, songwriters and other rights holders. That leaves $300 million for compensation, operating costs, marketing and the like. When all is said and done, there's probably not a ton of cash left over. 

On the business side, Spotify and companies like it have a dual challenge: Somehow get licensing costs under control without alienating the artists and labels whose content is desperately needed to court the listeners who will pay the bills with subscriptions and ad impressions. Do the best you can with ad sales, but do everything in your power to convert as many listeners as possible to paying subscribers. 

It's a tricky balance to strike, but Spotify is pretty well-positioned to pull it off. For their sake, this momentum had better continue for as long as possible, because a year from now, the streaming music business is going to look pretty different.  This game is not going to get any easier. 

Amazon’s Cloud Player is coming to the iPad and iPad Mini. The e-commerce giant announced this morning that it has released a tablet-optimized version of its music player to the Apple App Store. The app will be free and allow users to play or download music stored in their Cloud Player accounts to their iPads or play, manage or create playlists from music already stored on their devices. 

Users can play any music purchased through Amazon for free. The Cloud Player will allow up to 250 songs to be uploaded to the service for free as well. After that, users can pay $24.99 a year to upload up to 250,000 songs.

Amazon wants to expand its digital content empire beyond the traditional book fare. The Cloud Player is Amazon’s answer to music hosting services like Google Now and Spotify. Amazon is moving the Cloud Player through the widespread app ecosystem, much in the same way that it did with its Kindle app, which is available on basically every operating system and any device size available.

The Amazon Cloud Player is also available for the Kindle Fire, Roku TV streaming box, Android smartphones and tablets, Samsung TV and Sonos devices. Amazon released the Cloud Player app for iPhone and iPod Touch in summer 2012. 

Frustrated and bitter that laws like SOPA and PIPA have yet to get pushed through Congress without those pesky constituents objecting to turning the U.S. government into muscle for entertainment industry, the Recording Industry Association of America (RIAA) is taking out its anger on Google. The music industry lobbying group is accusing the search engine giant of failing to effectively demote search results that lead people to those nasty little download sites.

In a blog post on the RIAA site yesterday, Steven M. Marks, EVP & General Counsel, RIAA made it clear that the music copyright association thinks that Google, despite making some headway, remains a day late and a dollar short.

"We recognize and appreciate that Google has undertaken some positive steps to address links to illegal music on its network," said Steven M. Marks, the RIAA's executive vice president and general counsel. "Unfortunately, our initial analysis concludes that so far Google's pledge six months ago to demote pirate sites remains unfulfilled. Searches for popular music continue to yield results that emphasize illegal sites at the expense of legitimate services, which are often relegated to later pages. And Google's auto-complete function continues to lead users to many of those same illicit sites."

(This isn't the first time: see also RIAA Slams Google's Anti-Piracy Efforts, Demands Even More Unreasonable Measures.)

Testing The Claims

I wanted to see if the RIAA might be overstating its concerns, something that they've been known to do before. So I performed a little one-man experiment, using the song "Some Nights" by Fun. as the guinea pig. Your mileage may vary, of course, but my quick-and-dirty test revealed that the RIAA may have some valid claims.

A search for "Fun. album" returned a first, second, and third page of results that were absent of any results that would seem to contain illegal downloads, with the bottom of the third page containing three DMCA takedown notices that point to the Electronic Frontier Foundation's ChillingEffects.org for more information.

But down in the "Searches related to" section of all of the results pages, "fun. some nights download" was among the listings, and a click-through pulled in the plenty of links to aggregate MP3 download sites, mixed with a few legitimate sites, like iTunes (#3), Amazon (#7) and the official video on YouTube (#8).

As for the RIAA's claim that Google's AutoComplete will suggest search terms that could lead users to sites containing unlicensed copies of songs, I found this was indeed true. By the time I typed "fun. some", Google had filled in four results:

fun. some nights
fun. some nights lyrics
fun. some nights meaning
fun. some nights mp3

On a whim, I turned on SafeSearch to see if that would make a difference. Results did differ on some search results, such as "fun. some nights download", where legitimate sites (like the Wikipedia entry for the album) were moved up slightly on the first page of results, but the sketchy download sites were still in full-glory display.

I should also note that the RIAA did not take Microsoft's Bing service to task, even thought the same experiment on Bing yielded very similar results, even in the auto-complete results. Type in "fun. some" on the Bing home page and you get these helpful suggestions:

fun. some nights lyrics
fun. some nights
fun. some nights meaning
fun. some nights torrent
fun. some nights video
fun. some nights album download
fun. some nights mp3
fun. some nights review

Search Engines As Police?

Based on these (admittedly quick) search tests, it seems like the RIAA has a point, and Google is failing to block apparent pirate sites on its search results, and its demotion policy announced in August 2012 isn't really working all that well, either.

But let's be clear: Google has said all along it wasn't going to block site results from any site unless it receives a specific copyright removal request from the rights owner.

"Only copyright holders know if something is authorized, and only courts can decide if a copyright has been infringed; Google cannot determine whether a particular webpage does or does not violate copyright law. So while this new signal will influence the ranking of some search results, we won't be removing any pages from search results unless we receive a valid copyright removal notice from the rights owner," senior vice president of engineering Amit Singhal wrote back in August.

At the time, what Google said it would do was add a new signal to how it ranks search results.

"Starting next week, we will begin taking into account a new signal in our rankings: the number of valid copyright removal notices we receive for any given site. Sites with high numbers of removal notices may appear lower in our results," Singhal stated.

The RIAA is contending in its statement this week that Google has failed to live up to that promise.

One has to wonder, though, if trying to keep up with the sheer number of sites that provide access to unlicensed media content is comparable to spitting on a forest fire. If the signal for page ranking depends in some way on number of takedown attempts, perhaps the RIAA and other rights holders are not sending enough signals. Or maybe these sites know who to game other ranking signals to boost their status on Google and Bing search results.

It is very easy to point fingers at Google and Bing and accuse them of not doing enough to keep people away from pirated media. If you forget, of course, that this not their job.

Complaining about the auto-completing results would seem to be a more valid concern, until you remember that there could be legitimate results for "download X."

The RIAA wants to protect the rights of its artists and producers, a valid concern. But it is not clear at all that Google, Microsoft and the other search engines should be relied upon as key allies in the recording industry's ongoing quest to stomp piracy. Search engines' missions are to provide data, not analyze that data for legality.

Despite what they're asking for here, I suspect even the most vehement anti-piracy activists would not care for some of the implications of a world where search engines were to undertake that goal.

2012 was a very good year for SoundCloud. The social music and audio-hosting platform saw a massive uptick in user activity, according to data released by music analytics firm Next Big Sound. 

The State of Online Music report contains some big, but not altogether unexpected numbers: More people are listening to music online and artists saw more activity on Twitter and Facebook than they did in 2011. Across a variety of online sources, the Play button was clicked more than 93 billion times, a 45% increase over 2011. Pretty impressive, to be sure, but not a total shocker. 

Triple Play

Perhaps the most striking chart contained in Next Big Sound's interactive report is the one showing how SoundCloud's user activity tripling over the course of 2012. The service was already enjoying healthy year-over-year growth throughout 2012. Then in September, it saw a massive jump in monthly plays per artist, and the trend line kept shooting north until the end of December. Of the music services tracked by Next Big Sound, it was far and away the fastest growing. 

What gives?

The service's growth was probably aided by a major website overhaul, which put more focus on user engagement with continuous track-by-track playback and added more social functionality, such as a retweet-style sharing button designed to help audio content spread across the service. 

SoundCloud's redesign may have been the company's biggest project of 2012, but it didn't eat up all of the team's time. They also managed to push out major updates to most of their mobile apps, forge a ton of new content partnerships and convert the service's default player to HTML5.

Fueled by a few hefty rounds of funding, these initiatives no doubt helped SoundCloud better position itself as a sort of "YouTube for audio." The goal, in the company's own marketing speak, is to "unmute the Web." 

YouTube Still Rules

YouTube itself was another enormous source of online music last year. It didn't see  spikes as dramatic as SoundCloud's, but for most of the year, the video behemoth delivered more than 20,000 average monthly views per artist, in some months quadrupling what artists saw the previous year. 

Indeed, YouTube remains a much bigger source of music than SoundCloud, but the growth of the Berlin-based startup  is remarkable enough to make it serious contender in the online music space. 

Don't call it a Spotify killer either. For whatever reason, Next Big Sound's report doesn't include data from the dominant subscription service, but regardless of what the numbers say, the two companies' models are very different.

The Independent Alternative

For one, SoundCloud doesn't have to contend with the gargantuan music licensing costs that subscription services like Rdio and Spotify do. Whereas those services boast content deals with all the major labels and big indies, SoundCloud has a much larger selection of unsigned, under-the-radar musicians, remix artists and DJs. Indeed, about two-thirds of SoundCloud's fan activity in 2012 was centered around independent and unsigned artists.

What will ultimately become of SoundCloud? It's tempting to envision it getting gobbled up some Web giant like Google, but for now it's focused on building out a massive trove of content, weaving it all into the Web and making it easier to share. The "YouTube for audio" analogy looks increasingly apt, especially if its metrics continue to shoot skyward. 

Myspace may have picked a bad day to open up its redesigned site to the public. While the dethroned social networking giant quietly opened its gates Tuesday morning, everybody in the tech world was busy preparing, and then dissecting, Facebook's announcement of Graph Search.

But let's not bury Myspace just yet. Called the New Myspace, the redesign, which entered beta last July, is not aimed at yanking anyone away from Facebook or Google+. Its goal, under the wing of pop singer/actor/Sean Parker-playing co-owner Justin Timberlake, is to do what Myspace did best in the waning days of the site's mid-2000s popularity: give musicians, both professional and aspiring, a better way to interact with fans and help fans discover new music.

In some ways, though that means Myspace is now competing with music streaming services like Pandora and Spotify, and that's not going to be easy, even with Timberlake's music industry clout.

Fresh Look, But No Groundbreaking Advances

Anyone who was interested last September got a look at the new Myspace when Timberlake tweeted a vimeo link to a preview of the redesign. Not much has changed since then.

To recap, the site jettisoned the vertical flow used by most other social networks, opting instead for a horizontal stream that naturally lays out status updates, shared songs and photos. All interactions also hinge on Myspace's version of Facebook's "Like" and Google's "+1," called Connect. Symbolized by a Venn diagram that unites when you decide to subscribe to a musician or find a friend, the Connect option is logical and looks nice, but it's nothing you haven't seen before.

The true innovation - in the minds of Timberlake and Specific Media, who co-purchased the site from News Corp. in 2011 for $35 million - is the black bar running across the bottom of the site.

While it resembles the 'Now Playing' bar at the top of iTunes and other streaming sites, Myspace's implementation is meant to make playing and sharing music a central aspect of the experience. It puts the Home button, your Profile link and your Notification Center right alongside it, with Discover and Search options as well. Discover is the key to exploring Myspace, letting you see what's trending and listen to custom radio stations and mixes.

Myspace's music discovery service comes together in the interactions between the artist profiles and your own. Essentially, users connect to an artist, get updates from that artist, and can stream shared tracks - or even whole albums - while interacting with other fans, amateur musicians, DJs, producers, etc. To help facilitate this music-based interaction, new Myspace subscribers are asked to put themselves into one of a handful of categories, ranging from musician or venue to fan or promoter.

Early experimentation yields some interesting results. For instance, pulling up the Search tab next to the Discover button lets you type in the name of a band, and yields a list of streamable and sharable tracks, band info. Presumably as time goes on, the service will add actual updates from bands that agree to hop back on the Myspace bandwagon.

That's the key, of course. The New Myspace looks and works fine. But the revived social network's biggest, and most likely insurmountable, obstacle is that it's a ghost town right now, and it will probably stay that way.

What Good Is Myspace In A Facebook/Spotify World?

The problem is that it's simply too late for Myspace to capture any ground from its competitors.

Spotify, with its ever-increasing library of available music, Facebook-anchored sharing and playlist making, and tiered accounts for mobile and offline use is not going to lose users to Myspace, despite Justin Timberlake's enthusiasm.

And that brings up another issue. Timberlake's face plastered on Myspace's homepage has been getting a lot of flak, and for good reason. Debuting his new single, "Suit & Tie," on the homepage of the social network he co-owns may be good marketing, but could also be seen as a cheap, self-promotional move.

Myspace may have once been the king of social networking, but those days are gone forever. If Timberlake is able to convince fellow musicians to partner with the site, it's likely to hang around for at least a while, but that's about it.

After more than a decade of hand-wringing over the music industry's tumultuous decline, there's a glimmer of hope. Last week, more people paid for digital music than during any week-long period in history, according to Nielsen SoundScan. 

In the week ending December 30, 55.74 million digital songs were purchased. The week following Christmas is typically a prosperous time for digital media and mobile platforms, as gadgets and gift cards are exchanged during the holidays. This year's spike was the biggest since the same week in 2008, when consumers bought 47.73 million songs.

These new numbers show that, when given a way to easily and conveniently do so, many, many people will pay for digital music. In this case, the growth appears to have been fueled by the exchange of holiday gift cards to services like iTunes and Amazon.

Digital Music Challenges Remain

Things started looking up in 2011. That's when IFPI reported that the industry saw its first year-over-year growth in music sales since it started tracking the business in 2004. That growth was only a measly 1.4%, but it sure beat the 13% decline seen in 2010. As 2012 unfolded, the outlook for digital music sales continued to brighten. 

But although the bleeding appears to have stopped, the music industry remains a long way from recapturing its former prosperity. From 1999 to 2009, music industry revenues imploded by 56%. Even with the more recent promising trends, nobody expects the music business to return to its heyday any time soon. 

Contrary to popular perception, though, compared to other traditional media industries disrupted by the Internet, music has fared relatively well in the digital age. According to the IFPI (which, somewhat ironically, stands for the International Federation of the Phonographic Industry) 32% of music industry revenue came from digital in 2011 (a number most expect to have increased in 2012). For newspapers, that number is closer to 5%. The digital transition for book publishers is similarly slow and precarious. 

Why Digital Music Is Growing

So why is music growing? Services like iTunes have been aggressive about expanding globally. The biggest digital music services more than doubled their global reach in 2011, with iTunes alone launching in 16 Latin American countries.

The proliferation of connected music devices have also helped drive music revenues. As consumers snatch up millions of smartphones and tablets, many are heading straight for the digital storefronts of Google, Apple and Amazon to load them up with their favorite songs. Meanwhile, streaming music services like Spotify, Rdio and Deezer (which is aiming for a U.S. launch in 2013) are also exploding, with mobile access being the key selling point for their premium subscriptions. While it's perfectly feasible to pirate the latest albums and load them onto your tablet or phone, it's finally becoming easier to just type in a credit card number. 

The global fight against piracy also appears to have had an effect. Draconian anti-piracy laws like SOPA and PIPA may have failed in the U.S. Congress, but other initiatives have succeeded in driving down piracy. For one, Google has grown more accommodating to copyright owners, nixing piracy-related terms from auto-suggested search terms and making DMCA takedown requests easier (some would say too easy). 

There's also early evidence that the availability of legitimate music services can help reduce the rate of piracy. Sweden saw a 25% drop in illegal filesharing after the public launch of Spotify, according to one study. There are now 500 legitimate music services available worldwide, according to the IFPI. As streaming services and MP3 marketplaces expand across the globe, it shouldn't be surprising that people feel less inclined to download music without paying for it.

A Smaller Industry, But A More Level Playing Field

The music industry may never return to what it looked like 15 years ago. But maybe that's okay. Today's playing field is far more level and the tools to create and distribute music are cheaper and easier to use than ever before. Artists still face major challenges, but the Internet has loosened the grip of the record labels and opened up new possibilities in terms of financing the creation of music projects - including crowdfunding and selling music directly to fans via platforms like Bandcamp or via digital distribution platforms like TuneCore and CDBaby.

Maybe the Internet isn't killing the music industry after all. Sure, the Net upended the old business model and irreversibly changed how music gets distributed to consumers. But clearly all is not lost. 

Lead image courtesy of Don O'Brien.

2012 was a big year for music. No, I'm not talking about Adele, Call Me Maybe or the Tupac hologram. The big news this year were the shifts at the intersection of music and technology that occurred as the industry continued to figure out its digital future. 

Indeed, the biggest moments in music tech this year all had to do with piracy or the tricky evolution of a business model to replace the one that started dying a decade ago. 

1. The Death Of SOPA / Megaupload Raid 

These two events were not officially related, but they happened within 24 hours of each other and they both helped frame the debate about content piracy. In late January, the uber-controversial anti-piracy bills called SOPA and PIPA were tabled by the U.S. Congress after massive online protests. The death of SOPA meant the fabric of the Internet would be spared from the wrath of the Recording Industry Association of America (RIAA) and Motion Picture Association of America (MPAA) and set the stage for new legislative battles.  

Just as that attempt at fighting piracy ended, an even more dramatic one began when New Zealand police - by request of the U.S. Justice Department - arrested Megaupload founder Kim Dotcom and several of his colleagues in a military-style raid. The hacker group Anonymous responded with large-scale Distributed Denial of Service (DDoS) attacks that took out the Department of Justice's website. For the first time, the so-called "piracy wars" started to look like an actual war. 

The Megaupload raid marked the beginning of a lengthy legal procedure, but it also raised major questions about the rights of non-infringing cyberlocker users and caused similar services to get more serious about fighting piracy, if they didn't shut themselves down all together. 

2. Lars Ulrich Hugs Sean Parker, Embraces Spotify 

There could hardly have been a more symbolic official end to the Napster era and more importantly, the beginning of one in which all-you-stream music subscription services are seen as a legitimate way forward for the industry. Metallica drummer Lars Ulrich not only shared a stage with Napster cofounder Sean Parker to announce the band's arrival on Spotify, he hugged him. 

Major questions remain about the viability of Spotify's business model and whether it can fairly compensate artists, but it's still early in the game and the fact that Metallica has embraced the model is a positive sign. Don't hold your breath for The Beatles, though. 

3. BitTorrent Goes Legit

2012 was the year the strict association between the word BitTorrent and piracy started to erode. It still has a long way to go, but BitTorrent, Inc. has been aggressively marketing itself as a legitimate content distribution platform and teaming up with established artists and authors to prove it. 

Author Tim Ferriss may be the most high-profile content producer to partner with Bit Torrent, but musicians have been experimenting with the platform as well. After Pretty Lights published a bundle of free music and videos on BitTorrent, it soared to the top of Pirate Bay's download chart, the DJ saw a 700% increase in traffic to his website, collected 100,000 email addresses and, probably not coincidentally, sold out two concerts at the Red Rocks amphitheater in Colorado. For musicians, BitTorrent may provide an unexpected path to revenue.

4. Internet Radio Fairness Act Introduced

Internet radio providers like Pandora and iHeartRadio are expensive to operate. That's largely because these companies operate under a different royalty rate regime than terrestrial and satellite radio stations, both of which pay far less than Pandora to copyright holders. 

In September, a bill called the Internet Radio Fairness Act (IRFA) was introduced in the U.S. House of Representatives that aimed to level the playing field. Record labels, royalty collection organizations and some artists were less than thrilled with the IRFA. Congressional testimony and debate got underway in November and the issue is expected to continue to be a contentious one in 2013. 

Whatever happens with the IRFA as it was originally drafted (many predict its demise), something needs to give, and that something will have to balance the need for innovation with the rights of those who create music for a living. The end result of the debate that kicked off in 2012 will have a huge impact on radio's future. 

5. Amanda Palmer's Blockbuster Crowdfunding Experiment

2012 was the year that independent musicians, desperate for a new business model, started taking the crowdfunding craze seriously. In an age when revenue is harder and harder to come by for musicians, many turned to fans to help fund the recording of their album, production of music videos and other projects.

There were plenty of successful campaigns, but none got more attention than that of Amanda Palmer. The singer took to Kickstarter to fund the release of her album and ended up blowing past the $100,000 goal to rake in more than $1.1 million. Suddenly, crowdfunding looked like a viable model for musicians. 

The Amanda Palmer example is not without its caveats, though. For one, not all independent artists will have a fan base as rabid as the famously social media-savvy Palmer. About half of all music-related Kickstarter projects fail to reach their goal. For the right projects and artists, though, crowdfunding can work quite well, as Palmer demonstrated. 

Any artists that do luck out on Kickstarter might want to do their best to avoid the public relations headache incurred by Palmer after she invited unpaid musicians to play with her onstage - and was subsequently lambasted across the Web. 

Image courtesy of Shutterstock.

The new Philip Glass album is completely mesmerizing. I don't mean the CD, or the MP3 download or even the vinyl version - I mean the app. In addition to more traditional formats, the famed composer has released REWORK, a compilation of remixes, as an iPad app. An immersive, interactive and incredibly cool iPad app. 

Normally, releasing an album in the form of an app would seem like a dumb idea. All the open-source-minded, anti-walled-garden, Web-is-better-than-native-apps advocates out there would agree. Why trap your creative hard work behind the impenetrable wall of a proprietary mobile application? I couldn't agree more, in theory, but something about the REWORK_(Philip Glass Remixed) app for iPad has me wondering if this apps-as-albums concept might be a surprisingly large part of music's future. 

As I'm writing this on my laptop, my iPad is propped up next to me. Just beyond my direct field of vision, there's an array of cubes floating in 3D space, flowing like water to the rhythm of the drums backing this electronic soundscape I'm listening to in my headphones. If I touch the screen, some of the blocks fly upwards. If I move my finger across the screen, more blocks are disrupted in its path. 

Limited Functionality Never Felt So Good

That's about the extent to which I can interact with the music as it plays. I can't even fast-forward through each song. But that's okay. Like a vinyl record, I'm forced to listen to each song or skip it entirely (which takes a few taps, so it's slightly more cumbersome than we've become used to). I can't help but feel like this app was deliberately designed to encourage me to enjoy the album from start to finish. To quiet my brain's 21st Century instinct to jump around, to fast-toward, to hit Shuffle. If I want to dip my finger into the liquid digital visualization going on as the song plays, that's fine. But I can't skip around. I can't minimize this app and do other things without cutting off the audio. 

It's incredibly simple functionality, but it's mesmerizing, like some kind of futuristic boombox. 

The best part is Glass Machine, a stand-alone feature that lets users remix and build their own minimalist compositions using an interface that is both atypical and easy to use. The controls along the bottom let you adjust tempo and rhythm, filter the sound and choose between piano, organ and synthesizer. The rest of the screen is occupied by two giant circles, both of which contain a single, smaller circle that can be pinched and moved around to adjust the melody. It's a way of manipulating sound that will look unfamiliar to even experienced digital audio producers, but is completely intuitive to just about everyone. 

REWORK for iPad costs $10. That's pricey for an app, but pretty cheap for a full-length album you can interact with. 

With Some Tweaks, This Model Could Work For Artists

REWORK_(Philip Glass Remixed) could be even better. People should be able to record and save their Glass Machine compositions. Then they'd be free to share them online and bring them into other audio-editing software to build something completely new on top of them. Weaving in such an open-source spirit might help counter the "walled garden" issue of putting an album into a native apps. 

If the app came with a code to unlock a digital download - much like vinyl records do these days - purchasing it would be a no brainer for just about any fan. That way, you could experience the interactivity and fluid animations, but also be able to take the music itself with you anywhere and play it on any player. Musicians complain about how easy it is to download MP3s without paying for them. 

In age when artists are struggling to figure out how to thrive in a digital, mobile world, apps like REWORK offer a few hints about how the music-as-an-app model could work. An experience like this would be much harder for people to pirate, for example. Building stuff like this is expensive, of course, and limiting sales to a single platform is an issue. But there might be a real opportunity here for a smart startup to sell app-building tools to labels and artists.

If artists can design something fans would love interacting with and that offered enough value above and beyond the audio itself, the people who care most would shell out $10 or $15. I know I would. 

For some musicians, social media is a pain. They'd much rather focus on writing and performing songs than tweeting, pinning and Instagramming from the tour bus. Does all that time spent on digital promotion even pay off? New research suggests that yes, it does. 

There's actually a correlation between an artist's social media presence and their album sales, according to data from Next Big Sound. For 38% of musicians, Facebook views had a significant effect on album sales, a stronger impact than traditional radio plays had. Vevo, YouTube and SoundCloud all ranked highly as well. 

It's not just social media that's driving paid downloads. The artist's own website still has substantial impact on boosting sales, more than any other channel examined. For 52% of artists, more website page views meant more digital album sales. A few more (54%) saw the same cause-and-effect relationship when it came to selling digital singles. 

On Facebook, it's not just about building up a large fan base. Artists, like other brands, have to actively engage fans there, as evidenced by the fact that Facebook page views had a much higher correlation with album sales than did Facebook Likes. In other words, it's not enough to just be there. Bands have to continually post updates and interact with their fans. 

The Future Of Music Is... Wikipedia??

Perhaps the most interesting data point is the relationship between music sales and Wikipedia. Apparently, the more well-trafficked an artist's Wikipedia entry is, the more likely they are to sell digital music. That might seem pretty weird, but maybe what's happening is that fans want to know more about an artist before buying their music. Or perhaps the intent to purchase was already there; People are just looking for historical information about their favorite artists, whose music they're already likely to purchase. 

The charts illustrate, among other things, MySpace's dwindling relevance. MySpace plays drove album sales for only 17% of bands. When it came to driving digital single sales, MySpace was at the bottom of the list. This is obviously something the company desperately hopes to change with its latest relaunch.

Noticeably absent from this analysis was Spotify. With all the hullabaloo over artist royalties and streaming services, many in the industry are anxious to see what, if any, relationship there is between Spotify exposure and sales. Its chief competitor, Rdio helped drive digital single sales for 17% of artists studied.

Lessons For The Music Industry 

Finally, it's worth noting that terrestrial radio is far from dead. Even in the face of competition from the likes of Pandora, Last.fm and Spotify, radio plays are still a significant driver of paid music sales, just like in the old days. 

If there's a key takeaway for the music industry, it's that maintaining an active Web presence and utilizing social media are every bit as valuable to the business of music as everybody thought. That's not breaking news, but it's always nice to have some hard data to back up assumptions. For independent artists, it suggests that Twitter and Facebook aren't a waste of time after all. Oh, and you might want to double-check that your Wikipedia entry is up-to-date. 

Lead photo by Alexandre Normand.