Music has never been as easily accessible as it is now in the digital age, and all those worries years ago of rampant illegal downloading have instead given way to streaming music services that offer a lot of content on demand. Will the two models cannibalize each other or are they both here to stay long-term?
Napster will always be remembered as the platform that increased people's music collections exponentially. Apple's iPod may have made a huge impact on digital music, but it was likely illegally downloaded MP3s that populated the iconic music player for most. The iTunes Music Store legitimized digital music purchasing, offering a massive catalog through a simple browsing interface. The one big problem was that DRM (Digital Rights Management) copy-protection was like a ball-and-chain on every song or album bought there.
Apple finally eliminated DRM restrictions in 2009, which could have opened the floodgates even more, particularly since purchased tracks could now play on all compatible devices, not just iPods and iPhones. Then, a curious thing happened. Consumers appeared willing to trade off downloading and owning music in exchange for on-demand access to an entire catalog.
In many ways, Pandora was the service that proved this was a distinct possibility after taking off in the U.S. What was unique about it was that it had an extensive range of music that could be personalized to one's tastes. In effect, it was enabling users to discover music in a way that iTunes couldn't hope to match.
The way this worked was compelling, and other services have popped up. Grooveshark, Slacker, Last.FM, Rdio, Spotify, Deezer and others helped spread the concept of listening to music without ownership because of the convenience involved. And since there are algorithms built-in that can automatically suggest or play songs and artists, music discovery is inherently pervasive with all of them. With over 100 million subscribers in the U.S. alone, Pandora has already proven that personalized and customizable music streaming can be highly effective.
Sony opted to go the same route with its Music Unlimited service, while Microsoft took a hybrid approach with Zune Music Pass (which will become "Xbox Music" later this year) by offering both downloading and streaming.
So, where does this leave Apple's business model with iTunes? iCloud and iTunes Match are intended to make music available in the cloud, but this only applies to audio that the user actually owns. Aside from sampling tracks on the iTunes Store, there is no way to stream the entire catalog, as is the case with the services mentioned above.
The advantage of download-to-own is that Internet connectivity plays no real role after the initial download. Consumers can just load up their portable devices and playback the content whenever and wherever they like. Audio fidelity is another boon for downloaders. At 256kbps, iTunes songs may not make audiophiles particularly happy, but they tend to outperform streaming music because there's no latency.
Zune Music Pass, Rdio, Music Unlimited and Deezer are beginning to compete with that model by allowing you to download songs in a cached form, so you can listen to them when you don't have an Internet connection.
It will take years, but this sea change is going to have a lasting impact on not just the music industry, but also Apple and iTunes. There's little doubt that iTunes will remain the top music retailer, but quantifying how much that pie will decrease will be interesting. Apple has become used to announcing gains and record profits, but years from now, will they succumb to this wave of streaming and offer some sort of hybrid?
Yes, they will, and it's mainly because they have the industry relationships and largest catalog of music online. The server infrastructure is there, as is the platform, so it's not a stretch.
The determining factor will likely be the youth of today. For them, convenience trumps ownership, and personalization is paramount to discovering what they can listen to. Plus, what cash-strapped student doesn't like the idea of paying a flat fee every month to listen to millions of songs at will? It's an easy sell for any frugal consumer.
As much as the music industry has been turned upside down since the days of Napster in the late-90s, it looks like some more upheaval is coming soon.
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