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The State of Streaming Music

Spotify, Rdio, Xbox and more: We rate the six biggest streaming services and their chances of survival

October 30, 2012 10:00 AM ET

For more than a decade, people in the record industry have been trying to shift music fans from stealing music to paying, say, $10 a month to listen to any song on demand. Until recently, that seemed like an absurd dream. Then came services like Pandora, Spotify and Rdio, making it far easier to stream music through a legal app than to download it for free online. But streaming services still have a ways to go before they truly own the music market. “How do you make it, in everybody's life, so it goes from being dessert to being like water that you have to drink every day?" asks Jerry Johnson, general manager of Microsoft's Xbox Music, which unveiled its own $10-a-month streaming service this month. "That's where the industry is heading. It seems like the wave is just about to turn."

Next step for streaming services if they want to survive: Figure out how customers can play whatever songs they want, seamlessly, in their cars and on their television sets.  "The streaming business is obviously growing and booming. It's north of a billion-dollar business now," says Alex Luke, executive vice president of A&R for the Capitol Label Group, whose artists include the Beatles, Katy Perry and Coldplay. "But it's still in its infancy."

Here's a rundown of the top streaming services and how likely they are to stay alive:

Spotify

USERS: 15 million worldwide, including 4 million paid subscriptions

LOWDOWN: Since it launched in the U.S. in July 2011, the Swedish company has introduced several sexy new concepts – a free option (with ads), built-in apps such as follow-along lyrics and Soundrop's "listening rooms" and Facebook integration. Some still question whether the service can make money, and musicians have complained about tiny royalty statements. But Sachin Doshi, Spotify's head of development and analysis, says, "We're going to do a better job of monetizing that than a service like YouTube."

CHANCE OF SURVIVAL: 70 percent, although the company reportedly is still having trouble making a profit.

Pandora

USERS: 150 million (registered)

LOWDOWN: The popular radio app, which figures out what music you'll like based on the music you already do like, took a stock-market hit a few weeks ago when Microsoft launched its Xbox Music streaming service. But company officials point out they're not competing with Spotify or Xbox – they're competing with FM radio stations. Pandora is already in 65 different new cars and is working to expand. "From the beginning, our goal was to define the future of radio," says Asi Pehar, director of product user experience.

CHANCE OF SURVIVAL: 85 percent. The user base is loyal enough to overcome the company's inherent financial problem: making huge royalty payments to artists and publishers.

Rdio

USERS: Unknown

LOWDOWN: Two-year-old Rdio, founded by Skype and Kazaa creators Niklas Zennstrom and Janus Friis, is all about discovery through social media – friends and experts are always easily available to share their musical tastes and suggestions. The well-thought-out service is also shockingly artist-friendly, offering $10 for every new subscriber a musician delivers. One obstacle for Rdio is buzz: iTunes, Pandora and YouTube remain far more recognizable for now. "It's a challenge. They have to use the product," says Drew Larner, Rdio's chief executive. "But once they use it, that light bulb goes off and they're hooked."

CHANCE OF SURVIVAL: 65 percent. Name recognition is a big deal.

Xbox Music

USERS: Unknown

LOWDOWN: Launched in late October, Xbox Music is Microsoft's attempt to move past its failed Zune portable-player system and plunge into the songs-on-demand market. It has an excellent chance of catching on, since it's bundled with the new Windows 8 operating system as well as the existing Xbox game console and the future Windows Phone 8. It costs $10 a month, competitive with Spotify and Rhapsody, and includes a radio function and an MP3 store. "I would just love if it reenergizes the entire [record] industry and turns it back into a $30 billion-a-year business again," Microsoft's Johnson says.

CHANCE OF SURVIVAL: 70 percent. Windows 8 integration gives it a built-in advantage, but Microsoft's track record with music products is middling.

YouTube

USERS: 800 million per month

LOWDOWN: For some reason, nobody seems to think of YouTube as a music-streaming service, but it's clearly where huge numbers of fans go for free songs. A recent Nielsen survey found 64 percent of teen listeners discovered music via YouTube. Every streaming service must contend with the idea that no matter what they do or how much they charge, fans can just hit YouTube and find the same stuff (often unauthorized) for free. While acts like the Beatles and Led Zeppelin aren't on Spotify, they're almost always on YouTube. "That's a big competitive advantage," says Jim Guerinot, manager of No Doubt and Nine Inch Nails. "It's very hard for any service to dislodge something that powerful."

CHANCE OF SURVIVAL: 95 percent. Nobody has managed to shut it down yet, and that seems unlikely to change soon.

Rhapsody

USERS: 1 million

LOWDOWN: The elder statesperson of streaming companies, Rhapsody launched more than a decade ago and has provided a terrific service (especially synced with home-stereo company Sonos) for a small group of music fans. Its $10-per-month fee is a barrier for free-music aficionados, but Spotify landed at the same price for mobile subscribers. Next stop: cars and TVs. "What we've been trying to do is take steps towards making Rhapsody closer towards where customers consume music," says Jon Maples, vice president of product management.

CHANCE OF SURVIVAL: 90 percent. You can't kill Rhapsody. You just can't.

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