For years I collected tapes, then CD's, and then digital downloads to build my own personal music collection. When I got hold of a third generation iPod back in 2003 I started to dump all of that music into my iTunes library. Today that library holds about 15,000 tracks.
But over the past year I, like most of you, have switched over from purchasing new music to streaming it through an online music provider. There are many of these services out there. Most notably Spotify, Pandora, and MOG. I choose the later, MOG, and pay about $10 per month so I can download as much music as I want to my fourth generation iPod Touch and iPhone.
Now, I have been pretty impressed with streaming over downloading. It has allowed me to investigate new music, find new indie bands, and catch up on some old favorites, all without having to drop 99¢ per track or $10 per album. It just seems to make financial sense in these tough economic times.
But with every great idea comes some sort of risk.
I have been following music industry related news for a while now and have noticed two reoccurring themes that trouble me when it comes to my music collection. The first started in October of this year when financial analysts deemed Spotify's business model "unsustainable". You can read the article here.
"In almost a one-for-one scenario, every dollar Spotify is generating immediately exits the company due to licensing fees..."
The second reoccurring theme that is troubling is what is happening right now on Capitol Hill in regards to intellectual property. For months now Pandora has been leading a charge to get Congress to reduce the online royalty payments for artists. It seems investors for the online streaming service need the business to make more money, and they have deemed the best way to do that is by lobbying our Nation's leaders to reduce royalty payments do to the musicians' whose works they are exploiting for profit. Former TuneCore CEO Jeff Prince wrote a great article on this conundrum for Hyperbot. You can get to it here.
So what do these two themes mean for us streamers?
The answer is simple. The two biggest leaders in the streaming market have been deemed unsustainable. Spotify is surviving through the assistance of venture capital and Pandora is trying to create a stronger business model by challenging the artists they rely on for product. Eventually the venture capitalists backing Spotfiy are going to want out, especially if their forecasts continue to demonstrate they may not get a return on their investment. Investors invest to make money, not for charity. And if Pandora continues to challenge the royalty payments of their artists, those artists are going to stop providing the second giant with product. And if you think musicians need Pandora, just ask Taylor Swift and her management team who proved streaming is a benefit, not a necessity.
This could lead to consumers without a decent streaming service. And for those of us who haven't purchased a CD in months that could lead to thousands of consumers with stale music collections. Imagine what would happen if Spotify and Pandora fell off the map. Sure other companies would take their place. That is the power of capitalism, but consumers would be scared, and chances are they would go back to downloading their favorite music through services such as Amazon and iTunes in record numbers. Maybe Apple and Amazon stock isn't a bad idea at this moment.
Now, I am not saying that streaming will fall off the map, and to be honest I am still streaming over downloading as I write this article, but imagine what would happen if these companies disappeared. How much would you have to charge to your iTunes account in the day after, the week after...the year after?
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