Is streaming music the future?


Why did Apple (Nasdaq: AAPL) iPod sales peak two years ago?

Why have music sales stalled to the point where Warner Music Group posted an 8% decline in revenue in its latest quarter — as the slowing growth of digital sales aren’t enough to offset the incessant plunge in CD popularity?

Why is Pandora Media (NYSE: P) growing so quickly?

The answer to all three questions is the same: Music streaming is booming.

California streaming
The introduction of the iPod in 2001 revolutionised the music industry. There would be no more fumbling for CDs or cassette tapes. A music connoisseur’s entire song library could now fit in the palm of his hand.

Digital piracy was rampant at the time. Labels cringed over the peer-to-peer file-sharing networks where young music fans could download tracks as MP3s in mere seconds, only to be vilified when they moved to protect their content.

Apple’s iTunes Music Store launched in 2003, making it acceptable to purchase legal downloads.

However, even Apple seems out of touch these days. Just as rentals are replacing ownership when it comes to homesteads, consumers would much rather be streaming a wide array of tunes than buying select tracks and albums.

Something borrowed, something blues
There are now 51.9 million active users of Pandora.

The music-discovery website will take a suggested track or artist and weave a playlist of similar tracks. Roughly two dozen car manufacturers have teamed up with Pandora to make sure that the streaming service works seamlessly in their newer cars if drivers have Bluetooth-enabled smartphones.

Getting freeloaders to upgrade from the ad-supported service to premium ad-free streams hasn’t been easy, but Pandora’s a real company making real money. Revenue climbed 58% in its latest quarter to US$80.8 million. Profitability has been spotty, but good things will happen if it can keep growing.

When you compare Pandora to traditional radio stations in the country, the company’s share of listening time has climbed from 3.11% a year ago to 5.95% today. The next time someone argues that Pandora’s a fad, counter with the fact that the company is now serving more than a billion listener hours a month, 92% ahead of where it was just a year ago.

Music for the masses
Pandora’s the market champ — accounting for 71.7% of the streams consumed among the 20 largest U.S. Internet radio service providers — but it’s not alone. Several upstarts and even conventional radio broadcasters are hopping on the streaming bandwagon.

  • Terrestrial giant Clear Channel (OTC: CCMO) beefed up its iHeartRadio app last year, adding a Pandora-like music-discovery component to the app that streams hundreds of the broadcaster’s AM and FM stations. It’s working. Clear Channel has secured 10 million registered listeners since the iHeartRadio relaunch.
  • Sirius XM Radio (Nasdaq: SIRI) recently passed 22 million subscribers, but the satellite radio service is also pushing its Sirius XM 2.0 platform with additional stations and the promise of a personalised music service of its own.
  • Overseas darling Spotify finally received licensing clearance to launch its streaming service in the U.S. last year. How’s it going? Reports last month indicated that the international music service was in the process of raising money at a level that values Spotify at a cool US$4 billion.

It’s not just about music, either. Streaming access to podcasts, comedy, and live talk shows are reshaping the radio experience.

We’re no longer limited to whatever’s playing on the local radio station or what’s spinning in your car’s CD changer. Streaming — and the tools to stream nearly everywhere — has redefined the experience of audio consumption.

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The Motley Fools purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

A version of this article, written by Rick Aristotle Munarriz, originally appeared on fool.com

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