Swimming Up Stream
iMeem just scored a new round of funding from it’s investors which will keep the streaming music service/social music experiment going—for the time being. According to an article on CNET, iMeem’s financial problems have been going on for a while and some of their partners are getting antsy to see whether or not this can prove to be a viable business model. Other streaming sites are coming under similar fire. MySpace Music has also been criticized by music labels and industry insiders for not delivering on their promises to be a catalyst for increased music sales. Traffic is good, but this has not led to increased music sales. A separate article on CNET (by the same author) points out just how difficult it is to find the path to increased purchases via the social web. Not surprisingly, he states: “At the very least, MySpace Music’s sluggish performance illustrates how difficult that task is. Music consumption on the Web has really come down to two horses: iTunes and illegal peer-to-peer sites.”
Two horses indeed, for now. However, you don’t need to be a fan of horse racing to know that every once in a while, a long shot comes blazing up the rail and takes the world by storm. We hope that’s us. And with the odds of stealing music vs. purchasing it on the web at 100-1, you’ve got to believe in the dark horse.
What’s making these streaming sites have so much difficulty? It’s a bit of a complicated answer, because there are varying degrees of success and failure. Is success securing additional funding so you have a longer chance to prove out your model? Is success getting tons of traffic, but being upside down on your advertising model? Is failure shutting your doors so that you don’t continue to lose money? I guess it all depends on how you look at things. For iMeem, there is big traffic, lots of content, good technology and few ads. Ad dollars should follow, if they have enough time. However, there are also big label upfront dollars that are sunk, owed royalties and a too-high ongoing royalty rates for what has amounted to background music. Even Pandora has struggled with gaining some revenue. Their unique advertising model has secured great premium advertisers on a consistent basis. They also have added tons of mobile users with their iTunes (and now Blackberry) apps which has opened up additional mobile advertising revenue. However, the management team at Pandora have complained loudly about the high royalty rates for their (and similar streaming) services which are crippling their efforts to turn a profit. More users equals a greater amount of royalty payments that is not matched by the additional advertising revenue. This has become Pandora’s paradox, and is affecting many of the streaming services. In a rather harshly titled article: Warner Music Says iMeem It Worthless and Owes It $4 Million Which It Can’t Collect, the paradox is explained as follows: “According to comScore, imeem’s U.S. traffic has come down about 25 percent off its peak last July. As of March, 2009 it was at 5.3 million unique visitors in the U.S. and 24 million worldwide. In the perverse world of music streaming licensing, the bigger your audience, the more money you lose.”
I don’t want any of these guys to fail. In fact, I find Pandora to be one of the better music sites on the internet. I enjoy all forms of music discovery and get really jacked up when a song I’ve found on Pandora is available for download on Qtrax. This is how it should work. This is how it will work. Two horse race? Think again, I hear more galloping off in the distance.