Streaming Music Poised to Overtake iTunes, Piracy

Joe Goldman  |

With shrinking demand for purchasing music in the traditional sense, subscription-based and streaming music services have exploded over the past several years. Now an affordable and safe alternative to iTunes and illegal downloading, streaming music has never been more popular and the product today is better than ever before.

This colossal shift towards streaming music conveniently coincides with the proliferation of smartphones. With high-speed mobile Internet virtually everywhere, users now have access to unlimited music on any of their devices in any location. This trend has opened up endless possibilities for music listening inside the car, as well as anywhere else away from a computer.

The streaming music industry is in a period of exponential growth and music lovers have no shortage of options. Here’s a look at some of the industry leaders:

Spotify has quickly emerged as the leader in subscription-based music. For $9.99 per month, users get unlimited access to over 20 million songs on any computer, tablet, or smartphone. Spotify pays artists $0.007 per stream, a business model completely different from iTunes and Internet radios like Pandora.

Spotify, a Swedish company, allows premium subscribers to download songs from their playlists for free, opening up a world of music without Internet access. Spotify also links to Facebook, allowing subscribers to share music with their friends and see what other people are listening to. It also offers a free version with advertisements, which is not available on mobile devices.

With over 20 million subscribers and a near triple-digit subscription growth rate, Spotify achieved a $4 billion valuation after securing $250 million in financing, according to the Wall Street Journal. During the 2012 fiscal year, Spotify generated $585 million in revenue, topping all of its peers.

Pandora (P) is an online radio and streaming music service that went public in the middle of 2012. Pandora allows users to select a musical genre and receive songs that Pandora believes the he or she might enjoy. The user then rates the song positively or negatively, and Pandora uses these ratings to determine future playlists. Pandora is a popular alternative to traditional radio because it gives users the freedom to choose their music, while simultaneously discovering new songs and artists.

Pandora currently has over 200 million registered users, according to an April 2013 report by tech crunch. Shares reached $20 after the June 2012 IPO, but plunged to $7 after investors feared overvaluation and mounting competition from Apple and paid subscription services like Spotify. However, Pandora alleviated these fears with strong quarterly reports. Shares now trade near all-time highs in the low $30’s.

Apple (AAPL) recently launched iTunes radio, a similar service as Pandora. iTunes radio is built into iOS 7 and is free with advertisements, or ad free with an iTunes Match subscription.

Very uncharacteristically, Apple is not anticipating to profit from iTunes radio. However, the tech giant hopes that the music service will boost sales for its mobile devices, particularly the iPod, which Apple hopes to keep relevant despite cannibalization from the iPhone.

Hip-hop and entrepreneurial moguls Dr. Dre and Jimmy Iovine plan to launch a streaming music service under their company Beats Electronics. According to CNBC, the company raised $60 million and will offer an enormous selection of music for $9.99 per month.

Beats has also reportedly reached an agreement with AT&T (T) that could boost subscription numbers. For $14.99 after a 90-day free trial, AT&T customers will have unlimited access to Beats Music on up to 10 devices. Given Beats’ success in music hardware and its enormous marketing power, Spotify may have met its match. The service will launch on January 21.

People have generally shied away from purchasing music for one common reason: it is expensive. $1.29 for a song or $9.99-$14.99 for an album is simply too expensive for people without a lot of disposable income, particularly those who listen to a lot of music.  An avid music listener may want to buy thousands of songs and dozens of albums per year, but will probably certainly want to pay thousands of dollars with limited disposable income.

For this reason, streaming music services have gained incredible much popularity to date. Subscribers can get unlimited access to millions of songs and albums for the same price as tens songs or a single album on iTunes, Amazon, or anywhere other music outlet. Streaming music is also a more ethical and legal way to consume music than music sharing, and takes away the security and virus risks of piracy out of the equation.

Of course, piracy will exist until the government shuts down and prosecutes pirating websites. In the meantime, subscription-based and streaming music is an affordable and limitless way to consume music. The industry is certainly one to watch as a fast-grower in the near and distant future.

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