The week of March 15, 2015

Are streaming music services about to bite the dust?

By Taylor Hatmaker

A little over a year ago, I declared streaming music the next major music industry ice age. In the past year, the major players have jockeyed for paid subscribers, hushed artists advocating for their demise, and straddled two very different worlds: Silicon Valley’s startup go-round and and the ever backward-looking recording industry.

A lot has happened since then. Apple made a very flashy, rather out of character bid for Beats—both Beats Electronics, the headphones brand, and Beats Music, a brilliantly remixed version of well-loved streaming service MOG that Dr. Dre and co. picked up in 2012 for $14 million before flipping it, making it look young, and serving it up to Apple, image and all, for a cool $3 billion.

One other huge thing happened. In November 2014, Billboard’s music charts, unchanged since 1991 in spite of massive tectonic shifts in the industry, decided to take streaming music seriously, incorporating streams into its huge tallies of album sales. Billboard charts now aggregate streaming data from Spotify, Beats Music, Rdio, Rhapsody, and Google Play Music. Under Billboard’s rather arbitrary new rules, 1,500 streams of one song add up to a single album purchase. If that isn’t a metaphor for the plight of the streaming and record industry alike, I don’t know what is.

Billboard’s symbolic shift and Apple’s belated entrance are two tensions that are poised to sculpt the future of an music business model that’s hung around for over a decade (the advent of on-demand streaming is slightly younger) sheerly because a handful of hubristic tech companies remain convinced they can make it work.

So far, no one really has. Streaming music companies aren’t profitable. Both musicians and record industry fat cats—normally at odds by definition—are united only in their anger at dwindling album sales and a foolish wistfulness for a broken, bygone era of album sales. Consumers are blissfully ignorant, mostly content to endure a few ads to listen to unlimited free music. Considering how many people are sharing the pie, the ad-supported “free” streaming model remain a bonkers excuse for a business plan, no matter how you slice it.

Tech companies aren’t making money yet. Look at Spotify, which by all accounts except numerical ones must be doing well, right? We hear about it all the time: It’s a godsend for music listeners who stand to benefit from the race to the bottom.

Streaming music companies aren’t profitable.

As the Atlantic wrote in 2012: “The digital streaming service is reportedly in the process of closing out a deal that would raise $100 million from a group of investors including Goldman and peg its value at around $3 billion total, according to the Wall Street Journal. That’s a big vote of confidence from Wall Street in yet another hot web upstart with millions of devoted users and millions in annual losses to show for it.”

Three years later, Spotify’s losses have narrowed a bit, but it’s still hemorrhaging revenues in massive royalty payouts for the music it leases. Now, word is that Spotify is cobbling together $500 million in preparation for an IPO. In spite of its regular annual losses, unseemly artist squabbles, and totally unproven ability to convert freemium users into monthly paid subscribers—the holy grail of streaming success—Spotify is actually doing well compared to the competition. Until Apple comes stomping in this June, that is.

Newly fortified by Beats Music’s deep industry savvy (namely Jimmy Iovine), excellent music algorithms, and youthful brand, Apple is about to flip on beastmode. So how are the other guys faring?


The oldest player in the game, Pandora staked an early claim in the streaming music wars and it’s held in there. The sort of casual listener that Pandora relies on appears content with its comparatively teensy 1 million song catalogue. Given the ultra-mainstream music consumer vibe of its userbase (I remain convinced at least half of those million songs are Coldplay), the company seems less likely to have its world rocked by whatever Apple is up to than some of the competition.

Of Pandora’s more than 250 million registered users, only 3.3 million pay $4.99 monthly to ditch the interstitial ads. When it went public in 2011, Pandora was valued at about $3 billion. Its market cap today? Three billion.

Forecast: Pandora will stay the course.


The last time it reported its numbers, Spotify had 15 million paid subscribers out of a total 60 million active users. Spotify helped establish the now-standard $9.99 monthly on-demand subscription price, and it’s still counting on making a paid-on-demand believer out of more unpaid users. In early 2014, Spotify declared that its business model would start balancing out—and paying off—once it hit the 40 million paid subscriber mark.

Forecast: With 30 million songs and an IPO in the cards, Spotify stands to lose whatever paid streaming users Apple gains when it debuts its forthcoming iTunes/Beats Music remix.

Under Billboard’s rather arbitrary new rules, 1,500 streams of one song add up to a single album purchase. If that isn’t a metaphor for the plight of the streaming and record industry alike, I don’t know what is.

Google Play Music

Unlike the Spotifys and Rdios of the streaming music world, Google Play Music is insulated by a major tech company. With more than 30 million songs and a $9.99 freemium subscription model, Google Play Music is robust but still confusingly branded. The user experience is expectedly pleasant and Googly, though the service understandably leans toward Android users. Google also has a clever, curious experiment called YouTube Music Key in the works to leverage the massive amount of music videos on YouTube in the name of a more music-centric experience.

Forecast: Google’s stakes aren’t as high, but iPhone owners already invested in iTunes aren’t likely to dip their toes into Google’s music offerings any time soon. Still, mining YouTube for its vast, untapped reservoir of obscure user-generated music content is a refreshing spin.


Rdio plays its cards close to its chest when it comes to user numbers. Until it just added a free tier a year ago, Rdio didn’t mess around with an ad-supported option like many of its competitors. Putting off that choice might prove to be a double-edged sword for Rdio, which historically didn’t need to pay out royalties for users it could never convert. Still, its decision to delay a free tier meant that attracting new users was an uphill battle. With a $9.99 subscription price and 25 million on-demand songs, there’s not a ton to differentiate Rdio from Spotify and other competitors. And unless we hear more about user numbers, in this case, no news is generally bad news.

Forecast: Rdio shares Spotify’s stakes when it comes to Apple’s big on-demand streaming debut; it just might be worse off to begin with.

Amazon Prime Music

Like Google Play Music in that it’s housed by a major tech company but unlike it in most other ways, Amazon Prime Music seems like just another perk that the online retailer-turned-media monster decided to toss into the mix. Like Pandora, Amazon Prime Music is an Internet radio service and not an on-demand service, and like Google Play Music, Amazon Prime Music appeals to listeners deeply invested in Amazon’s Prime multimedia universe—and likely not much of anyone else.

Forecast: We still probably won’t hear much about it. Business as usual.


Clear Channel-owned iHeartRadio has a quiet but sizable presence among streaming services. The service is a sort of more feature rich Pandora, offering terrestrial radio too and relying on a free, ad-supported Internet radio model instead of premium paid tiers. In June 2014, iHeartRadio passed the 50 million user mark—no small feat considering how much more buzz Spotify drums up with 60 million.

Forecast: If iTunes Radio hasn’t already taken a bite out of iHeartRadio’s business, it’s unlikely that Apple’s new on-demand service will. Its userbase is considerable, but it’s fate is tied to Clear Channel, for better or worse.

There just isn’t room for so many companies vying for a piece of the same pie to stay at it.


Rhapsody doesn’t believe in this whole free streaming music thing, and it’s stuck to its guns. The company charges the standard $9.99 a month after a 14-day free trial to access its 30 million on-demand songs. Because Rhapsody makes you enter a credit card before you can even take the free trial for a spin, it’s the only service on this list that I haven’t spent time with. Rhapsody doesn’t have to content with royalty payouts for users who don’t feed money back into its business, but it comes across as hostile to new users. Rhapsody is spliced with Napster’s DNA and it’s hung in there for a really long time, but profits continue to elude the company in spite of its paid-only model ($4.99 for Internet radio or $9.99 for on-demand streaming). Sensing a theme?

Forecast: With little to distinguish it from hipper, friendlier competitors, Apple’s premium-only music offering could spell the beginning (or the end) of the end for Rhapsody.

It’s worth remembering that nearly all of these services are renting out some portion of an identical music catalogue to users not convinced they should be forking over money to begin with—and there just isn’t room for so many companies vying for a piece of the same pie to stay at it. Especially once Apple makes its move this June.

It might seem silly to frame the entire streaming music conversation around Apple, but the company defined the digital music era, putting a previously unthinkable catalogue of songs in our pockets with one-two punch of industry prescience in the iPod and iTunes. The music industry was never the same—and now, in fits and starts, it’s all happening again.

Illustration by Max Fleishman