An epic battle in streaming music is about to begin, and only a few will survive â€“ Quartz
Geege Schuman stashed this in Music Industry
Others are convinced Pandora has a bright future. After all, plenty of young, fast-growing companies have lost money early on. Wedbush Securities analyst Michael Pachter argues that Pandora has a clear path to profitability:Â It pays mostÂ of its royalty costs on a per-stream basis, and so it can turn up the profits by simply increasingÂ the number of ads it plays each hour, which would both generate more revenue and slightly reduce its royalty costs (because itâ€™s playing more ads and slightly fewer songsÂ overall).
PandoraÂ could also use the information it has about its listeners to target them with ads specific to them, PachterÂ says.Â In theory, this should let it chargeÂ more forÂ its ads than broadcast radio stations do.Â â€śPandoraâ€™s leverage is not from exploiting the content guys, its from exploiting the advertising,â€ť Pachter tells Quartz. â€śOld guys listen to Eric Clapton, theyâ€™re more likely to buy Viagra. They [Pandora] know that and they actually know whoâ€™s listening to what.Â Obviously they shouldnâ€™t think old guys listen to Katy Perry and run a Viagra ad duringÂ that.â€ť
Pandora has for a while now been tracking its usersâ€™ tastes to try and predictÂ which ads would suitÂ them. It has already launched targeted political advertising. (As the Wall Street Journal covered thisÂ news, â€śPandora Thinks It Knows If You Are a Republican.â€ť)Â So, during the upcoming US congressional midterm elections, listeners of country music might start to hear more Republican-themed ads, while listeners of classical music might hear adsÂ for Democratic candidates. Evidently, investors think it could use theÂ same method for corporate advertisers.
The elephants in the roomA clearer picture of what Apple and Google are trying to achieve in streaming music should emerge in coming months. But Rae, of the Future of Music Coalition, says that the odds are already stacked in their favor, and not just because they can absorb theÂ high costs of royalties. The standalone services â€śare the services that are the most vulnerable, because theyâ€™ve got licensing costs and you also have got ISPsÂ trying to put caps on users and the whole net neutrality issue,â€ť he explains.
What this means is that, owing to changes in US regulation,Â content companies mayÂ soon be forced to pay internet service providers extra to streamÂ audio and video content to usersÂ without annoying time lags. That would putÂ even more pressure on their margins.
If so, theÂ streaming music business (or at leastÂ the on-demand form)Â may well beÂ destined to become a loss-leader for other, more lucrative business activities, Rae says. And itÂ wouldnâ€™t be the first time music has been used this way. Rae points out that in the days of CDs, retail electronics chains like Best Buy sold albums at a discount to get customers in the door so they would buy cameras and music players.
The tech giants already do something similar. Appleâ€™s iTunes store, through which it sells albums for download, was for a long timeÂ a break-even business, designed to getÂ people toÂ buy iPods and iPhones, where the real profits lay; a streaming service will further serve that goal. Google tries to get people to use its services as much as possible so it can show them contextual ads.Â ForÂ Amazon, streaming music is just one more wayÂ to convince you to pay $100 a year for Prime, a way toÂ lock customers into using AmazonÂ for just about any product they buy.
Active vs passive listeningThe future of streaming also depends at least in part on whether people prefer to choose their own music (the Spotify model) or have choices made for them (the Pandora model). Back in the days of vinyl records and bakelite radio sets, everyone hadÂ a mixÂ of both. Will it be the same in the internet era? Lefsetz, the industry analyst, thinks not. He wrote in his recent post that â€śwe live in an on-demand world,â€ť and so Pandoraâ€™s strength will diminish, though it will survive in some form.Â â€śThereâ€™s a marketâ€ť for passive listening, he added, â€ś[b]ut not run by algorithms, but peopleâ€ťâ€”i.e., by radio stations, both traditional terrestrial ones, and digital ones, like SiriusXM.
ThatÂ still remains to be seen, of course. And maybe Pandoraâ€™sÂ Music Genome Project, which the company describes asÂ â€śthe most sophisticated taxonomy of musical information ever collected,â€ť and involves more than a decadeâ€™s worth of analysis and classification of music by a team of trained musicologists, will turn out to have some value of its own as a piece of intellectual property, even if the radio-streaming model doesnâ€™t.
I'm a little scared for the future of music.