For other streaming music companies, Apple could become an exquisitely designed Death Star.
Rhapsody recently announced it would cut 15 percent of its workforce. Spotify is bleeding cash. Grooveshark is trying to find, well, its groove after two years of punishing lawsuits. Pandora has yet to make a profit, although its stock is doing well.
It’s the best and worst of times for the streaming-music business. The ability to stream virtually any song or album is clearly something that people want, but it’s unclear whether the underlying revenue model—advertising and subscriptions—can sustain the handful of companies currently doing their best to dominate the ecosystem. And consider the musicians themselves: even as their songs receive hundreds, thousands, or even millions of listens on Spotify and other services, the current royalty structure ensures that many of them receive a mere pittance in return. “By my calculation it would take songwriting royalties for roughly 312,000 plays on Pandora to earn us the profit of one—one—LP sale,” Damon Krukowski of the band Galaxie 500 wrote in a much-circulated Pitchfork article in November 2012. “On Spotify, one LP is equivalent to 47,680 plays.”
That’s a whole tangle of issues facing the industry. “Everyone wants streaming music to be cheap or free for listeners, offer every song ever recorded, be made available on every device, be consistently lucrative for the industry, and give new and established artists robust support for new music,” Tim Carmody wrote in The Verge earlier this year. “In principle, everyone is willing to pay, and everyone is willing to compromise, but no one is willing to compromise enough.”
Apple and Google have further complicated things by rolling out their own streaming-music services, both of which have the potential to change the game. Unlike Spotify and its ilk, Apple and Google are massive tech conglomerates with lots of income derived from other lines of business; whether or not their respective streaming services bleed cash, they can continue to fund those efforts pretty much indefinitely. In fact, the virtuous circle created by a streaming-music service tethered to an in-house music store—listening to the track a bunch of times on iTunes Radio could easily lead to an outright purchase on iTunes—could make such a streaming service worth keeping around even if it loses oodles of money every quarter.
That combination of brand recognition, infinite cash and tie-in with other services renders Google and Apple an existential threat to smaller streaming-music services, if only because they’ll surely take enormous slices of what’s already a well-masticated market-share pie. For those smaller services, survival means negotiating good rates for music, staying clear of lawsuits and boardroom backstabbing, and hoping that some combination of superior features and excellent deals will make them stand out from the rest of the crowd.
Despite those pressures, the executives who head these streaming services remain publicly optimistic about their prospects—after all, that’s their job. “We’ve had good growth here in 2013,” Grooveshark CEO Sam Tarantino recently told Business Insider, “but if in the headwinds of multiple lawsuits we’ve been able to grow at a modest pace, now imagine what we’d be able to do with tailwinds.”