Every new industry has a number of similar patterns which occur over time. Rapid growth followed by consolidation seems to be the norm. Occasionally, a newcomer might remain as a major player, but often they get swallowed up by larger companies with deeper pockets, or slowly diminish into a niche player.
Let’s take the digital music industry as an example. Apple’s iPod and iTunes Music Store grew rapidly, crossed over to Windows users, and became the de facto leader and savior of the music industry.
Along came yet another way to distribute music to listeners in the form of streaming music services. Pay a monthly subscription fee, get access to all the music you want. There are many streaming music services these days and there is little to differentiate each one other than the music library and the monthly fee. Spotify was one of the first streaming music services and remains the largest.
How do I know?
Already Spotify is crying foul about how the App Store works (it favors Apple, which does not charge itself the 30-percent commission on Music subscriptions), and three of the five major music companies no longer have agreements with the streaming music service.
Spotify isn’t making money. Google and Apple’s music services may not be making money, either, but it doesn’t matter because music is not a core business for either, and both have deep enough pockets to lose money on streaming music for years. For Spotify, music is the lifeline, and current contract terms means the company cannot make enough money to survive, so it wants to renegotiate terms with music companies.
Meanwhile, the music companies want a bigger cut of Spotify’s growing revenue (which, thanks to Apple Music and more competition, is not growing as fast as it once did). Spotify wants to pay less, music companies want more.
Last year Spotify lost nearly $200-million on revenue of barely $2-billion. Since most of that revenue– probably 70-percent– went to the music companies and artists, that doesn’t leave much for Spotify to live on, let alone grow the service and compete with much larger competitors (not larger in the subscriber sense, but larger in the ‘deep pockets’ sense).
Pandora’s situation is worse. The internet radio company is attempting to create a package of streaming music to rival Spotify, Apple Music, and others. If Pandora struggled as a streaming radio station service– and it did, despite a favorable licensing arrangement, and limited to just the U.S., Australia, and New Zealand, how will it compete favorably against larger, more entrenched services with more resources.
With the exception of Apple Music, growth in streaming music services and internet radio (including Pandora) has begun to slow, and that means the handwriting is on the wall. The end is near.
In the end, Google and Apple will rule the online streaming music business, too. Everyone else will become a niche player. The shakeout has already started as Spotify and Pandora struggle.