Record Sales & Digital Steaming Cake: and Eat it Too

Wired Magazine recently wrote about a research project by NDP Group that suggested interactive music streaming sites such as Spotify decrease music purchases by consumers. According to NDP Group, users of interactive sites purchase 13% less music, while users of non-interactive tailored sites such as Pandora, actually increase music purchases by 40%. These numbers don't sound realistic, but the principle remains. As stated by Wired, Pandora provides internet radio, Spotify provides a record collection. The respective effect on sales of music is expected by the business model being deployed.
Both formats greatly increase music consumption, a benefit that increases consumer identity with the artists they listen to. Record companies, as the frequent owners of sound recording copyrights, receive a royalty each time a song they own is played on the internet. The rate is higher for interactive services than it is for non-interactive services. The Copyright office has provided this benefit with the understanding that interactive services have the potential of offsetting music sales. Point being, record companies are getting paid for the use of the music which is far more beneficial than pushing consumers back to acquisition by piracy. Piracy is a unilateral street, interactive services extend benefits to all interested parties.
Eliot Van Buzkirk of Wired writes: "But it’s not a bad thing for the industry that on-demand services like Spotify and Rhapsody replace sales — that’s what they’re designed to do. It’s no accident, and neither is the much-higher premium — a penny per stream — that labels and publishers extract from them, which is ten times more what streaming radio sites pay."
Internet streaming services are left to figure how to make the burden of paying a high royalty for sound recording broadcasts. Some like Grooveshark have chosen the advertising revenue model, others like Rhapsody use a subscription model, while services like Spotify use a hybrid. Rhapsody has only 700,000 subscribers compared to the 2.7 million users that signed up for Spotify in its first 6 months.
Ultimately, the threat of dwindling sales continues to rear its head and pose trouble for recording companies. The digital royalty serves to offset this problem. I predict a push by record companies to legislate non subscription interactive services out of business through license fee hikes and other restrictions. The true danger of interactive services replacing purchases will not occur until many more people have access to mobile plans that can access streaming services on the go. At that point the celestial jukebox will be a full reality and anyone with a connection won't need to purchase their tunes.