Unlike video streaming services like Netflix ( NASDAQ: NFLX) and Hulu, music streaming services do not have exclusive and original content. This change, which is scheduled to take effect gradually over the next five years, will decrease profits and increase subscription fees for consumers.Īnother major challenge for music streaming services is the stiff competition for market share. In fact, this issue came to a head in early 2018, when US copyright authorities mandated an increase in the amount of revenue music streaming services will be required to share with songwriters and music publishing companies. One of the biggest drawbacks is that there is still a significant gap between what consumers are willing to pay and the value that music producers and artists put on their work. Of course, there are negatives to investing in streaming services. The Cons of Investing in Online Music Services After all, even with the new streaming service revenues, the music industry is only at 68.4 percent of what it was in 1999. This upward trend is a promising sign for investors, and it appears there is still plenty of room to expand. Countries in Latin America and China are making much larger contributions to total industry revenues, which is driving some of the overall growth. The beauty of streaming services is that they can reach new markets that have traditionally had limited access to physical recordings. This compares favorably to the sale of physical recordings, which dropped by 5 percent, and the sale of digital downloads, which dropped by 20 percent. Overall, total sales of music streaming services increased by 41 percent year-over-year. Companies like Apple ( NASDAQ: AAPL) tried to make up the difference with pay-per-download files, but these sales didn’t come close to the days before digital. The decline started in 1999 and stretched through 2014, at which point music sales were down by 40 percent. With the introduction of digital file sharing services like Napster, CD sales dropped, leaving the music industry scrambling to identify alternative sources of revenue.
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The Pros of Investing in Online Music ServicesĪn entire generation grew up on pirated music and free downloads, which decimated profits in the music industry. These new services mean new opportunities for investors, but the trick is choosing a company that will deliver reliably over time. It’s an on-demand, customized culture, and consumers have no patience for anything less than around-the-clock access to their favorite artists and entertainers.Ī variety of online music services have stepped up to meet changing expectations, and listeners now have multiple options for accessing personalized channels that match their preferences. Traditional radio, CDs, and even digital downloads are going the way of 8-tracks and cassettes.
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