Between a rock and a hard place

There‘s an old joke about “losing money on every sale but making it up on volume.”

This seems to be the looming collapse facing much (if not most) of the Internet streaming sites, as outlined by Monday morning’s Financial Times.

The article lists a double whammy: implacable royalty demands by music copyright holders and limited willingness to pay. To the former

Michael Bebel, who ran Ruckus says: “The labels have to understand that the ad market in this space is still developing,”.

“This means that they need to be happy with a revenue-share model that is not all that significant in terms of per-play.”

For the latter, substitutes limit pricing power:

The music industry will try to squeeze more money out of Apple’s leading iTunes store next month, when Apple will begin charging $1.29 in the US for the most popular songs, up from 99 cents.

But that will not make up for the revenues missed through illicit trading.

“The market leader isn’t iTunes. The market leader is free,” says Ged Day, the founder of early download site Bleep.com.

The article lists two dead sites (SpiralFrog, Ruckus) while other sites are either cutting costs (Imeem) or increasing prices (Last.fm).

Not mentioned is the longest-established streaming site, my former consulting client Live365, which now has a subscription based model in addition to ad revenues. Also missing is Pandora, the popular free streaming site for PCs and mobile phones that added ads earlier this year.

Normally we would expect the distribution channels to self-correct: if they can't pay the bills, either the entire industry will increase prices or the suppliers (labels) will moderate costs.

I don’t see the latter happening because the recorded music industry is essential a four-firm oligopoly. If anything, the track record with Hulu suggests that Hollywood would rather control the distribution channels (and any money) rather than help 3rd parties survive.

WIthout better options on either the supply or revenue side, these streaming sites are between a rock and a hard place.