Music Streaming in Search of a Business Model

October 16, 2009

Summary

Music streaming raises many questions for both providers of the service and users:

- To ad-fund or not to ad-fund?

- Owning music versus paying for subscription?

- Subscription versus theft?

However, it is crucial to remember that "music gains in popularity because people share it with each other". This should be at the core of any business model and service, which this article focuses on.

Analysis

While the jury is still out regarding the viability of free versus paying music services, entrepreneurs are working out how to make money, and Niklas Zennstrom and Janus Friis think that they have a good idea about it.

Key to success:

- music: contracts with major music labels and distributors to have a valuable catalogue

- discoverability: covers ability to discover new artists and user-friendliness of the service

- community: to share impressions, experiences and files

- quality: more users complain of the 128bit poor quality

- convenience: chose to own or just browse titles

This calls for a mix of ad-funded and subscription service, as seen with Spotify. And most certainly for allowing users to keep some of their music, and be part of a community around artists and genres.

This is partly what Microsoft has done with Zune Pass, whereby users can have access to unlimited music, and keep up to 15 MP3s for a subscription price of roughly 15 MP3s on the market. These tracks can then be shared and will not be lost once the user stop the subscription to the service.

Details of the Rdio service are not clear enough to understand to what extent all of the above will be available, but it seems that the solution will include these parameters.

All players in the market, from Pandora, to Napster, Spotify, Last.fm, Sky Songs and more will be affected if they manage to develop and launch an innovative service with clear value add for the users, as described above.

Marketing budget will of course be key to launch the product, but should users be able to share music and create communities, word-of-mouth will be a main driver of take up.

Any news business model need to take into account what people do with music, and find a way to use music to sell experiences and value add services. With future press release, it will become clearer where Rdio stands.