"These numbers show that the music industry might have to lower its demands if it doesn't want to risk losing the growing revenue from streaming royalties in its entirety."

Dude give it a rest - clearly you don't want to be open minded, you seem to think the labels should only sell vinyl and CDs. You're getting to be part of the problem. I remember when DMN was a refreshing source to know about the happenings in the industry, now it's just a drag on everything favorable that's happening right now.

Ugh...

how's this favorable to anyone except major labels squeezing Spotify's balls?  

Or Sean Parker?

I have an open mind and I would like to see a successful business model that streams music and pays the rights holders.

I also know there are clever accountants out there.

But how is a net loss of 20 million or 57 million favorable? 

How long do these companies have to operate and how many subscribers do these companies have to spgn up in order to turn a profit?

Does every human being on the planet have to become a subscriber?

Who is to blame for the lack of success?

Some like to blame the streaming services. Others like to blame major labels. While others like to say that music piracy has devalued music so much in the public eye that they must be tricked into paying for it. Finally there is the groupoffolks who say music shoulld be free and musicians should put the hat out and sell t shirts at concerts.

You say DMN is just a drag,well DMN is simply reporting on some of the biggest players in digital music streaming and the numbers don't lie.

I think one thing people tend to forget is that things take time. This is a shift in how people consume music. This (Spotify) is also a company in the early years of their development, and many new businesses take several years to get out of the red and start churning out pure profit. 

Do they have that much time? Technology and software are still changing at a rapid pace.

Do these companies have the resources to focus on growth and keep up with the changes in tech and consumers fickle taste in music and how it is distributed?

I've never seen a graph where the x-axis was actually a cliff.

Add Rhapsody to the graph. Last we heard they were expecting to be profitable by the end of 2011. No idea if they made it, but they are without a doubt closer than either of these companies.

Rhapsody numbers for 2011 here: http://tinyurl.com/98j5slv

Looks somewhat less profitable than projected. To say the least.

But isn't that RealNetworks, which used to own Rhapsody?

Yes, Rhapsody is an independent company now.

 starving artists are going to have to own at least one jukebox vending machine to make a full quarter of a dollar....

compared the 0.0000002 cents from streaming their music

Also, how major labels are killing the music industry...

Yet many people think that Spotify are not paying enough.  

Can't have it both way.

Spotify should be PROFITABLE and should pay MORE.

It's a paradox

SPOTIFY SHOULD PAY MORE!!!!

LOLZ Spotify isn't profitable in the least because of all the bullshit fees they have to pay to labels, producers, etc...

BUT YOU GUYS IT'S JUST THEIR FAULT, they just need to make money come from nowhere and pay artists more.

You have it all figured out!

Yay! DMN has a new statistics researcher.

I believe artists need to lose the middle man... some how/some way. I've placed  my immediate catalog on these services, but no more.... its' not worth it and my music is.  So onward and upward with direct connecting.  New album titled WINNING coming in November.  Listen to MASTERPIECE at Big Fuss Music.

Miss Kristin

Big Fuss Records

Does a music tech startup need to be profitable or just have a large user base?

Yup, sometimes startups just need to be there quicker with a big user base. It makes them attractive for bigger fish to buy.

Profitability as the "big strategy" is a noble, fine olden thought to be sure :^)

That is terrible. Artist gets next to nothing, will have to take even less??

Some people see doom. I see companies putting growth over profitability.

Such good news! I will be dancing on their graves

I think you are all missing the point here. Spotify is in user acquisition stage, which means they are going to lose money as they have huge capital to back them up. The best sign is that revenues are rising fast!

Pandora is in a much tougher spot, because they are locked to the USA, which means they only have limited potential. Pandora needs to think about how they are going to expand internationally or they are going to be forgotten.

I agree on the Spotify acquisition point. AOL lost nearly $400 million in the 90s before they became insanely profitable as the internet took off. As I recall they weren't actually profitable until they had around 5 million subscribers if you expense the marketing costs they capitalized until 1996. Spotify is hoping for the same thing here -- to become the dominant music service worldwide and own the premium space when it matures (assuming it does). Sure, it's a gamble but they are funding it with investor money so their personal fortunes are not at risk.

Also, if Spotify shut down the freemium piece of their service right now, they'd be very profitable...and their per stream artist payouts would increase dramatically. Of course, their growth would slow, possibly reverse. Their long term success is dependent on them finding the right balance of acquisition spending to match the category growth. If they can do that, they'll be profitable -- and immensely so if the category explodes as internet access did.

Finally, the amount they pay the labels is not their biggest issue right now -- it's getting to a massive number of users. If they had better label deals, sure, they might lose less but I imagine they'd actually double down on customer acquisition instead knowing that the payoff once they got to scale would be that much greater.

Would a graph for iTunes look significantly different? As I understand it, Apple about breaks even on iTunes (although the obvious context is that the store helps fuel sales of SHEDLOADS of devices).

But the point remains: is this a problem with streaming music, or a fact of life for digital music as a whole, downloads included? Middlemen don't make profits.

Spinning it as a 'Pandora and Spotify are shit' thing is misleading though: both are in their rapid-expansion stages versus the mature iTunes Store.

The question is absolutely 'can they break even in the long term and sustain the losses until that point', but losing hope in the model based on this graph? That seems overly pessimistic.

Apple (wisely or luckily ?) realized that music distribution as a stand alone product is doomed to failure.

They used music distribution as a tool to sell more profitable products.

If spotify or pandora were diversified like apple or bundled their services to more profitable telecommunication products produced by other companies, they would stand a better chance of surviving.

That's a shocking looking statistic and really doesn't look good for the whole current model for the audio streaming industry.  It's not over for audio streaming yet, but not looking good.  I still don't get the popularity; I still prefer to download, buy CDs and watch music live online.

What about live video streaming?  Why do sites like www.justjamit.com never get a look-in in terms of their potential to add a whole other dimension to the enjoyment of music through digital channels.

This doesn't prove that streaming music in general is a lost cause. What it does suggest is that a 'freemium' business model is not viable for music.

Both Pandora and Spotify operate a freemium service.  It has always been doubtful whether freemium is viable for music streaming.  Freemium seems to work for some products, like antivirus software, but in these cases each new 'free' user involves essentially zero additional cost to the producer.  Provided they can convert enough users into 'premium' customers to cover their costs, it does not matter if there is a large deadweight of freeloaders.  This obviously does not apply to music services, where each freeloader involves an extra cost in royalties to the content providers.

I suggest that either the freemium services will need to drop the free option and go back to the old-fashioned idea of getting people to pay for the stuff they want, or find ways of converting a much higher porportion of users to premium

I love it when someone with an economics degree from Stanford pretends not to understand expansionist deficits and how they differ from structural deficits.  Everyone, including PR, knows that Spotify has intentionally spent at these levels in anticipation of (and in fact creating the venue for) future growth.

Pandora, ehhh, their model probably doesn't work.

Ah, but expansionist deficits are a very difficult game indeed.  If only they ended as neatly as planned...

/paul

Will the music industry ever be profitable again in today’s digital age?  

Currently poised to begin a new era of revenue and profit generation, IMRadio already has 85,000 independent musicians' original "royalty-free" songs in its internet radio rotation.  The company will continue to attract independent musicians because of its planned revenue-share model.  The revenue-share model is designed to provide a larger percentage of the revenue stream to its independent musicians, IMRadio, and partners

IMRadio never pays royalties on the music it broadcasts, enabling the company to offer a balanced revenue-share model for artist compensation.  Clear Channel Communications, the nation’s largest radio broadcaster, recently bucked traditional royalty based compensation by instituting an ad revenue-sharing package for the label Big Machine Records.  IMRadio had the foresight four years ago, when it went live on the Internet, to realize that the royalty model for artist compensation was going to be short-lived in this new digital age.

IMRadio is re-creating a new Music Culture, focused on a profitable business model for both the new Music Industry AND Independent Musicians/Labels.  Major brands like Verizon, Coke, Ford, etc, can also benefit from a royalty-free song catalog by providing its customers with all new original music from around the world, without paying heavy royalties.

IMRadio (Independent Musician Radio http://www.imradio.com) is an innovative international entertainment company that has a passion for revolutionizing the music industry.  IMRadio plans to empower the massive market of today’s independent musicians to actually make money with their music…and when artists make money, so does IMRadio.

That's nice. How many subscribers have you got?

IMRadio currently has over 20,000 requestered.  The company needs an investor to build the revenue-share piece of IMRadio.

Wake Up. Spotify and the Labels are one and the same (make no mistake they are in bed together...Spotify paid the labels big money to get access to content and they both make money...it's the artists and sonwriters that don't and won't.

In bed together?

Barely. 

They're both very politely holding each other hostage...

Who said it was the music industry's responsibility to ensure that Pandora and Spotify make a profit?  They're big boys.  They're working in a capitalistic society, just like everyone else.  There are still alternatives if Pandora and Spotify don't make it.

Well said!

Aren't Pandora and Spotify part of the music industry?

Isn't it in the best interest of the music industry to have a successful distribution business model?  True, it might not be Pandora or Spotify but something has to be done.

Are the alternatives significantly different than Pandora and Spotify? Are they profitable for both creator and distributor? If by alternative you mean physical sales and digital downloads, I think that is a different topic.

Besides DIY radio, what are the choices for streaming?

I am not being sarcastic nor am I a big fan of Pandora or Spotify, I just want to know if there is a streaming alternative that is fundamentally different than these companies AND is successful.

By successful I mean makes money for creator and distributor.

The best part about this whole write up is the fact that you're listening to Pretty Lights, whose entire existence is based around free content distribution.  He's um...doing just fine.

Gotta respect the irony there

Pandora (i.e. internet radio) and Spotify (i.e. subscription based on-demand streaming) aren't the only streaming business models around.  At Psonar we're building a pay-per-play based, on-demand streaming service which better matches the needs of younger music fans, 12-25, who can't or don't want to afford subscription streaming.  It also potentially offers a better yield per track to artists and rights holders.

How does it potentially offer a better yield-per-track? Numbers. We want numbers. It all boils down to simple math.

If you start branding your streaming company with useless hollow promises without numbers, you're just every other streaming company.

Be different. Prove it. Make it happen.

It would be useful in the article to include the graph showing user/subscriber growth.

Also, it would be extremely useful if the article included quotes from Pandora and Spotify representatives on these topics:

How many subscrdibers do you need before you turn a profit?

When do you think this will occur?

How much money do you think you need to get there?

I am sure these numbers are in other articles and given to investors upon request, but it would be informative to get their representatives to state it again for those of us who are lazy and don't want to look it up or invest millions.

I was always told that if you start a business, expect to be "in the red" for up to the first couple of years. With a company purposely wanting to expand (and on a global scale) pretty rapidly, one would expect costs to be greater than revenue in the early stages, right? Did Microsoft immediately start making millions of dollars when they launched or did they face bankruptcy in their infancy years? Did Apple face financial struggles in early years?

QUIT BEING SO PESSIMISTIC! THINGS TAKE TIME!!! 

The subscription business is a bulk buy of music. A glance at the relatively short history of recorded music, shows this bulk buying of music has always been popular to a small percentage of the music buying public. These subscription services seems to have become the priority and current thinkings of the "investment banking mentality" prevalent at the major labels. Hits are the true bread and butter of the recorded music industry. Historically, it takes new talent for each new hit cycle. I wonder if that's possible with the finanical attachments made to any band with an established brand.

Those guys (Pandora and Spotify and others) are hopless. With total global succees and max  possible saturation they are able to generate 15 billion dollars / year - and I mean SUCCCESSS.  If they acomplish taht, all tune sales, including Amazon and iTunes will be at the most at current level.

Net result: "New Music Industry" at  half of the 1998 revenues.

Wow! PANDORA BOX HAS TO BE LOCKED UP! NOW!

Beck to basics: Tomato farmers do not give away free tomatos to make some cash on social media advertising or overpriced onion sales. Music has real value and should be delivere, sold or streamd in exchange for real money. Lables and web comunity has to sit down and change the rulles - in less than 5 years they will be  paricipating in 100 billion JUCKPOT!

In one word: OUCH.

This is a bleak outlook for music streaming services.  Clearly need to be part of a wider range of income sources.

Relax guys, Spotify is getting poeple HOOKED and then they subtely get them to pay. They did it in Sweden, they did it in the UK, they will do it in the US and then the world.

Apples and Orange

Pandora's #s represent operations in one Territory(US), whereas Spotify's #s represent Spotify's overall numbers globally(Spotify launched in US in July 2011).

That being said another point of note is to which period Spotify's US content acquisition costs (i.e. licensing advances) were attributed and how the costs were calculated.

Pretty simple to make this work. Just like a compulsory license for when an artist covers a song on their album, there should be a compulsory licensing system for people who want to distribute music. For example, tomorrow, I should be able to set up a streaming music service simply by designing a web page, setting up a payment method, and then registering with ASCAP, SESAC and BMI. This way anyone with a credit card or bank account could sell music legally, and instead of disgusting over the top fees charged by the labels/publishing companies now to license the music, it would be a simple tiered-rate system based on overall popularity. This would make music licensing affordable, increase music distribution legally, help replace the loss of DJ's and people who curate quality content for niche markets, and help sites like Pandora and Spotify become profitable. Let's be honest here, we all know the labels and publishing companies charge a FORTUNE for that licensing. They will simply price themselves out of the market, they will succeed in stopping digital streaming companies by simply overcharging them and putting them out of business, and then they will be left right back in the same hole where people won't pay and nobody makes any money. The whole freaking system is broken and everyone knows it. Its like having an elephant in the room all the time - which company will be the next to fold?

I think you can if you want to.

Look it up.

You too can pay sound exchange, ASCAP BMI, negotiate with labels for sweeter deals and start your own online radio.

No joke... I think there is an app for that...seriously, try it out.

if you want to set up a webradio, or a music store, there is a fee based on various criteria such as the number of songs available for streaming or pre-listening.

But, those copyright management entities generally work for publishers and authors/writers, not producers. Producers are part of different organisations. Producers (major company, label...) is often the right holder by effect of the recording contract. So you have to deal with the producers because the copyright offices are not entitled to negotiate his share on his behalf...

So basically, your site will have to:

- get the licence at copyright offices

- deal with producer right management companies or labels directly.

Producer is not interested in having his possessions displayed on your site. His business is to sell physical media. Deep pockets are sexier in this respect and can lead him to change his mind about ypour crappy internet service that will make him even happier if it is dead by next year. so another noob can ring the producers' door...

of course, by "producer" i mean major labels and creeps, not the nice "music makers" :-)

and, to be clear, the bad words used are not directed to you, they are here to depict the state of mind of the type of producer i talk about 'not all like that, of course, it is carricatural).

It was my understanding that you can pay the statutory rate thru sound exchange for performance of sound recordings if you want to set up a radio format that is not searchable like traditional radio.

If you want radio that allows search of specific tracks, like spotify, then you must talk to the devil.......ahem...major labels, indie labels et al

So why haven't you created it yet? Less talk, more doing.

Everyone on this blog thinks they know what's right, how to fix it, how it really works. Then fix it already. Quit commenting on blogs  and help the artists of the world with your unstoppable genius.

"unstoppable" ?

So by dismissing all of these critics you are helping how?

You are as useless as the ones you criticize.

Well, I think the deal with streaming is that it is is very "broadcastish" which has a tradition of "free for users, but paid for by ads". How did we go from the free broadcasts to cable TV which is "paid broadcasts"? Here are some salient points I believe.

> paid gives you better quality (less noise in terrestrial days, HD these days, etc)

> more varied content based on a group of core demographics (special stations)

> *more* content (not always good in my opinion, but we know how this is perceived as desirable to many)

> *special* content unavailable via standard broadcast (or IPTV these days...my wife loves Frazier and no it's not on Netflix :^0!)

There is an increasingly lower barrier to entry here and I believe it will just be part of the various platform plays by the companies who want to be "playas" in digital entertainment.

*If* companies want subscriptions, then I think they need to start following the good side of the cable model.

The only problem there is that some of what they give away is already a superset of that :^/ (personalized stations with tons-o-content for most demographics).

While it is a huge think to swallow, if I were them I would start offering special recordings and concerts only available via their vehicle(s).

Not easy for these companies to do, but maybe that will help our ailing music business at least a little bit by more players looking for content and having reason to push it.

Reminds me of the old joke from the Catskills -

"We lose money on every sale, how do we stay in business? Volume!"

Fast forward to present day dot-communism and substitute "Cash Flow" for Volume. So long as there are increasing revenues, you can raise additional OPM (Other Peoples Money) with secondary offerings to keep the Freemium party going.

Eventually you get acquired by your enemies or implode under the crushing debt.

To look at those graphs on their own without considering any spending/expansion plans/growth/etc etc of each company and without applying ANY common sense or business logic is a very foolish move.

There are a lot more factors at work here which you need to take into consideration.

Please stop scare-mongering!

If you look at what the loss represents as a percentage of total revenue, it would appear that both Pandora and Spotify are improving and moving toward profitability, or to use the DMN outlook on things "sucking less"

Pandora

2010 - 45%

2011 - 8%

2012 - 7%

Spotify

2009 - 144%

2010 - 42%

2011 - 24%

Music has become just the sauce of the dish. There's not meat. And most people doesn't want to consume it alone.