Who is making money in online music?

There has been much talk about the turmoil facing the music industry, and its fragmented online state. If you keep your ear to the ground, you can get an idea of the online music services that are popular. It’s fairly easy to find rough estimates of user base and internet traffic for this shifting landscape. But popularity alone cannot keep a company afloat, only income can.

What is less available online are indications of where money is actually being made. In an industry that is infamous for it’s failed start-ups, and even the quick fall of its old guard, who are the financial successes and failures of online music?

The obvious example of success is iTunes. Although it is definitely not Apple’s cash cow, iTunes was estimated to bring in roughly US$160 to US$390 million in profits for 2008. Even with such domination over the paid-downloads market, iTunes took its time turning into a money earner. Initially it served more to support other Apple products. Now it stands head and shoulder above every other offering.

Amazon mp3 is making money, albeit not in the scale of iTunes, and serves to supplement Amazon’s rising profits. They are now offering a cloud-based music storage service, to further compete with iTunes and potentially Google Music.

Rhapsody has just begun to break even, after its first year away from Real Networks. It expects “reasonable profits in this year.

With 50-million users, Pandora also looks set to start turning its first profit. After years of loss, the last two quarters have now been profitable for the first time.

As of 2010 Spotify was still yet to turn a profit, despite its rapid growth in paid subscribers and the massive amounts of investment pumped in. Even with 10-million users, Spotify announced losses over £16.4 million. And we know that the artists make a very minimal amount of their expenses, with most being eaten up by record label royalties. Nevertheless, it’s still hoped that a spread into the U.S. market would turn this around.

Grooveshark, with over 5 million users, still does not seem to produce enough through its paid subscriptions and ad revenue to pay off its debt. Its recent exclusion from Android is unlikely to improve things.

We know that Nokia OVI has pulled their Comes With Music offering because of lack of traction.

The fledgling Bandcamp, is yet to turn into a profitable enterprise. It has also shown that it is looking to monetize, moving from a free to profit-share service, and limiting the number of free uploads allowed by bands.

Last.fm has been a well known black hole of investment for owner CBS Interactive. Nevertheless, losses shrunk from US$17-million to US$2.8-million from 2008 to 2009, suggesting it might find its way to profits soon.

Myspace, after being repurposed as a music site, finds itself as the worst performing of the bunch. Robert Murdoch is surely regretting his US$580-million purchase of the ailing giant, which is now likely to sell for between US$50 and US$200 million.

Of course, Google does have a hand in the pie. YouTube remains the forgotten giant of the music industry. The rise in music video watching has likely helped to finally turn Youtube into a profitable investment, with Google’s advertising strategy coming to success. It’s difficult to find out the numbers, however, as Google’s not telling.

On the same note, we are waiting for more word about Google Music. The rumour is that they are now testing it internally. Interestingly enough, many record labels are apparently happy about Google’s imminent inclusion in the online music sphere, despite reservations about the cloud. The fear is Apple’s domination, and Amazon’s inadequacy as a prime competitor.

Despite online music’s reputation as a financial sinkhole for anyone but Apple, it seems that some of the promising online services are starting to find their way into the black. In this year we’re going to have to wait to see what kind of effect the launch of Google Music has on the industry. Unless it shakes things up, we could be looking at the watershed year for the new big players in online music.