Thursday, January 16, 2014

Is Verizon's Victory A Streaming Music Killer?

Net Neutrality image from Bobby Owsinski's Music 3.0 blog
Until yesterday I was hopeful about the future of the music business. Today not so much. All the indicators and predictions showed the growth of music streaming to not only offset the decrease in download sales, but even some long lost CD sales as well. There was actually hope for a recovery, and a real chance to see some much needed growth. Now the future is uncertain.

That's all because of Verizon’s court victory in the U.S. Court of Appeals against the Federal Communication Commission’s so-called Net Neutrality law, which required Internet Service Providers to treat all Internet traffic equally. That seems innocent enough on its surface, but without that law in place, ISPs can now charge extra for either high-bandwidth or speedier delivery. This affects streaming media companies like Netfilx that specialize in video (especially), but can also affect just about every streaming music provider as well.

Streaming music is an extremely low margin business to begin with. Between paying huge licensing fee advances to the music labels, there’s the cost of paying the copyright holder and publisher, as well as bandwidth, storage, and marketing costs. None of the major players make money right now, as they all jockey for position as they hope the future economy of scale will bring a large enough market to break into the black. Sure there’s advertising and subscription income right now, but that’s still slowly creeping up to the break-even point.

As a result, companies like Pandora and Spotify that are just hanging on hoping that the costs stay static while the user base grows. That’s all well and good, since the majority of music consumers are still virgin territory, having not experienced streaming or not yet made a choice of a preferred service. New services like Beats Music (set to launch next week), YouTube Music (set to launch “soon”), and Slacker (set the enter the US market “soon”) see the space wide open, while Pandora and Spotify have big leads in market share at the moment, but we’re still early in the game. Read more on Forbes.

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