Can anyone turn streaming music into a real business?

After ten years of struggle, nobody has figured out how to make music pay

"The subscription model has failed so far," Steve Jobs said in April 2007. "People want to own their music." At that time, Apple had solved the problem of making money in digital music with particular creativity: don't make money from music. With iTunes and the iPod, Apple sold music more or less at cost, selling the idea and lifestyle of music to sell high-margin hardware and draw customers into its ecosystem. "Never say never, but customers don't seem to be interested in it," Jobs said. If people wanted to rent or stream their music, Jobs' answer implies, Apple would help them do that if that experience continued to sell Apple's hardware. With the iPhone and its App Store, Apple would ultimately do just that.
Of course, as always, Jobs was also playing hardball. He knew that a group of music labels, worried at Apple's power over the music industry and uncertainty over Apple's push to drop DRM, were working with entrepreneurs on the streaming music service that would ultimately become Spotify. Apple needed to renegotiate its agreements with these same labels, and Jobs wanted them and everyone else to believe that Apple had a unique insight into consumers' behavior. Despite the posturing, there is no purity in the music industry. There is, and has always been, only pragmatism.
Six years later, everything in the music and technology industries is pushing toward digital streaming. Last year, music-related startups received $619.3 million in new investment. Spotify has more than five million paying subscribers, proving that customers will pay rather than pirate every month for a rich library of music if it's inexpensive and available everywhere. (Later this year, Spotify will offer free, ad-supported music on mobile devices in all of its markets.) Soundcloud, the leader in user-created embedded audio, just simplified its paid, pro, and premium partnership tiers for heavy users, music labels, and brands. Google wants to start a music subscription service in the second half of this year, trading on its strong positions with both Android and YouTube. Hardware upstart Beats Electronics is building its own streaming service, Daisy, using just-acquired Mog as its backbone. Even Apple is finally embracing streaming in principle, negotiating royalty rates with music rights owners to add a new, complimentary service to its iTunes Store.
But even while streaming looks inevitable, in many ways its outlook is still grim — and it all comes down to money. Apple and music labels are reportedly still far apart on how much revenue they should share. Spotify wants music labels to lower the rates it pays as it tries to edge into profitability. Finally, Pandora's CEO suddenly announced his resignation after a record loss and his inability to move Congress to pass legislation to lower its statutory royalty rate. The growth of ad-supported and subscription services alone simply hasn't been enough to change the fundamentals of the business.
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. We all want snow that isn't cold or wet. In principle, everyone is willing to pay, and everyone is willing to compromise, but no one is willing to compromise enough.

By Tim Carmody
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