Streaming music is good for UK labels, but are they good for streaming music?

Latest industry figures hail growth fuelled by companies like Spotify, but are their businesses sustainable?

The title of the press release put out this morning by British music industry body the BPI is clear and unequivocal: “Streaming fuels growth for UK recorded music industry”.

That’s based on figures showing the trade value of recorded music in the UK – the amount labels made after retailers and digital services (from HMV to Apple and Spotify) took their cut – grew 1.9% in 2013 to reach £730.4m

Half of those revenues came from digital music stores and services, including £160.5m from digital album downloads and £77m from streaming music: up 19.5% and 41% respectively compared to 2012, although digital single-track sales dipped 4.4% to £121.7m.

“The UK’s record labels have reimagined their businesses for a world of instant mobile, global access to music, driven by social media,” said BPI chief executive Geoff Taylor in a statement. “Rapid growth from digital albums and music streaming services such as Spotify powered a rebound in revenues in 2013.”

The message is clear: streaming music is good for British record labels, after a decade of declining sales. Yet it’s fair to ask another question: whether the rapid growth in streaming music payments to labels is as good news for the companies making those payments.

Spotify, for example, paid more than $500m (£300m) to record labels and publishers in 2013 – around 70% of its revenues. Its royalty commitments are the main reason it has posted net losses ever since its launch, including €45.4m in 2011 and €58.7m in 2012.

In the US, streaming radio service Pandora has also been a consistently unprofitable business: including losses of $35.6m in 2012, and $40.7m in 2013. Its “content acquisition” costs in 2013 accounted for 53.8% of its revenues: more favourable than Spotify, but still not profitable overall.

This is why one research firm, Generator Research, has published a report suggesting that while streaming music will grow fast, the streaming music companies face a struggle making the numbers add up for their businesses.

“Music subscription services providers are all losing money, and that is going to remain the case until they find a way to monetise a worldwide user base,” claims the report, which also suggests that despite its popularity in the US, “Pandora — when viewed objectively as a business — is in dire straits”.

Streaming music is good for labels, but the economics of streaming music are extremely tough for the companies providing it. Two of them, Rdio and Rhapsody, were forced to layoff staff in 2013. One of the most popular streaming services in India, Dhingana – which had 15m users a couple of years ago – has just shut down.

Any attempt by streaming services to reduce their royalty commitments runs into the separate, heated debate about whether streaming music is good for individual musicians and songwriters. The streaming companies’ line on this is that in the long term, it will be: even tiny per-stream payouts will really start to add up by the time Spotify, Pandora and their rivals have even more people listening – and also paying – for their services.

Spotify’s publication of predicted payouts when it has 40m paying subscribers – it’s about to pass 10m – was that company’s attempt to convince artists of the scale argument. But even with that, plus the positive figures published by the BPI, it’s a legitimate question to ask not just whether streaming will work at scale, but whether the streaming music services can last long enough to prove it.

Or, rather, the standalone streaming music services. Generator Research’s claim that “music subscription services providers are all losing money” is untrue.

Apple is most certainly not losing money, and it’s a streaming music provider – the Pandora-like iTunes Radio. Google is hugely profitable, and has its own on-demand Google Play All Access service, not to mention YouTube – currently the biggest streaming music service in the world.

Amazon? Well, Amazon flips between profit and losses in its quarterly financials, and hasn’t got a full streaming service yet – it lets people stream their own music collections from its cloud – but it’s well-resourced. Microsoft has Xbox Music, Samsung has its Music Hub, headphones brand Beats has its new Beats Music...

There is a group of streaming music providers in the position to use their big profits from other products – devices or advertising, basically – to subsidise the costs of streaming music in the years ahead.

The BPI is right to pinpoint streaming as a key engine of growth for the music industry, but it remains to be seen which companies have the legs to make that growth sustainable in the longer term.

Powered by article was written by Stuart Dredge, for on Wednesday 19th February 2014 12.21 Europe/London © Guardian News and Media Limited 2010


image: © Johan Larsson