The fat lady has yet to sing, and the competition to capitalize on the digital music-streaming industry is far from over, especially with the likes of Google and Apple joining the ranks in the wake of pioneers like Spotify’s Daniel Ek.
The number of users and amount of revenue in the industry are on the rise. Music-industry source IFPI reports that global revenue from digital music for record labels totaled $5.6 billion in 2012, up from $5.1 billion a year earlier.
The challenge is, as usual, monetizing this audience, since consumers are accustomed to streaming music for free, thanks to “freemium” models like Pandora.
Pandora has 200 million US users, up from 100 million in 2011. Though the company has introduced a 40 hour-per-month listening restriction on free streaming, the majority of users are still listening for free. So the company relies on advertising.
The model might be working, though: On Thursday, Pandora reported that first-quarter revenue rose 58 percent, to $128 million, thanks to largely to mobile advertising.
Competitor Spotify, founded by Ek, counts 20 million active users and has a healthy advantage in the marketplace, thanks to its relationship with Facebook.
Sam Hamadeh, founder and CEO of PrivCo, explains, “Spotify is clearly gaining market share from Pandora and others. Although Spotify continues to lose vast sums of money annually, its investments in growing both free and paying users are clearly paying off. And since Spotify has raised $286 million in venture-capital funding, the company can continue to lose money to gain market share — at least until the supply of new capital dries up.”
IHeartRadio, a subsidiary of Clear Channel, trails Spotify and Pandora. Other players include Rdio, the Amazon-backed Songza and the pay-only Rhapsody.
And then there are the new big guys on the block: Google’s just-introduced Play Music All Access and Apple’s long-rumored streaming service.
However things shake out for individual companies, one thing is for sure: The audience — and future — are there. Consumer research by Ipsos Media shows that 62 percent of Internet users have used a licensed digital music service in the past six months, a figure that rises to 81 percent among consumers ages 16 to 24.