Music Is Making Money Again


It's a good time for digital music, and Google is adjusting its Speedo so it can dive right in.

The Verge's Greg Sandoval is reporting that Google has struck licensing deals with Universal Music Group and Sony Music Entertainment, paving the way for the search giant to roll out streaming services through both YouTube and its Android-fueled Google Play marketplace.

Music is nothing without timing, and Google seems to have pretty good timing here.

Warner Music Group reported its first quarterly profit in five years yesterday. Revenue actually climbed 8% in the period as a 20% spike in digital sales more than offset the decline in CDs that has been steady since 1999.

Apple fans shouldn't get too excited here. It's not the iconic iTunes Music Store that's raking in the big digital bucks. Streaming through Pandora and smaller sites is starting to generate material revenue for the record labels.

There's no need to cry for Pandora being hit with hefty royalty tabs. The stock hit a 52-week high this week. Even Sirius XM Radio hit a fresh high yesterday as the satellite radio provider continues to attract subscribers to its premium platform.

Naturally too much of a good thing can be a bad thing. Google's entry into streaming -- as well as Apple's inevitable foray after months of chatter on label licensing negotiations -- may make things crowded.

Pandora's growing quickly, but won't it lose some of its audience to Google and Apple? Sirius XM has been able to push its subscriber base to nearly 25 million, but won't paying for premium radio be a harder sell in the connected car with so many cheaper audio alternatives?

Let's not get ahead of ourselves. Skeptics figured that Pandora and Sirius XM couldn't both grow at the same time, yet both companies are coming off quarters with double-digit gains in revenue.

There may very well come a time when there are too many players. A shakeout will happen. However, until then, investors may as well enjoy the happy tune.

Music as a business is back.

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Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple and Google. 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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