If you’re not Apple, Google or Amazon, the music streaming business is tough. Last week, iHeart Media filed for Chapter 11 bankruptcy protection. Pandora moved to renegotiate its costly deals with record labels last week, and Spotify is reassuring investors that it can turn a profit as it prepares to go public next month. Marketplace Tech host Molly Wood spoke with Paul Sweeney, media analyst at Bloomberg Intelligence, about why it’s so hard to make money in streaming. The following is an edited transcript of their conversation.
Paul Sweeney: You know, everybody's got to get paid in the music business. This has been, over the last hundred years, a very complex web of licensing agreements, and the streaming companies have to pay these fees as well. So they've all negotiated fee arrangements with the various licensing entities, and it's a big, big part of their cost structure. And that is why, you know, they really, in particular in the case of Spotify, but all the players, you know, what they need to do is to really sign up as many subscribers as they can, generate as much revenue as they can to cover these licensing and royalty costs. And it really, really argues for these companies to get to scale as quickly as possible.