Costs Test Streaming Business Model
Even though subscriptions to streaming music services are up, the business model has “yet to make sense,” according to SNL Kagan.
Subscriptions for the leading services nearly doubled the subscriber bases in 2015 compared to 2014.
However of the five leading services — Pandora, Rhapsody, WiMP, Spotify and Deezer — “non has recorded positive cash flow in the last four years,” according to SNL Kagan in “Economics of Mobile Music.”
Additionally, Deezer ditched its IPO plans last fall, then Rdio filed for bankruptcy (since acquired by Pandora) and Samsung’s MilkMusic is rumored to be on the block.
Increasing music copyright licensing fees are a big culprit, as Pandora paid 52% for the fees as a share of total revenue in 2015, while Spotify paid 70%, and Deezer 80%, according to the report.
The music industry is hoping costs for these services “will grow more slowly than the top line,” given that physical music sales and even downloads are dropping. The report cites two ways services are trying to diversity their revenue stream with Pandora’s acquisition of Ticketfly and Spotify’s efforts to monetize casual music fans.