Here Are The Five Things Music Streaming Companies Could Do To Turn A Profit

Getty- Justin Sullivan

Streaming is the hottest new way to listen to music but providers’ pockets remain empty.

The music streaming services now account for 6% of the international music market, with 15 services available in Australia alone.

However, the rapidly growing streaming services have not yet been able to reach a profit, according to analysis published today by Venture Consulting.

The closest streamers to hitting profitability are Pandora, Spotify and Deezer, each using a unique business approach to create revenue.

The main revenue for these services comes from user subscription fees and advertising. However, Venture Consulting, providers pay a majority of this profit back to cooperating labels.

“(These) revenues are quickly offset by substantial payments to the music labels. Most services pay 60-75% of their revenues to the labels”, says the report, showing why services are struggling with tight gross profit margins.

The most well-known of the services, Spotify, now has 24 million users worldwide, yet ran at an estimated a loss of around $60 million in 2012.

Venture Consulting says if music streaming services are to succeed into the future, these five things will need to happen:

1. Reducing royalty payments down to around 50% of revenue;

2. Strengthening advertising sales and improving advertising yields;

3. Reducing subscriber acquisition costs through partnerships;

4. Reflecting costs in pricing plans by introducing higher price points for heavier users;

5. Limiting free usage of subscription centric services.

As competition in the music market continues to grow streamers have heavy weights Google and Apple knocking at the door in a bid to jump on the streaming band wagon.

“To ‘win’ in this market, these music streaming services will need to strike a fine balance between driving scale through growth, while building a sustainable business”, says Venture Consulting.

The full report is here.

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