music-industryThe music industry is boiling. Many years of searching for the right platform to create a long term sufficient business model haven’t come to end yet, but mobile certainly fits the all the criteria. It’s personal, always at hand and for the last few years, with smartphones moving in, it has the right technology to enable not only large volumes of music, but also any type of business model. Still, many music services came out to the market with great expectations, proved to be complete failures.

Copyrights and royalties remain as the number 1 issue for all music services.

Currently, mobile music industry is divided into 3 different groups:

1. Download – iTunes, Apple’s music store has been the leader of the download industry pretty much since the day it launched in 2003. Amazon and Google offer music services as well, but as paying for content isn’t really Android users’ strongest virtue (even though it’s slowly changing), Apple remains ahead of the pack. However, Apple itself has grown to understand the flaws of the download industry – space required, switching devices, etc. The need for a different kind of service is diminishing the download industry each year:

The American market isn’t different than the entire international market. Owning the digital file itself has never been less important. It’s all about availability and price.

2. Subscription service – considered as the great promise for the music industry a few years ago, the subscription based companies are still growing. Spotify is now live in 32 countries with 2 million active users. The well-funded Deezer is also in the picture, with Rdio, Rhapsody and other local services in the game as well. Average monthly subscription in this group ranges between $11 and $13.

Although subscription services are getting the media’s attention, this business model spells big trouble for most of its owners. Only 25% of Spotify’s users are paying customers, and 75% of its revenues are paid to right owners. Even with millions of users, achieving profit via subscriptions is difficult, very difficult. Which is why many companies are turning to other models.

3. Ad supported – definitely where the market is headed. The need for such a service made Pandora a strong market leader, with a growing revenue stream. Even after the launch of iTunes Radio, Pandora made 156 million USD in revenues during Q2 2013. It now has over 70 million users and over 4 billion music minutes played every quarter. All that sounds promising, yet Pandora is still losing money every month. Royalty costs, user acquisition costs and technology costs are holding Pandora down, with no end in sight.

if that wasn’t enough, most ad supported services are only accessible from certain countries. No global ad supported service has yet to take full control of this industry.

So, is this market heading for disaster? It just might. Users today are in need for a 100% accessible, 100% free service, possibly with other features and a user friendly interface. It’s just what we are accustomed to. This bring out another new business model.

4. %100 free – along with developing free music sources on the web, it was just a matter of time before such a music service will re-invent itself on mobile. This new trend will offer a totally ad free environment with elaborate social tools, while using free web sources, such as YouTube and Sound Cloud to stream free music.

A few services have already tried to succeed in this area and failed – Grooveshark, for example, was taken off the app store due to copyright issues. Serendip has been less than active in the past few months. Nevertheless, new players, such as Groufie, are constantly emerging. With the main royalty issue solved, these services have enormous potential. Business model for this group can range from concert promotions, building artist communities and other social enabled features.

The need for a music service has never been stronger. The royalty problems and money issues cannot prevent the next music service coming to life. Whether the record companies want it or not, users are already accustomed to free music. As free music conquered online, it will do the same on mobile.

The music industry is headed to the free streaming era. It’s just a matter of time, and finding the right formula. The right business model will eventually emerge.