For the last year or so, it's become clear that the economics of ad-supported streaming music services are not good for their creators or investors. As CNET's Greg Sandoval reported last week, the acquisition of streaming service Imeem by MySpace Music for pennies on the dollar is the latest bad news for the sector, following the bankruptcies of SpiralFrog and Ruckus and the similar fire sale of iLike to MySpace.
Who's left? In the U.S., we've still got LaLa, which has the blessing of the major labels and seems to be enjoying dramatically increased traffic (as measured by Alexa) thanks to its recent deal with Google, and Grooveshark, which has kept a low profile. Neither of these services is purely ad-supported--particularly LaLa, which hopes to charge customers for downloads and "permanent" streams once they surpass a quota of 50 free streams a month.
But the service most often cited as the future of online music is Spotify. It's only available in Europe right now, but it seems like everybody who tries it loves it, myself included. Spotify offers a premium service as well, which offers portability and higher-quality streams, but the free service offers unlimited ad-supported streams, and that's the service that has everybody so excited.
But there's one small problem with the Spotify-as-savior story: it doesn't pay artists very well. According to this story in a Swedish publication, as translated and explained by the TorrentFreak blog, Spotify delivered more than one million streams of Lady Gaga's hit single "Poker Face" over five months. From these streams, she reportedly earned about 1,150 Swedish kronor--about $167--from the Swedish agency responsible for paying royalties. That's not even enough to cover the cost of four tickets to her upcoming concert in San Francisco.
If this story's true, why would any artist agree to make songs available on Spotify? With these kinds of payouts, it looks like music business expert Donald Passman is right--advertising is never going to support an online music service.