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.