Tech industry moves quick and the world of internet moves quicker. A whole range of popular music streaming services have popped online in recent years but going forward, they must evolve to ensure profits or wither away, reveals a new report.
A number of online streaming services are already struggling. The competition is getting tougher and profit margins are being choked. According to report from Generator Research, a hefty portion of the profits made by streaming services such as Spotify goes away in royalty fees.
The streaming services are required to pay these fees to the artists, labels, rights management groups and numerous other entities in the music industry in return for licensing their music. The result is that nearly 60% to 70% of the profit made by these services has to be handed over in lieu of royalty.
This is making sustainable profitability an increasingly difficult goal for these services. Many more offerings are cropping up, user base is spreading across more contestants and the current growth rates do not promise greener pastures in the future. However, as the Generator Research report suggests, this may change as the streaming services evolve to devise new profit-making avenues.
This is possible, for instance, by bundling music streaming services with broadband deals or data plans. We are already seeing this happening in the case of Beats Music and AT&T. But it yet remains to be seen whether this model shows any promise. Another possibility is to find vendors for anonymized data from the users of these services. This data can reveal music habits, trends and a lot more, and that is precious information for many advertisers out there.
Companies such as Spotify and Pandora are well poised to double their user bases by 2017. But at their current profitability margins, this may not be enough. One of the keys to success in the future for these companies would be to successfully translate their free users into paid subscriptions. And that’s an uphill tasks which will require significant improvements in the services.
Source: Generator Research
Courtesy: Digital Trends
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