The music industry has been facing two huge trends:
Decreasing willingness to pay for content.
Increasing fragmentation of content channels and choices.
In other words, the pie is getting smaller ... and it's getting cut into more pieces. There will always be some big winners, but the number of starving artists, money-losing record labels, and music distributors will also increase.
Sirius XM (NAS: SIRI) and Pandora (NYS: P) are music specialists battling in that latter category. They're still facing competition from the FM stations they disrupted and from the tech big boys, including Apple's (NAS: AAPL) iTunes and iCloud, Google's (NAS: GOOG) YouTube, Amazon's (NAS: AMZN) cloud drive, Spotify on Facebook, and Microsoft's (NAS: MSFT) Zune offerings. Plus, there are countless other options such as RealNetworks' (NAS: RNWK) Rhapsody, Internet radio channels, and MOG. And let's not forget regular old CDs.
We could go on, but to illustrate the point (very unscientifically), we asked a bunch of folks across departments at Fool HQ how they listen to music these days. Here were their answers:
Dari Fitzgerald: While at work, I listen to music one of two ways, either through iTunes (for music I already own) or Spotify (for songs I simply must hear RIGHT NOW). When at home, I stream iTunes to my stereo, or, are you ready? I listen to records on my turntable. When I'm in the car, I listen to music piped into the stereo from an iPod in the glove compartment.
Anne Henry: I listen to music through regular radio. I feel like if I only listened to what was on my iPod that I would miss out on some really incredible music!
Mary Ricks: I listen to my music in my car on my Android phone, streaming from my home server using Subsonic. If at home, I use the Subsonic desktop version.
Anand Chokkavelu: In my car, I listen to XM Radio or CDs. At work or at home, I listen to whatever my latest online music application is. I loved imeem before MySpace bought it, ruined it, and shut it down. I moved on to Rhapsody, then MOG, and now Spotify. I'll also go to a live show every month or so.
Jim Felderman: Liam, my 19-month-old, grabs the iPad and opens iTunes ... he's my Baby DJ. When Katy Perry comes on, he dances. No overbite. He actually has rhythm unlike his pa.
Bryan Hinmon: Chained to my desk all day, I rely on Pandora to give me a jolt of life when I'm dragging or to provide ambient stimulus when I'm writing a compelling communique. Jay-Z, Johnny Cash, Dave Matthews, and Weezer make regular appearances, and I easily listen to three hours per day, so having Pandora create a playlist that I don't have to monitor makes me more efficient. I'm one of the few paying members of Pandora, and the annual subscription price seems well worth the value I extract from the service.
Kris Eddy: I'm behind the times; I listen to my music on CDs. I set up a Pandora account, but I quickly stopped using it as I didn't like the music it selected for my stations
Jim Amos: When I'm at home and nobody is watching TV my wife and I will stream Pandora stations through our Xbox. When I'm mobile, I'm listening to Pandora (free account) on my Android phone or streaming my own MP3s that I have up on Amazon's cloud player. Spotify should allow free basic streaming on mobile but so far they don't. At work I just plug my headphones into my desktop PC and use a free Spotify account. I am considering paying for one of these streaming services but haven't made my mind up yet. I've heard good things about Rdio and may try that out.
The biggest change for me over the past couple years is that I've stopped buying CDs altogether, and I've lost my love for iTunes -- I have devices now that aren't made by Apple so I'll get my MP3s from Amazon just as frequently as iTunes. And I'll always choose DRM-free if it's available because the whole device restriction thing is just pathetic. More often than not I'm not buying music at all anymore, just streaming it. Like I said, eventually I see myself paying for a premium account on Spotify or another service.
Natasha Keever: Mostly through CDs or sometimes radio when I drive to and from work.
Tamara Rutter: I use AirTunes on my Apple TV to pump up the jams at my house. Nothing beats the convenience of wirelessly streaming music from one device to another.
Roger Friedman: I used to listen to Pandora and the generally crappy area radio stations, but they don't play Hot Chelle Rae's annoyingly catchy "Tonight Tonight" often enough to satisfy my kids. They've got a dance routine and everything, and it's adorable to hear 5-year-olds singing how they woke up with a strange tattoo. Nowadays, it's either downloads on the iPhone or, if we want to go full dance party, we'll watch the video on YouTube.
The bottom line
If you read through each of the responses, you start to get a feel for how many different ways your music dollar (if you're paying at all) gets split up.
Meanwhile, Pandora is currently unprofitable. And while Sirius XM has done a commendable job managing costs, goosing its margins, and even eking out a profit, it will face a big test as it seeks to raise prices in the new year.
To be two of the big winners in music, both Pandora and Sirius have to convince the general populace to forgo free (or in the case of Pandora, upgrade from free) and forgo competing pay services to subscribe to their offerings.
Possible? Yes. An uphill climb? You be the judge.
At the time thisarticle was published This article was compiled by Anand Chokkavelu, who owns shares of Microsoft, Apple, and Sirius XM Radio. The Motley Fool owns shares of Google, Microsoft, and Apple. Motley Fool newsletter services have recommended buying shares of Amazon.com, Microsoft, Apple, and Google. Motley Fool newsletter services have recommended creating bull call spread positions in Microsoft and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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