Pandora's Bucks and the Future of Music

If you haven't heard of Pandora, a personalized radio site based around your favorite bands, then it's time to start paying attention. It's not simply because the record industry just struck a deal with webcasters that paves the way for personalized radio to flourish, or simply because Pandora, the Internet's radio leader, just secured $35 million in funding. No, you should start paying attention because streaming music really could be the future of the music industry.

Big statement! So let me flesh that out. In the long run, streaming music could replace, not only illegal downloads, but also legal downloads. First, we know that more young listeners are moving away from illegal downloads toward streaming music, and they're doing it with sites like Pandora and Grooveshark, which allows them to create playlists from a database of millions of free songs. That's good news for the music industry, because, unlike illegal downloaders, streaming sites are required to pay back money -- tens of millions of dollars, in fact -- to the music industry. Moreover, these streaming music sites register users, track the songs they listen to, and market to their tastes -- from tickets and gear to more bands.

But how could streaming music replace legal downloads? Imagine if you could go online from your wireless music device and create playlists your own music playlists. You could listen to any song, any time, from anywhere on your connected hand-held device. We're not far away from that dream. Spotify -- a streaming music app -- is coming to the iPhone soon and some people think that the program, with its instant access to more than six million songs, could actually pose a threat to Apple iTunes. Millions of Americans streaming music from an online database would be a huge blow to iTunes financially. Just as on-demand TV makes it redundant to own a movie (Why buy "Gladiator" if it's always three clicks away?), on-demand music would make it redundant to own songs. An iPhone or iPod Touch would effectively act as your (nearly infinite) music catalog, all for the price of an App...and lots of targeted advertising.

[from The Big Money]