Generator Research: Globally Music Streaming Services Are Struggling Largely Because Of Hefty Royalty Fees

Acc to Generator Research, music subscription services such as Spotify will never be able to make a profit in their current state due to the hefty royalty fees



Online music streaming services are struggling globally to generate revenues. 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.

Earlier reported by Digital Trends, music subscriptions streaming services like Spotify, Rdio, Pandora et al hand over 60-70 percent of their revenue to record labels and other interested parties, and Generator Research says that’s unsustainable.

While the report says subscription services providers are all losing money, it also emphasizes that businesses will have to find new ways of revenue generation. This could include bundling music streaming privileges with mobile contracts or broadband deals.

Other potential revenues could involve anonymized behavioural data being sold on to advertisers. However, the most important source of growth, according to the report, is converting free users into paid ones – a move that was recently opted by Spotify and Rdio.

Similar challenges in Indian music streaming business too

The report focuses only on 5 of the largest digital music markets worldwide - USA, Japan, United Kingdom, Germany and Australia. But the Indian online music streaming business is witnessing the same challenges.

Recently, Dhingana closed down after T-Series its biggest record label refused to renew its license as it couldn’t see much traction. Neeraj Kalyan, President of T-Series stated that,

“T-Series has not renewed its license for and T-Series’ music has been withdrawn from the site with immediate effect. We were not able to see much traction from this platform as compared to other similar services in India and abroad and thus decided to part ways in an amiable manner.”

Talking to TC, Kalyan had added that streaming business has to move to paid economy as ad-supported business is no long term solution.

“The streaming business has to slowly move from free economy to paid economy as sustainability of ad-supported revenue model is a big question mark. Free music is a very dangerous thing, and we would not like our next generation grow up believing music is for free.

In 2013, the online music industry in the country saw many ups and downs. With Nokia pulling the plug on Nokia Music’s Indian website, shutting down its music streaming service though it was not an individual decision of demand for music streaming services the market is becoming tough for startups to crack.

After Dhingana shut down and with bigger players like Gaana, Saavn, Hungama remaining in the market, the space won’t attract startups and VC’s for some time. Medianama shared similar thoughts as Generator research on how online streaming services will have to find out new ways of revenue generation including pushing for paid subscription.

With record labels getting greedier and physical distribution dying, the space remains challenging for startups.

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