Streaming Music Has a Problem -- It's a Huge Success

The online music industry is in a unique, catch-22 situation: The more successful it is, the more money flies out the door.

Digital music companies pay dearly for the rights to stream music. Pandora, for example, turned a profit for the first time this past November—10 years since its launch—thanks to onerous licensing agreements requiring it to pay a fee each time a song is streamed. The firm’s peers, including the smaller players, also pay a hefty rate each time a song is played. The services will never outgrow their costs, an unfortunate arrangement commentators have dubbed a “suicide pact.” And subscription revenue, a much smaller business, is not enough. The streaming services need advertising dollars, and they have monies previously allotted to broadcast budgets in their crosshairs. It is, in general, a well-trod story: New medium goes after old ad dollars. But in this case, the stakes are unusually high. Online radio’s very survival depends on stealing ad dollars from its traditional counterpart, and it needs to do it fast.