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Music industry sucks life from subscription services

Lucas Mearian | Feb. 17, 2014
Music subscription services, such as Pandora and Spotify, are the fastest-growing segment of the music industry, but since they hand over 60% to 70% of their revenue to record labels, they will inevitably fail unless something changes, a new report shows.

From 2013 to 2017, the total revenue earned by all record companies worldwide will increase from $16.7 billion to $17.2 billion, or 3.2%. Yet, revenues from physical formats will fall by $2.09 billion and revenues from digital download sales will fall by $663 million. Revenues generated from performance and synchronization rights will increase, but only by $322 million, the report states.

Seeing marked growth by subscribers, private investors over the past decade have injected more than $1 billion to create a music subscription market. However, the only beneficiaries of those investments to date have been the music industry and users.

"Music subscription services providers are all losing money, and that is going to remain the case until they find a way to monetize a worldwide user base," the report states.

"Putting to one side the quality of the actual service, which most users would rate very highly, the facts show that Pandora — when viewed objectively as a business — is in dire straits," the report stated. "We are at a loss to know why the company's stock has performed so well, especially over the last 12 months." Over the past year, Pandora's stock price has jumped from $11.48 to $37.95.


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