Subscription music services have been dominating the news recently with the U.S. launch of Spotify and the new IHeartRadio, plus free offerings from MOG and RDIO, and the recent purchase of Napster by Rhapsody. There is a sea change occurring in all content industries moving towards streaming and subscription rather than ownership and amongst them- Spotify has been both the most visible and the most vilified of the new companies.

While some believe that Spotify has a diruptive business model and will kill i-tune. (http://blogs.hbr.org/cs/2011/07/why_spotify_will_kill_itunes.html).  Other’s are sighting it’s great mobilization success – signing up more than a million subscribers within couple of weeks as the service coized up to facebook; a great reason for celebration. Perhaps not! Specially in light of the fact that not only has the service never been profitable, but it’s loss is increasing. In 2009, spotify has lost $26 million and losses ballooned to $41 million in 2010.

Though many say – so what? A digital company posting big losses in its initial years is nothing new and spotify launched in Oct 2008, after all. And even though these numbers don’t paint the best picture, they show revenues climbing almost twice as fast as expenses. I believe making Spotify profitable sooner than later would & should be company’s greatest priority. History has shown time & gain that start-ups that succeed to generate growth faster despite losses face significant struggle to make it’s business model work later. Opportunity to tweek your profit model when you are small is crucial to make a venture true success. More users listening to more songs means more expense to spotify which will make this experimentation difficult.

So, the question is how can Spotify quickly grow it’s two main revenue streams: paid subscriptions and advertising. Verdict on paid subscription will be out in 6 months. Currently, new users are offered unlimited listening for six months. Post that, free usage would allow only 10 hours of free listening. Hence though 2011 won’t see any change in subscription revenue, some predict that once the six-month period comes to an end, a chuch of ‘power listener’ US user may sign up. Converting users from free service to $10/month for a service which is often available for free appears to me a daunting task and spotify cannot rely only on subscriptions for revenue.

The more importance (and even more problematic) factor is advertising. Spotify is stymied once again here since the biggest opportunity for it to reach more people is through mobile devices. However, problem is that advertising on mobile is practically nonexistent. Pandora despite being the most-downloadable app in the Apple & Andriod market is not able to make profits! Spotify isn’t Pandora. Pandora is 24th most popular app on App store and Spotify is 106th. Even if they can become more popular with the recent trends, they will have to crack the code on mobile ads without listeners tuning out.

No matter how great a platform & serivce spotify provides, making it profitable looks like a really challening task to me. Today’s crouded internet music space requires not only ‘somthing little different’ but a change in business model to alter the game. Rdio’s recent move probably will change the game. (http://www.pcmag.com/article2/0,2817,2394292,00.asp#fbid=EhB8ZcgPfVQ)

So, do you think Spotify is rising to rise further? I doubt!

Since the creation of MP3 format and its mass adoption, storage and management of music files have been a challenge, and creating a tool that could help manage this had been key for differentiation in this space. A definite solution to the storage and multiple device synchronization has emerged on the form of cloud players, and file management has been partially solved by internet radios. But what does this mean?

Cloud computing, which started with service providers delivering applications over the internet, has opened a new dimension to data storage and processing, having people worry less about its hardware storage and processing capacity and more about its ability to access to content and applications located on a remote server. Storage Bytes become a commodity and differentiation comes from applications and accessibility.

In the case of music, could drives and cloud players are disrupting the industry by making devices storage capacity almost irrelevant and providing access to a user’s media library without the need of moving files between devices. We have seen the example of iTunes and how it revolutionized the music industry by providing an easy-to-use tool to manage media content and synchronize two or more devices. Today, a service provider on this space should still focus on content management tools but not the synchronization capability.

Music presents another interesting benefit to could computing, a cloud drive provider doesn’t need to store multiple copies of the same song that multiple users have, they just need to control copyrights that users have to access certain files. This makes storing music on the cloud even more economical.

Currently, we see multiple services being offered from which three generic models arise: Cloud drive and cloud player, ad-supported Internet radio and unlimited access subscription schemes. All of which are accessible from most mobile devices, some TVs and Blu-ray players, and all laptops, desktops and game consoles. But which one will win?

I expect a subscription service offering cloud drive storage and device coordination capabilities and access to media content all in one should be the winner. The keys to win this game will be access to content at low cost, easiness to use and omnipresence on devices. This last point is particularly important; a winning service will be one that you can access from all your devices, including the infotainment system in your car, your TV and your home audio system. If you can’t access your content, then is useless.

I look forward to see how this industry evolves, I’m certain that it will bring many surprises.

Who will buy Hulu? Or more importantly, what conditions will be attached to such a sale? Originally created as a joint venture between NBCUniversal, Fox, and Disney/ABC, Hulu’s on-demand streaming video service offers TV shows, movies, webisodes, and other content from over 260 media partners. The service has attracted a significant following, and in a blog post in April 2011, CEO Jason Kilar expected Hulu to reach $500 million in revenue in 2011 vs. $263 million in 2010. One would think that a sale of one of the dominant players in the red-hot online video space would almost certainly create a furious bidding war. But as the second round of bids come due, most sources expect a sale of Hulu to be unlikely. Why? Because it’s all about the content.

Ultimately, Hulu’s success is predicated on the content it is able to license from Hollywood studios and TV networks. Hulu itself is simply a distribution platform. Without the content, it is worthless. Knowing that they hold almost all the value, the studios and networks have all the leverage in any type of licensing deal with Hulu if it ends up being sold. Even worse, if the content companies decide to create a new Hulu competitor in the future, they could simply refuse to license any content to Hulu. Thus, it remains to be seen what combination of long-term licensing and perhaps non-compete agreements will come out of a sale, if it happens.

Similar issues exist in the streaming music space. New players such as Spotify and Rdio are attracting a lot of buzz. Consumers love the service because it gives them access to millions of songs for a low monthly fee. And for the record companies, it mostly eliminates the piracy issue that has dogged them since the invention of the mp3. However, the exact same problem looms over these new services. If the success of these services is predicated on licensing deals with record companies, won’t the record companies stand to extract almost all the value out of these ventures in the long run?

However, not all is lost in the streaming video and music worlds. The key to success will be how Hulu, Spotify, and similar businesses can create other value-added features for their users. Spotify has recently been emphasizing its social features, making it easy to share music with friends through Facebook and Twitter. Netflix has long invested in its proprietary rating system, which recommends new movies for you based on ones you’ve liked/rated in the past. There are also a number of independent startups in the content discovery space that may prove to be acquisition targets in the future. For example, Turntable.fm is a hot new startup that uses a unique DJ room format to facilitate music discovery. Combining this innovative service with the user base and licensing deals that Spotify has would make a lot of strategic sense. Features like these will be essential to increasing not only the amount of value delivered, but also the likelihood that users will remain loyal rather than skipping over to whichever service simply has the largest amount of content. As a result, content companies would no longer have all the leverage in licensing negotiations.

If Hulu does get sold, its new owners have a lot of work to do. Right now, the main reason Hulu is great is because of all the content it has. But like every other streaming service, it needs to make sure that content isn’t the only factor.