“Subscriptions to music services are expected to more than double by 2017, but because those services pay 60 percent to 70 percent of their revenue to record labels and artists, the entire sector is intrinsically unprofitable, according to a new report,” Lucas Mearian reports for Computerworld. “The report, from industry analyst firm Generator Research, offered an analysis of the top services, including Pandora, Spotify, and Rhapsody.”
“The report states that unless the services can monetize their user base by entering new product and service categories, or they can sell themselves to a larger company that can sustain them, they’re doomed to fail,” Mearian reports. “Generator Research’s analysis shows that no current music subscription service can ever profitable, even if it executes perfectly, because the music industry will never agree to significantly reduced royalties.”
“One method that subscription services might be able to achieve profitability is to upsell mobile deals or bundles to subscribers. For example, a select package of mobile services would be sold through the music service provider, the report suggests,” Mearian reports. “Bundled services will likely begin to surface when the music subscription market reaches a certain critical mass. Then, users will see the arrival of a kind of ‘super bundle’ where, for an additional monthly fee, paid-for downloads, for example, would be bundled with the base subscription offer. ‘Services like iTunes Match and Google and Amazon are already heading in this direction,” Generator research states.'”
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