This is Celia Hirschman with On the Beat for KCRW.
It's been less than a decade since Apple launched iTunes, and they remain the dominant digital retailer of choice. Currently, iTunes enjoys 70% of all digital music sales in the US market.
But what if consumers no longer cared about buying MP3's? What if accessibility to music was more important than ownership? That's precisely the question many in the record business are now asking. The reason for this change of heart is the rise of the European streaming website Spotify.
Spotify uses peer-to-peer technology to deliver streaming music with little to no buffering delay. It's an on-demand service that can organize song requests by artists, tracks and even personalized playlists. You don't own music at Spotify. Rather, you simply stream it at an extremely high bit-rate. And the music you play most often is automatically cached, which makes replaying instantaneous.
While the service is not worldwide yet, the numbers are stunning. Spotify is a runaway hit. The service is available in the UK, Sweden, Finland, France, Norway and Spain. Current financial valuations put the company somewhere between $200 million and $250 million, which makes it a major upcoming player in the US music market. Hundreds of thousands of songs are added on a daily basis.
The company has two services – a free, ad-supported version that works only on your home computer. Advertising on the free site runs about 30 seconds every 30 minutes. And they've just added video advertising as well.
The premium non-commercial Spotify service costs the equivalent of $16 a month. The premium service has a higher streaming quality and the ability to access music through your mobile device. Spotify also throws in exclusive access to select pre releases and concert lotteries with the premium service.
So will Spotify become the iTunes killer? Highly doubtful. Rather than square off with the streaming company, iTunes has approved an iPhone app for the Spotify premium service. By downloading the iPhone application, you can literally stream music all day on your mobile even if you're not connected to the network.
Why would iTunes allow a company like Spotify to disrupt their 70% digital-sales marketplace? Because if the consumer is interested in the Spotify subscription model, the iPhone becomes a very attractive hardware system for it. And Apple makes far more money on the iPhone and phone service, than selling tracks on iTunes.
Many analysts believe mobile streaming is the wave of the future. Since Pandora, a competitive music streaming service added their own iPhone app, their revenue has doubled. But Pandora has more hurdles to jump through. Pandora does not play songs and artists on demand, making the service more of a radio station than a record collection.
The key to the business of music will be driven by a company's ability to anticipate the consumers' next move and quickly deliver the answer. If access is more important than ownership, companies like Spotify with Apple's support can become the delivery service de jour. Spotify looks to open its US service by the end of the year.
This is Celia Hirschman with On the Beat for KCRW.