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Cloud-Based Music Streaming Services Market Upside


Market disruptions continue to upset the U.S. music recording industry. As a result, the changes have shrunk it in half in just over a decade, according to the latest market study by eMarketer. The legacy big media company's past experiments with digital media seemed promising, but they haven't generated enough revenue to stem losses from the sale of compact discs.

Analysts now wonder if cloud-based music streaming services could revive the industry. Regardless, it's clear that the legacy music recording industry must reduce its traditional high-cost operating model -- in order to be competitive with low-cost indie performing artists that sell their content direct to online distributors and/or consumers. Can the old guard survive, given this scenario?

"The short answer is maybe," said Paul Verna, eMarketer senior analyst. "Key trends are pointing in the right direction, including positive technology adoption forecasts, a profusion of social sharing activity connected to music, video channels that are generating revenue and expanded marketing opportunities around music content."

In a sign of how important online streaming and subscription music services have become to the music recording industry, trade publication Billboard recently updated its weekly Hot 100 song chart to include data from Spotify, Slacker, Rhapsody, Cricket/Muve, Rdio and MOG.

The revamped methodology went live in March 2012, after several months of testing that showed a rising curve for audio streams -- from 320.5 million in the first week of 2012 to 494 million during the week of March 4, 2012.

By comparison, digital music track sales during that period decreased from 46.4 million to 27.1 million, according to Nielsen's assessment.

Another indicator of the popularity of cloud-based streaming was a 50.5 percent increase in online music listening hours in 2011. According to a February 2012 report from AccuStream Research, American consumers spent 1.3 billion hours listening to music through internet radio and other online streaming services in 2011 -- that's up from 865 million hours in 2010.

The media spend associated with U.S. internet radio and on-demand streaming services amounted to $293.7 million in 2011, according to AccuStream Research. This compares with $171.7 million spent on subscriptions to those services. AccuStream forecast that the total market would grow by 78 percent in 2012.

Advertising monetization is expected to grow on the mobile side of the equation as well. eMarketer expects U.S. mobile music advertising revenues to reach $591.5 million in 2015 -- that's more than doubling the 2012 forecast total of $264.5 million.

According to eMarketer current estimates, the advertising component of mobile revenue is much higher with music than with gaming or video, largely because of the popularity of Pandora and Spotify on mobile devices.

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