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Is streaming the future of music?

Category: Business

Published: 27th Jan 2010 09:27:34

With free, legal access to almost any music at any time, streaming services like Spotify and We7 are a dream for many music fans.

Some believe streaming will overtake downloading to become the most popular form of digital music.

But there are still big questions over whether such services can make money - and whether record labels will let them work.

You're at your computer, listening to a new album, or an old favourite, or a playlist of songs a friend has suggested you might like, over the internet.

You pick up your mobile phone and keep listening, and your playlists automatically come with you.

Your car stereo is connected and knows your favourite songs too. And when you get home again, so do your games console and web-enabled TV set.

That is the utopian vision of listening to anything, anywhere that has been peddled for years.

But that day is nearly upon us, if the music streaming services are to be believed.

'The cloud'

They promise to connect us to a vast song catalogue in "the cloud" - a technical term that means "the internet" - permanently and instantly via every possible device, bar your toaster.

The big difference with music downloading, which is currently the dominant form of digital music, is that we will not pay for each track, nor will we own and keep the songs.

Streaming is more akin to radio, only we choose the tunes. And it has begun to explode in the last 12 months, with Swedish service Spotify, currently available on computers and mobile phones, leading the way.

Spotify now has seven million users in six countries. We7, its main rival in the UK, has 2.5 million users and launches a mobile application on Monday.

MySpace recently launched streaming services in the US, UK, Australia and New Zealand.

Apple, meanwhile, is rumoured to be preparing a similar offering as part of iTunes - a big step, if it happens.

Yet there are still high hurdles to overcome before streaming really lives up to the hype.

Most fans currently streaming music do not pay. The services are legal, but the money comes from adverts in between and around the songs.

Up to now, ad takings have not been high enough to pay artists, labels and music publishers, as well as cover the costs of running the services and hosting the streams.

Monthly fee

So some, like Spotify, are heavily pushing their premium subscriptions, which cost £9.99 a month in the UK and give users the mobile app and better sound quality.

We7 will also require fans to pay a monthly fee for its mobile version.

"The real aim for us is to grow a strong sustainable subscription model," says Spotify's UK boss Paul Brown. "That is becoming more what Spotify is about."

Does it add up economically, though? It's a question We7 chief executive Steve Purdham has given a lot of thought to.

"Historically it didn't, and it doesn't," he says. "If you look forward, however, the economics are starting to come together."

He points to Pandora, a US streaming service that has nothing to do with the exotic planet in Avatar with which it shares its name.

The service, which provides personalised internet radio stations, turned a profit for the first time at the end of last year.

MySpace, meanwhile, is planning to sell tickets, merchandise and other products alongside the music and ads.

"Consumers want an experience that includes their audio, their video, their band information, their merchandise and ticketing information all in one experience," believes MySpace chief executive Owen Van Natta.

"Having that type of multi-dimensional music experience will also bring with it multiple revenue streams. It won't just be advertising supported."

Streaming sites must also convince labels, artists and publishers that their royalties will not plummet if and when streaming replaces downloads and CD sales.

'Mediocre busker'

Some artists have complained about the small amount they have made from Spotify. Swedish artist Magnus Uggla removed his music, for example, claiming he earned in six months "what a mediocre busker could earn in a day."

Spotify says artist payments are increasing all the time as ad revenues and subscriptions go up.

The company is currently in the middle of a major charm offensive to win over the music industry so it can launch in the US.

"The difference in the US is the labels are not yet convinced that streaming services can exist alongside download services and purchase of physical product," says Mark Sutherland, global editor of Billboard magazine.

"They're worried that they might be giving an awful lot away, and not necessarily get much back."

Simon Wheeler, from independent record group Beggars, says the industry must accept fans will soon move away from owning music.

"We're shifting away from that fast, and anyone who doesn't face up to that fact and deal with these new financial models isn't going to have much of a future.

"It's just inevitable - the world is going to this more consumption-based model," continues Wheeler, whose labels are home to MIA, Adele and Vampire Weekend.

"It doesn't matter. It's going to happen, and we need to restructure the business around it."

'Passive' consumers

The silver lining for major labels is the potential to appeal beyond their traditional customers.

Warner Music's Stephen Bryan, for example, believes ubiquitous access to streaming will let labels reach "passive" consumers.

"They aren't necessarily into owning and building a collection, which is essentially what the download and CD business models have been about," he says.

"We think streaming services represent a big opportunity to address that marketplace," he adds, estimating that demographic might constitute as much as 50% of music fans.

Another obstacle is technology, and whether it will really be possible for devices like mobile phones and car stereos to have uninterrupted high-speed internet connections.

Dagfinn Bach, a Norwegian digital entrepreneur who was closely involved in the development of the MP3 in the early 1990s, is not convinced.

He has just launched a new "deluxe" downloadable file format, MusicDNA, which includes videos, artwork and lyrics alongside music.

Streaming, he believes, is simply an "intermediate phenomenon".

"Streaming requires a high broadband network, especially if you're going to have all this additional information," he explains.

"To stream via your mobile is impossible if it's high quality. So I don't really believe in streaming in the future."

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BBC News, 2010. Is streaming the future of music? [Online] (Updated 27th Jan 2010)
Available at: http://www.ukwirednews.com/news/14312/Is-streaming-the-future-of-music [Accessed 3rd Sep 2014]

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