Online Music Streaming’s Impact on the Music Industry

The music industry was born out of technological change, and it owes the immense growth and change it has experienced in the past 100 years almost entirely to new tech. There are many important technological developments that serve as bookends to periods of evolution in the industry, each signaling a decline in usage of one medium, and the introduction of a new one. Each of these landmarks in time (all discussed in the previous post) introduced new infrastructure, changed consumer habits, and altered the market drastically. The most recent tech-based development in the music industry is online streaming.

Streaming and Radio

Before the introduction of music streaming services in the mid 2000’s, music consumers had two options: Pay to own a copy of a song/album, OR steal it. As a matter of fact, all avenues for getting music since the inception of the industry have involved acquiring (legally or by other means) copies of the songs, with one exception: Radio. Radio has definitely been impacted by the introduction of streaming, and at first glance it is easy to see streaming as a direct replacement for radio that has been adapted to the internet age.

This is a fallacy, and the two share a few important differences. First, radio is not customizable and involves little consumer choice. You can change the station and perhaps call in a request for a song, but that is the only control you have. And despite those options, radio stations pick genres based on what is popular, and will only play the “hits” in that genre. This is because radio doesn’t make money from the consumer, its revenue comes from advertisers. This is the second important difference: Streaming is user oriented and radio is audience oriented. Streaming services by definition want to provide the perfect listening experience for each individual user; they cater to the individual tastes of everyone separately. This motivates them to have the widest most comprehensive selection to pick from, and to incorporate features that introduce users to new music they could like. The radio industry has to cater to the collective average of everyone’s tastes to attract the largest audience, and the highest paying advertisers. They don’t want to offend or alienate any listeners, so they play what is popular to attract the masses. This makes radio a medium that doesn’t offer much variety.

CD’s and Mp3’s

stack-of-cd-casesSo what was everyone doing to get their music digitally before streaming started to appear in 2007? Largely due to internet file sharing, digital and physical album sales dropped steadily from the start of the new millennia up to and past 2007 (according to Pew Research Center). By June 2007 the number of computers with peer-to-peer file sharing software installed was almost 200 million. The industry was taking a hit, and the government struggled to create and enforce laws that would save it. Large media corporations lawyered up and attempted to prosecute as many guilty individuals as they could, but such lawsuits were too costly and were largely dropped by 2009. Although it is still illegal to steal music online, individual users realistically aren’t at risk for any legal action. The industry continued to bleed as young music lovers continued to find cheaper (free) ways to get the music they wanted when they wanted it. This problematic desire for cheap/free and easy access to unlimited music had no legal solution until streaming was introduced.

iTunes circa 2007

For those who were still paying for their music, there were a few popular options besides buying CD’s in person or online. Apple introduced their online mp3 store iTunes in 2001, which used proprietary anti piracy software to prevent songs downloaded from iTunes from being played on more than 5 authorized devices. This allowed small groups of friends or families to share iTunes purchases, but stopped the flood of iTunes files onto illegal sites. By 2007 iTunes was completely Windows compatible, and Apple had a full line of mobile devices to meet a variety of user needs.

In early 2008 entered the online mp3 market, and was the first company to sell DRM (digital rights management) free files online.  Amazon seemed like the perfect place for everyone who didn’t have an iPod to get music, and it still fulfills that role today. Also in 2008 Microsoft launched a line of portable media players called “Zune” which had its own online store; this project failed within 3 years and the online store was absorbed into the Xbox store.

Two Types of Streaming

635861717299597744460943910_pandoraThere are two basic types of online music streaming: The first mimics radio and improves upon it, and contains only one company, Pandora Internet Radio. Pandora’s service is based around a massive music metadata database, and an algorithm that can create a “station” based around user input. Users pick an artist, album, or song that they like, and Pandora creates a playlist that it thinks the user will enjoy, and may or many not contain the actual content of the original input. Services like this are for a more passive listener, one who doesn’t particularly care to listen to specific songs or albums, but instead wants to hear a mix of music they’ll enjoy without having to create that mix themselves. This is a service that, besides the need for an internet connection, could usurp radio. Its basically online radio that promises to deliver exactly the stations you want, based on your precise preferences for genres and artists. In the future it may be commonplace to have a Pandora enabled stereo in your car. Pandora can be used for free with occasional ads, and the cost of removing those ads is a mere $4.99 per month.

Streaming GraphicThe second category pertains to services that can replace online mp3 stores. These services, such as Spotify, Apple Music, Tidal, and Google Play Music, offer massive libraries of content and let their users stream whatever they want whenever they want. Every one of these services (except Tidal) has a free tier and a paid tier. Generally the free tier has occasional 30 second ads, among other limitations. For example, when using Spotify for free on a mobile device, you cannot play specific songs on demand, and everything plays in shuffle mode. For around $10 per month you can have an ad free listening experience, and save songs offline for future listening. This means that if you think ahead, you can make full use of the services paid for in areas without wifi without using tons of data. And once you aren’t listening to a particular song or album very frequently anymore, you can remove it from your device to free up room for new music. Every company has found a way to make this download system secure and impenetrable; songs downloaded offline never leave the safety of the proprietary app and therefore cannot be copied and distributed elsewhere.

Stream Me Up, Scotty

Paid online music streaming services are fundamentally different from any other way to get music, because they allow consumers to listen to exactly what they want without having to own it (video streaming websites like Netflix and Hulu have inflicted similar change upon the film and television industries).  Instead of shopping in person or online through a catalogue of music, consumers pay a monthly subscription fee to receive unlimited on demand access to the same selection they used to shop from.

This shift from paying for ownership to paying for access has several important implications. In the technical realm, streaming emphasizes the importance of fast wireless connectivity and processing power rather than storage. In the realm of mobile tech there has always been an emphasis on increasing storage capacity. In fact this has been a trend in computing overall; as we seek higher fidelity digital representations (higher pixel count/fps, lossless audio files etc.) we need more space on our devices to store these files. For example, Apple has consistently upped the storage capacity of their devices over time. The original iPod (released October 2001) sported a bulky 5GB hard drive, and the most recent Apple devices have solid state storage (which is physically smaller, more stable and reliable) at up to 128GB. This race for more storage has made sense so far, but it may come to a halt if streaming takes over. A Spotify customer doesn’t need a lot of storage to take their content on the go. They need a device and network (wifi and/or cellular) that has the bandwidth capabilities to get them their content when they want it.

The introduction of streaming to the music industry has also brought into question the worth of a song, and the way streaming companies pay the artists has been widely discussed and criticized. Before streaming it didn’t matter what consumers did with the music they paid for; once they purchased music their use of it didn’t effect revenue for retailers, labels, or artists. This has one notable benefit, because some people could buy a CD and only listen once, and the full “worth” of that CD still ends up in the pockets of those responsible for creating it. With streaming each user’s listening activity after paying for the service doesn’t effect the streaming company’s revenue, but it greatly effects how much record labels (and in turn artists) get paid. Different streaming services have different ways of calculating how they pass on subscription or ad revenues, but all of them somehow determine that based on play counts.  This shift can also be described in terms of “interest”. When someone purchases a song, those selling it only have to depend on that customer’s initial interest in the song. With streaming, payouts depend entirely on continued interest in the form of repeated plays. To make the same $10 they used to get from selling a CD, artists now depend on a steady stream of new listeners, and the continued support from them.

Overall, streaming makes sense for the industry in its current state. People can illegally download or stream almost every form of paid media that currently exists with virtually no legal risk, and a low cost on demand streaming service is the only solution to that problem. Companies like Spotify, Apple, Google, Tidal and Pandora have fundamentally altered the way the music industry functions, and serve a vital function to keeping it alive.


Grant, A., & Meadows, J. (2012). Communication Technology Update and Fundamentals(13th ed.). Hoboken: Taylor and Francis.