According to a new report from analysts Generator Research, music subscription services such as Spotify will never be able to make a profit in their current state — and that’s largely because of the hefty royalty fees they have to pay out to artists, the labels that represent them and rights management groups.
The dollars and cents that actually trickle down to the artists themselves isn’t very much — as Thom Yorke and others have pointed out — but nevertheless subscription streaming services currently hand over 60-70 percent of their revenue to record labels and other interested parties, and Generator Research says that’s unsustainable.
All is not lost, though. Subscriptions to Spotify, Rdio, Pandora et al are expected to more than double by 2017, and Generator Research analysts believe new ways of boosting income can be found. This could include bundling music streaming privileges with mobile contracts or broadband deals, for example.
“Music subscription services providers are all losing money, and that is going to remain the case until they find a way to monetize a worldwide user base,” explains the study, as reported by ComputerWorld. “Putting to one side the quality of the actual service, which most users would rate very highly, the facts show that Pandora — when viewed objectively as a business — is in dire straits. We are at a loss to know why the company’s stock has performed so well, especially over the last 12 months.”
Another potential revenue stream could involve anonymized behavioral data being sold on to advertisers. The most important source of growth, according to the report, is converting free users into paid ones: both Spotify and Rdio have relaxed free listening limitations in recent months.
For a more complete guide to the labyrinthine payments system currently in place in the music industry, have a read through our previous posting.