Revenue from music streaming services is set to climb by 40% this year to $1.1bn, according to research from Strategy Analytics, which is also predicting that spending on digital music will outstrip that of physical globally by 2015. The company says that the growth in streaming services will dwarf that of digital downloads, which are set to show a revenue increase of 8.5% to $3.9bn this year, meaning streaming will take over as the key growth engine for the recorded music industry.

“Although downloads still account for nearly 80% of online music revenues, this market is maturing and spending is flattening in all key territories,” notes Strategy Analytics’ director of digital media, Ed Barton. “Streaming music services such as Spotify and Pandora will be the key growth drivers over the next five years as usage and spending grow rapidly.”

Superficially then this is good news for the streaming business which, as Deezer’s move into Asia attests, has very obvious global ambitions and is not merely focused on super-serving the top 10 markets. Yet for all this success, streaming services still face a number of major headaches, most notably how to convert use into profit and to keep the VC investors sweet for the long haul. Two of the earliest streaming services – Napster and we7 – have been bought up recently, while Spotify is still far from profit, despite having 4m paying customers (and 15m overall, mainly using the ad-supported service). Licensing, too, continues to be a headache, with Pandora’s global plans tangled up in music industry red tape.

So while there is little doubt that streaming will continue to play an increasingly important role for the music industry, streaming services themselves face a tough few years, with their battle likely to be won, ultimately, by whoever can hold their nerve the longest and (more importantly) whoever has the deepest pockets.

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