Monday, September 21, 2009

Internet Radio: Fresh Breath of Life or Last Nail in Coffin

The recent agreement between SoundExchange and various online streaming companies begs the question whether webcasters can now heave a sigh of relief or if it is time for them to down their shutters. The music industry has been in a tailspin for a while with the demise of the CD, and the rise of snacking. Add music piracy, and increased consumer demand for DRM-free music, and you have an industry that is increasingly looking at a black hole. No wonder then, that the current agreement is being viewed in many channels as a victory for the music industry. A way to monetize what is increasingly being seen as the future of music.

While the specific terms of the deal in themselves are highly skewed against smaller webcasters, what with a minimum $25,000 guaranteed payout, it has not given large streaming players such as Pandora a free hand. An immediate visible step that Pandora took has been to cap the number of free hours of listening down to 40, bringing its freemium model into play. While that may offer the solution for the short-term, however, the moot point is, whether this whole debate realizes and recognizes the direction that digital music is taking. Music has been one of the earliest content categories to be impacted significantly by digitization, with the high-priced high-margin physical music falling out of favor with consumers. Rise of media players such as the iPod together with the iTunes ecosystem also hastened the demise of the CD. Now, the same thing seems all set to repeat in the space of a few years. Music labels are increasingly looking at online streaming as the next cash cow, and current pricing levels appear to be pointing towards that direction. Evidence such as those coming from Sweden where labels are making more money from Spotify, than from iTunes, are clear indicators of the future of the music industry.

Rising penetration of mobile devices, coupled with high-speed wireless networks, present a market that is potentially larger than any of the earlier music consuming markets. Working with Internet and telecom players in creating compelling music streaming services, and ramping up uptake of streaming by consumers is the need of the hour. Indeed, evidence is also coming in of how streaming not only has the potential to reduce piracy, but on the contrary, lead to increased consumption of physical music. The music industry could do well to look at Internet streaming in a more holistic way, than just as another revenue stream where they need to adopt a skimming strategy. Whether the recent agreement represents a rising of the phoenix from the ashes or a step towards a pyrrhic victory for the music industry is something that will be keenly seen.
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