Like every other segment of entertainment industry, music industry has been greatly affected by invasion of digital technology in recent years. While declining sales of CDS and growing rackets of piracy have emerged as potent threats for music labels and artists, newer ways to learn profits and reach out to listeners have also appeared on the horizon. Both new bands and established artists are counting on power of social media and online music steaming services to boost earning and stave off menace of piracy. However, the music industry bigwigs are not totally convinced of the feasibility of relying much on the online steaming services.

Streaming online music services like Pandora and Spotify have become pretty popular among web users and a section of musicians and singers are hoping they will be the future means to boost revenue. While the financial results of Spotify does show some rays of hope, with its 128% rise in revenue, there are downsides as well. While its revenue for 2012 stood at €434.7m, the net loss was €58.7m. The loss was owing to the entity’s investment in new countries and addition of new features in its online service.

Analyzing Role Of Online Streaming Music Services In Music Industry Upheavals

As a matter of fact, Spotify is yet to make profit since its inception, with amount of loss increasing every passing year. However, it needs to be taken into account that in technology driven industries, relatively new and expanding businesses require time to get into steady profit generation. The music industry behemoths are debating the viability of such online services when it comes to payments received by music artists.

Moves by Big Brands

The latest move of Nigel Godrich and Thom Yorke to remove their albums from online steaming services is making headlines. Critics of Spotify accuse the entity for running a loss making proposition designed for IPO or a lucrative acquisition that will benefit its shareholders eventually, leaving the artist biting the dust. As it is, the music industry veterans have reasons to worry. Pandora, another well known streaming radio service went public 2 years back with approx $2.6bn valuation. However, the war between music publishers, artists and songwriters over royalties owed to them are still raging on.

The track record of Pandora was quite similar to that of Spoitify, as the critics say. Starting from 2008 every year it ran into losses, though the amount varied and Tim Westergren, its CEO along with other executives made tons of money selling the shares. As it is, financial records of both Pandora and Spotify do raise two important questions. It needs to be analyzed whether such steaming services are sustainable for music artists and if the companies are strong enough to sustain.

Spotify has said it gives about 70% of profits to music rights holders, who are instrumental for paying the songwriters and artists. However, contracts terms for payment do vary in music industry- there is nothing new about it. Questions are doing the rounds regarding change from downloads to online steaming and whether it helps established artists more than newcomers. Its effectiveness to thwart piracy masterminds has also been questioned.

Analyzing Role Of Online Streaming Music Services In Music Industry Upheavals

How Online Streaming is Changing the Game?

The music artists get paid more when more people buy music from these online streaming services. The willingness of buyers and listeners to shift from downloads and CDs to streaming is also a vital factor here. The adoption of new standards may not happen at blazing speed. One positive development is that big technology companies including the likes of Apple, Amazon, Google and Sony are gearing up to launch their streaming music services to sell devices. A solution possible lies in co existence of various music services and eco system, where users have more choices and music artists can make profit in more than one way.

Evans is always passionate about music and loves hip hop music. Currently he is associated with Tacoma String Quartet Seattles.