Today, Sprint launched a partnership with Spotify, which offers special deals on the premium version of the music service to Sprint subscribers. That's great because it'll gets you a marginally lower price for a great music service—but it's also the beginning of what could one day make streaming music services financially sustainable: bundle deals.
Yup, if streaming music has a hope in the long run, it'll be all wrapped up with something else.
Look we love Spotify, Beats Music, Pandora, etc. as much as anybody else, but the simple fact is that all of the services are bleeding money. It's no secret that each service has shelled out hundreds of millions in licensing fees for their enormous catalogs. And from the point of view of acquiring users, laying down a boatload of cash to get the best library is a good idea, and a necessary expense. Pandora boasts some 75 million monthly active users, while Spotify has about 24 million.
Unfortunately, the services haven't managed to figure out how to squeeze enough money out of those user bases. Pandora rode its massive army of listeners to a staggering $29 million loss. Not to mention Pandora's been around since 2000. It's not like this is a brand new startup.
Spotify isn't publicly traded so we don't know how much money the company makes, but we know for sure that in the last year alone it dropped loads of money on exclusive rights to the Led Zeppelin catalog and on the acquisition of music data powerhouse The Echo Nest. From the point of view of improving its product and gaining marketshare these expenditures make sense, but they're not helping the company turn the corner to profitability. In fact, Spotify is being forced to offer more and more without raising prices, just in order to stay competitive.
The problems aren't limited to those two companies either. Last year Rdio had to sell "significant" equity in order to stay afloat and competitive in the crowded streaming music field. And despite its highly hyped entry to the subscription music fray back in January, early reports suggest that Beats Music's numbers are underwhelming.
Now that's all a bunch of business talk, but lets zoom into what matters: The services are pretty fantastic. They're fun, legal, affordable ways to access all, or at least most of the music you could ever want. There's a reason that digital music sales are dropping while streaming music revenue increases. Streaming services are awesome and people are increasingly willing to pay for them either with subscription fees or by listening to advertisements. Streaming services are pulling in money, just not enough of it.
So how do we keep music services alive so we can keep enjoying them and enjoying our music in a way that's convenient, legal, and gives artists (some) case? Services might be able to raise more money by selling branded content, band t-shirts and concert tickets, but a more stable path for these services is to partner up with other services in bundled deals.
Take for example the discounting deals similar to the one Sprint and Spotify announced this morning, or the deal AT&T and Beats Music launched earlier this year. By tapping the huge user bases of the carriers, music services might be able to beef up their paying subscribers to the point that they can support themselves, not to mention maybe get a little money for closing the deal.
Another possibility is that the services abandon the subscription model altogether and that large service providers subsume them into their broad package offerings. For example, there are rumors Amazon is plotting a music service to bundle with Prime, much like Amazon Instant Video. Under this model, the music itself doesn't need to be profitable so long as the overall enterprise is pulling in money.
This would require the music industry and the existing service providers to radically re-envision the way they do business (again)—not to mention probably renegotiate some contracts. But it's not unheard for big companies to bundle together services as value added. Even before Amazon Prime became the best deal in tech, cable companies offered on demand viewing of many shows. And while we're all busy clamouring for a la carte TV—which may or may not be as great as it sounds—the music world is on the cusp of showing us how great bundles can really be.
Not to mention that adding new services is the way you keep old customers and get new ones. If Spotify came free with Sprint, for example, Sprint might get a competitive edge it needs to meaningfully compete with AT&T, Verizon, or T-Mobile.
What's clear is that the services can't keep going the way they are right now. Sooner or later Spotify and the rest are going to run out of investment capital, and that'll leave us without out one of the most lovely, melodic parts of this broadband world we live in.