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Apple and Google are muscling in on streaming as revenues rise, but not everyone is happy
If you wonder what the person next to you on the bus or train wearing headphones and looking at their mobile screen is listening to, it is probably the new radio - a streaming service
According to the music business body the British Phonographic Industry(BPI), Britons streamed 14.8bn tracks last year, almost double the 7.5bn of 2013, as internet connectivity improves and becomes pervasive
Compared to buying music downloads, streaming services have a number of advantages. Listeners can range over millions of tracks - the "universal jukebox", create and share playlists socially, discover new artists effortlessly through "artist radio", and listen anywhere (even downloading temporarily for times when their smartphone gets no signal)
This year Apple is expected to muscle in on the scene using the Beats brand it bought for $3bn in May 2014, as is Google;s YouTube, which last November launched a paid-for, ad-free music and video streaming service, YouTube Music Key
Snapchat, best known for its self-destructing photos and video that are hit with teenagers, is also planning a music feature, according to emails leaked as part of the hack of Sony Pictures. A partnetship with the music video service Vevo could be incorporated into future versions - which surely helped the Silicon Valley darling raise another $485m, valuing it at more than $10bn, in the past few weeks
Sometime it seems as if everyone is planning a music streaming service, just as a decade ago everyone down to HMV and Walmart offered music downloads
But unlike downloads, musicians do not universally love streaming
At the start of November, Taylor Swift removed her new album and back catalogue from Spotify and the other streaming services, having complained in a Wall Street Journal column in July : " Valuable things should be paid for. It's my opinion that music should not be free"
Ed Sheeran, Beyounce and Coldplay have used similar tactics, offering CDs and digital downloads for sale before putting them on streaming services - the opposite of the way radio has been used for promotion for decades
Yet streaming revenues are rising fast, according to the BPI's figures : they have zoomed from zero in 2007 to 76.7m pounds in 2013. Data released by the Entertainment Retailers Association and BPI this week suggested wholesale streaming revenues were 123m pounds for 2014. (The ERA reported streaming revenues of 175m pounds, but typically its value show a 40% retail markup over the BPI's wholesale figures.) The problem with streaming services, though, is that they seem remarkably ineffective at persuading people to hand over their money. If they are the new radio, well, who pays to listen to the radio? And unlike radio, advertising cannot cover the cost of the service
Spotify, for example, is available to nearly 1.1 billion internet users around the world, yet it can claim only 12.5 million paying users and 50m ad-supported accounts. So only 1% of potential subscribers actually pay. Another service, Deezer, claims to be in 182 countries, giving it about as many potential users (and payers) as Spotify; in mid-2013 it reported 16 million monthly active users, and 5 million subscribers
The US-only Pandora claims 250 millions users, but only 3.3 million paying its $5 a month subscription
Mark Mulligan of Midia Consultaing who has a long track record watching the music business, reckons there are only about 35 million paying subscribers worldwide for all streaming services, out of more than a billion potential users
Mulligan thinks the problem is the price. Even before the digital revolution, the average person spent less than 5 pounds a month on music, with most spending accounted for by a small number of big buyers. Cutting subscription prices would entice many more to pay, he thinks, easily making up for lost revenues. "I've been banging the pricing drum for so long the stick has broken," he said recently."Unfortunately there was pitifully little progress in 2014, with label fears of cannibalising 9.99" - the price of a standard album, in dollars or euros, on iTunes - "dominating thoughts". Something needs to change. The figures suggest streaming is eating into digital downloads rather than CD sales: its revenue growth is almost exactly matched by a fall in digital download revenue, now at their lowest level sice 2011. In the US, Nielsen SoundScan has confirmed the same pattern, with paid song downloads down 12% in 2014, from 1.26bn to 1.1bn, while song streaming rocketed from 106bn to 164bn
There's another difficulty : streaming services tend to lose money
Pandora, the market-listed US streaming service, hasn't made an annual profit since it floated in 2011. Spotify still records losses - even though it is expected to seek a flotation this year.
The main problem is that for each song streamed, the service has to pay a set amount to the record labels; the more songs streamed, the greater the payment, creating a cost barrier that never shrinks. Spotify says it pays out 70% of its revenues to artists
Thet could be about to change with the arrival of Apple. Its acquisition of Dr Dre's Beats was seen as a defensive move after a dramatic fall in iTunes music downloads and revenues. "Apple had to address streaming," Syd Schwartz, a former EMI Music executive, told Rolling Stone in May
When Apple introduces Beats Music outside the US, it could galvanise the market. Music industry figures are eager to see what effect it could have because data suggets iPhone owners are typically higher spenders (and so easier to convert to paying subscribers) than the average smartphone buyer. "We've reached a very interesting point where there are important changes to come," a BPI spokesman said. "It seems that we're moving towards a time of people understanding that streaming is the future"
Apple is understood to be seeking lower per-song payments from the music labels, so it can offer lower subscription rates. Google's paid-for YouTube Music Key service launched in November with a six-month free trial and a discounted 7.99 pounds-a-month cost (down from 9.99 pounds). Mulligan expects that discount to continue, and pricing tiers to fall in line
Yet YouTube itself might be a key obstacle to boosting subscriptions, because it is unofficially the world's largest as-supported music streaming service. Teenage use it to find songs and related artists exactly as they do the normal streaming services. (Snapchat's user demographic is a perfect match for that sort of service - which Vevo may seek to capitalise on.) When Swift removed her content from streaming services, it created a media uproar-but all her songs, including new album 1989, could still be found on YouTube
Mulligan thinks artists and labels will have to swallow their pride and accept the world of change - and lower payments
"The whole 'changing download dollars into streaming cents' issue continues to haunt streaming though," he said. "With streaming services struggling to see a route to operational profitability the perennial issue of sustainability remains a festering wound. The emerging generation of artist such a s Avicii and Ed Sheeran who have never known a life of platinum album sales will learn how to prosper in the streaming era. The rest will have to learn to reinvent themselves, fast - really fast"
This article was amended on Friday 2 January 2015 to correct the numbers of streamed tracks as stated in the second paragraph
as stated in the second paragraph
this article was amended on Friday 2 January 2015
to reinvent themselves
how to prosper in the streaming era
who have never known a life of platinum album sales
the emerging generation of artist
struggling to see a route to operational profitability the perennial issue of sustainability
remains a festering wound
continues to haunt streaming
changing download dollars into streaming cents
will have to swallow their pride and accept the world of change
it created a media uproar - but all her songs
user demographic is a perfect match for that sord of service
may seek to capitalize on
unofficially the world's largest as-supported music streaming service
a key obstacle to boosting subscriptions
pricing tiers to fall in line
expects that discount to continue
down from 9.99 pounds
lower subscription rates
is understood to be seeking lower per-song payments
are moving towards a time of people understanding that streaming is the future
have reached a very interesting point where there are important changes to come
easier to convert to paying subscribers
iPhone owners are typically higher spenders
it could galvanize the market
when Apple introduces Beats Music outside the US
had to address
Its acquisition of Dr Dre's Beats was seen as a defensive move after a dramatic fall
That could be about to change with the arrival of Apple
it pays out 70% of its revenues to artists
creating a cost barrier that never shrinks
has to pay a set amount to the record labels
it is expected to seek a flotation this year
still records losses
hasn't made an annual profit since it floated in 2011
rocketed from 106bn to 164bn
has confirmed the same patter
its revenue growth is almost exactly matched by a fall in digital download revenue
is eating into digital downloads rather than CD sales
dominating thoughts
I have been banging the pricing drum for so long the stick has broken
with label fears of cannibalising 9.99
there was pitifully little progress
making up for lost revenues
would entice many more to pay
cutting subscription prices
with most spending accounted for by a small number of big buyers
less than 5 pounds a month on music
out of more than a billion potential users
reckons there are only about 35 million paying subscribers worldwide
a month subscription
monthly active users
as many potential users as Spotify
claims to be in 182 countries
yet it can claim only 12.5 million paying users and 50m ad-supported accounts
is available to nearly 1.1 billion internet users
unlike radio, advertising cannot cover the cost of the service
pays to listen to the radio
remarkably ineffective at persuading people to hand over their money
show a 40% retail markup over the BPI's wholesale figures
reported streaming revenues of 175m punds
have zoomed from zero
revenues zre rising fast
has been used for promotion for decades
the opposite of the way
before putting them on streaming services
have used similar tactics
should be paid for
having complained in a Wall Street Journal column in July
do not universally love streaming
as if everyone is planning a music streaming service
could be incorporated into future versions
leaked as part of the hack of Sony Pictures
that are hit with teeagers
best known for its self-destructing photos
a paid-for, ad-free music and video streaming service
is expected to muscle in on the scene
when their smartphone gets no signal
discover new artists effortlessly through artist radio
share playlists socially
can range over millions of tracks
have a number of advantages
compareed to buying music downloads
as Internet connectivity improves and becomes pervasive
streamed 14.8bn tracks last year
muscling in on streaming as revenues rise