Here's another way to think about the difference between purchases and streaming: value by MB.
Much has been written about the small royalties artists and labels get for streaming media relative to purchased music. Less – if anything – has been written about the difference in values the marketplace places on streams and purchases. One way to compare the two is to calculate the value placed on a MB – a megabyte, or 1 million bytes – of streamed music versus a MB of purchased music.
Today's music industry is in an uncomfortable transition from purchasing music to accessing music. The discomfort stems from the fact that a single stream just isn't worth much money. When considering what consumers pay for streaming services, little value is placed on an individual song. In contrast, a single download is worth far more than a single stream. A download is purchased once and can be played numerous – dozens, hundreds, thousands – times at no incremental cost.
Streaming media can be thought of as downloading and experiencing files without keeping them. A streamed song is not downloaded into an iTunes folder, for example. Nor is a streamed video. They are ephemeral, not permanent. And because streaming media is ephemeral, each item that is streamed has little value. That's not just my opinion. The value of a streamed MB is ridiculously small compared the value of a purchased MB.
A track purchased at iTunes for $1.29 costs about 20 cents per MB, assuming a three-and-a-half minute song at 256 kbps. A digital album costs about 11 cents per MB, assuming about 11 tracks that average 8.8 MB apiece. (I took a sample of six purchased albums in my collection, added up the sizes of the file and used Friday's price at iTunes.)
A streamed MB has even less value. The value of a song streamed on Spotify Premium – the $10 per month service – depends on the number of songs streamed in a month. But let's assume a person streams 500 songs in a month (over an hour a day). At four minutes per song and 2.4 MB per minute, per Spotify's help page, a MB is worth 0.12 cents. The value fluctuates as streaming activity rises and falls using this method. (The value actually comes from the access to the total catalog plus the features and user experience. Breaking down value to a single song is definitely an imprecise exercise.)
A song streamed on Pandora is worth 0.07 cents. I calculated this using Pandora's first-quarter revenue as a proxy for consumer value. (Most listeners experience advertising to use the free product, so I considered the value placed on ad-supported music to be the value of advertising experienced by listeners.) Pandora had revenue of $125.5 million from 4.81 billion listener hours. I assumed four-minute songs and calculated streamed MB assuming the share of listening from subscribers, who stream at a higher audio quality, was the same as subscription's 16.2% share of revenue.
The value of streaming varies by media. Take Netflix. I calculated a MB streamed on Netflix to be worth 0.38 cents, or 5.4 times greater than Pandora and 3.3 times greater than Spotify. I admit this is a rough estimate. I took Sandvine's figure for average U.S. download traffic in the first half of the year, applied Netflix's overall share of Q1 download traffic of 32.3% and Netflix's $7.99 monthly fee for its streaming service.
It intuitively makes sense that streaming video would be worth more than streaming music. Video is a richer medium than music. That is to say, a video stream delivers both audio and video. An audio stream, such as the ones examined here, delivers just music. That's something to keep in mind when considering the best price for a streaming music service.
The amount streaming service pay artists and labels is important and should be debated. The reaction to comments by Nigel Godrich and Thom Yorke prove this is an important topic. When streaming is broken down into small increments, like a MB, it's not difficult to see why access models are under fire. Access to any one song just isn't worth much.