The Rise of Music Streaming Services and What It Means for Listeners and the Industry

If you follow the full arc of the history of music – from troubadours in the street to the teenager streaming his favorite playlist – the change in how we listen to music is truly astounding. And yet, while the evolution is far from over, music streaming services are not simply the latest stage. They also represent a paradigm shift.

Over the last century and a half, new devices and formats have made music more portable, customizable, and easier to share. Early record players – once large, immovable objects – have been replaced by sleek, portable innovations, such as the Sony Walkman and the Apple iPod.

Music formats, which changed in lockstep with players, have become smaller and less tactile, shifting purchase and listening patterns. For example, vinyl records made buying and playing music easier and more affordable because of their longer playing time. Later, eight-track and cassette tapes introduced personalization and portability, as music lovers creating mixtapes of their favorite music and played them in their cars and while exercising.

Yet, it’s digital that has had the most profound – and arguably the longest-lasting – impact. The MP3 format made music files smaller in size and much easier to swap, but also enabled large-scale piracy, a significant threat to music industry revenues. On the other hand, digital technology also made streaming music possible. As the industry’s fastest growing revenue source – exceeding $1 billion in the first half of 2016 alone –music streaming may also be saving it.

To attract new users, Pandora and Spotify are pushing the boundaries of technology to develop new features, such as high-fidelity streaming audio formats. They’re also making advances with artificial intelligence and deep machine learning to help users discover new music and personalize their playlists.

Amazon, for example, is offering a new service that takes advantage of algorithms and social data to suggest new music according to the listener’s tastes. Likewise, Spotify is considering introducing a feature that uses heart rate data to select music based the listener’s current mood or activity.

Despite these promising developments, music streaming services face a plethora of challenges.

One area causing tension is pricing. Subscriptions are the most profitable business model for streaming services, but to attract users they must offer some tier of free or ad-supported service. At the same time, they’re also under pressure to compensate artists justly for their music.

Finding the right balance between profitability and compensation has been difficult. Spotify, for example, pays more than 80% of its revenue to record labels for streaming rights, yet faces opposition from artists because of exceedingly low royalty rates.

One objection is that streaming cuts into music sales. Research, however, has shown no evidence of online digital sales displacement by music streaming services. In fact, in a recent consumer survey by ReportLinker, music streaming service users are more likely than non-users to buy music.

Even so, to survive, the services are experimenting with different pricing strategies. To encourage freemium users to upgrade, for example, Spotify may allow artists to offer their new releases only to paid subscribers. Other experts predict a pricing war, as players such as Amazon and Pandora introduce low-cost subscriptions designed to undercut competitors such as Apple Music.

Another challenge is piracy. Though the music industry long ago waged and won a ferocious battle against sharing service, Napster, copyright protection remains a problem.

Both the US and the EU are moving forward on copyright proposals, and music executives continue to push streaming services to implement technology that reduces piracy. Even as they do, however, new threats emerge. The latest is stream-ripping, which enables users to permanently download music from streaming services. The trend is worrisome because users are likely to be young. For example, 49% of 16-24-year-old internet users say they’ve engaged in stream-ripping, according to the International Federation of the Phonographic Industry.

Other practices also threaten the industry. As artists seek to protect their own revenue, they’re signing exclusive deals with streaming services, a path R&B artist Frank Ocean followed recently when releasing his album, Blonde, on Apple Music.

Still, music streaming continues to gain popularity, particularly among younger generations, a trend that signals growth. And as the services implement more AI features, we can be certain of one thing: how we listen to music will never be the same again.


The rise and the key challenges of music streaming services