Spotify, Rdio, Deezer et al might be on an up curve as consumers increasingly take to music streaming, but the business model for such services may be well and truly screwed. And that’s partly because record companies are hammering streamers on the royalties side. Spotify currently shells out 70% of its revenues as payments to labels and publishers, which is a heavy burden to carry, though it’s thought Apple is giving music industry execs a hard time over this as it develops a new streaming service on the back of the Beats acquisition.
“Many artists feel they are undercompensated by streaming services, but as currently structured, the underlying economics won't support higher royalty payments by these service, particularly for free ad-supported services,” says Leika Kawasaki, digital media strategies analyst at Strategy Analytics, which has just published a report, Will Royalty Crisis Defeat the Music Streaming Industry?
The research firm says global recorded music revenue declined 1% from $22.8 billion in 2013 to $22.5 billion in last, though with subscription and ad-supported streaming music accounting for about half of digital music revenue in 2014, up 14% year-over-year. However, Despite significant growth in revenue and a lower net loss, Spotify average monthly revenue per user has actually declined on both the subscription and ads side.
There’s currently a surfeit of streamers and life isn’t about to get better, either. "With too many competitors already in the space, music-centric companies are facing growing competition from tech giants that have a distinct advantage in terms of leveraging their vast product ecosystems to drive growth in the music space,” says Kawasaki. “Current music-centric services may not be able to overcome inefficiencies in music streaming economics and increased competition. As a result, we very well may soon be seeing changes in the balance of power."