Legal and Tech: How On-Demand Music Streaming Works

Mike had been a music lover since childhood. He had a great collection of CDs and vinyls at home. But times had changed. The emergence of smartphones and the ensuing digitalization had greatly affected the music industry. Now, Mike could listen to his favorite tracks on his phone at any time and in any place without having to buy CDs.

But Mike was a bit frustrated. His phone was unable to store a huge music collection. Years later, he finally found a solution to this problem — music streaming services. They didn’t require Mike to store all his music on his phone and let him browse new music conveniently. 

Still, the solutions available on the market didn’t fit all of Mike’s needs. To his mind, Apple Music had a bad recommendation engine. Spotify and Pandora weren’t available in his region. And Tidal was a bit expensive for him. What should he do? Mike was in despair. Until that day when he came up with an idea for his own, ideal music streaming service...

Millions of people want to listen to high-quality music without interruptions and problems with storage, and this number is growing every year. 

According to the IFPI Global Music Report 2019, in 2018, revenue from music streaming apps reached $8.9 billion worldwide, up from $6.7 billion a year earlier. 

Streaming shows the exponential growth in revenue

In this article, we examine how the music streaming market works and what you should know before starting music streaming app development. This analysis will help answer how you might enter this market with your own streaming solution.

Types of music streaming apps

There are two major types of streaming services: radio and on-demand. Radio streaming services are mostly associated with music discovery, with an app acting as a DJ who picks what songs to play and in what order. On-demand services are characterized by user-created playlists that can be shared with others. Let’s talk about these two types of streaming services in more detail.

  • Radio stations

The best representatives of radio apps are Pandora and iHeartRadio. These services aren’t designed for listening to the one specific song you want to hear right now. They call themselves “radios” because they play songs you might like based on your personal preferences. You can’t select a specific song with on-demand radio stations like Pandora, but you can create your own stations based on genres, songs, albums, artists, or bands.

Radio station apps have licensing agreements that don’t allow them to play songs on demand. These licenses allow radio stations to keep their costs down compared to on-demand streaming services.  

  • On-demand streaming services

Examples of on-demand music streaming services include Spotify, Apple Music, and Tidal, all of which let users play songs of their choice instantly. Similar to radio station streaming services, on-demand streaming services also offer recommendation and discovery features based on what users like to listen to.
Given the growing desire for on-demand music, Pandora launched Pandora Premium, a $9.99 per month streaming service that competes directly with Spotify and Apple Music. Pandora Premium allows users to listen to Pandora radio while also creating their own playlists.

Spotify

To develop its on-demand streaming service, Pandora needed to sign licensing agreements with major record labels as well as independent distributors. 

Licensing agreements

To make a music streaming app, you need to get rights on sound recordings and compositions (songs). Rights to sound recordings and compositions can be owned by multiple rights holders.

For example, if an artist signs a deal with a label and records his or her song in the label’s studio, then this recording belongs (at least partially) to the label.

The song itself (the composition) belongs to the songwriter, although a songwriter can have a publisher manage those rights. Managing rights to compositions means issuing licenses for the use of songs, collecting royalties, dealing with accounting, and managing other administrative issues. Often, songwriters sell their songs to a publisher.

Every internet radio station and on-demand streaming service needs to pay copyright holders for the right to reproduce or make copies of sound recordings and compositions. These payments are called royalties.

However, internet radio stations and on-demand streaming services require different licensing agreements and must strike these agreements with different organizations.

For radio stations 

Radio stations pay government-approved organizations that in turn pay rights holders: labels, music publishers, and songwriters. Radio royalty rates in the US are set by the Copyright Royalty Board (CRB).

If you want to develop your own radio station, you need to get licenses from the following agencies:

  1. SoundExchange for sound recordings. SoundExchange compensates labels and individual artists.

  2. Performance Rights Organizations (PROs) including ASCAP, BMI, and SESAC for publishing licenses. These organizations pay royalties to publishers and songwriters.

To develop its on-demand streaming service, Pandora needed to sign licensing agreements with major record labels as well as independent distributors. As a result, about 70% of revenue from Pandora’s subscription service goes toward royalty payments to songwriters and artists.

For on-demand streaming services 

To develop an on-demand streaming app, you’ll need to license content from the following organizations:

  1. Major labels such as Sony Music, Universal Music Group, and Warner Bros

  2. Independent aggregators such as the Merlin Network, which represents indie artists

  3. Publishers such as Universal Music Publishing Group and Sony/ATV

All of these organizations require direct licensing deals, which typically take one of the following forms:

  • Per-stream rate

  • Percentage of revenue

  • Upfront payment for future streams

  • Equity

Spotify pays up to $0.0084 per stream to the rights holder. This amount is then split among producers, artists, and songwriters. Since September 2018, Spotify has also allowed indie artists to upload their tracks directly to the app, bypassing distributors. Currently, this feature is in beta, but the agency plans to improve it. 

The rules on the streaming market aren’t very friendly for emerging digital businesses. To make things even more troublesome, there is no global standard for music licensing, and therefore you need to license country by country.

Dealing with boring legal matters isn’t the only challenge a music streaming app developer needs to tackle. The next challenge is choosing the list of features that will make your app the ideal solution for music lovers.

Gow to create a music streaming app: features your mobile app can’t live without

Regardless of the type of music streaming app you choose to create, all apps of this type have a common set of features that are necessary. Here’s a list of them. 

Large music library

A large library of songs for all tastes is a must-have for any music streaming app. You should ask yourself four main questions. 

  • What music should I offer? To avoid legal issues, license music and avoid downloading pirated music. 

  • Where should I store data? The most common solution is Amazon S3 or any other cloud service with a Content Delivery Network (CDN).

  • How should I stream music to users? You also need to decide how to stream data. Streaming involves sending information from the server to users. To provide users with seamless streaming, you should choose the right streaming protocol. For instance, TCP’s congestion controls and the ability to resend lost packets made Spotify choose the TCP protocol for streaming. 

  • Which format is the best for storing music? There are a plethora of music formats, each offering different sound quality. Below, you can see a diagram that shows how music formats affect streaming quality. Now let’s discover what formats famous applications use. Tidal, a famous app owned by Jay-Z and available for iOS and Android, supports FLAC, ALAC, and AAC. Pandora uses only AAC, while Spotify supports Vorbis. 

This is how file format depends on streaming quality

Registration 

The first step toward providing a highly personalized experience is collecting and analyzing data about users’ musical preferences. The perfect time to do this is at registration. 

Applications like Spotify and Pandora, for example, ask users for their zip codes and birth years. With the help of this information, the application can recommend tracks popular in the user’s region and among users of their age group. 

Some apps ask users direct questions about their favorite genres and artists. Your primary goal for this section is to create a clear and appealing design that doesn’t annoy users with questions. Look at how the onboarding looks in Apple Music.  

This is how Apple Music Onboards New Users

To make a new user’s experience more personalized, you can use Facebook’s API to get access to data about a user’s likes and other music-related information in their profile.

Search

If you decide to develop an on-demand app, you may need to provide your users with an advanced search feature. Let users search for playlists, tracks, genres, and artists so they can easily find a track they’re looking for. In addition, you can let them search for music by mood and activity, as Spotify and Pandora Premium do. After acoustic fingerprinting, each track gets its unique International Standard Recording Code (ISRC). With the help of this code, an app can distinguish the original song from remixes and edits. 

Read also: Interview: iBroadcast Music App

Recommendations

After you acquire a sufficient music database and user base, you can start thinking about developing a more advanced recommendation and discovery system. Apple Music seems to be a good app, but a lot of users complain about its poor recommendation engine. It’s one of the main reasons why users opt for Spotify or Pandora Music. 

Most music streaming services use both audio analysis algorithms and human curation for a more advanced recommendation and discovery system. Let’s scrutinize the recommendation engines of Spotify and Pandora, the top players in music streaming. Spotify, which owns Echo Nest, uses this company’s API. Echo Nest uses data mining and machine learning techniques to gather information from the web about songs, albums, artists, and genres.

The technology that Echo Nest provides can capture live playback behavior (artist plays, song plays, skips, bans, favorites, and more) and use this behavioral data to personalize playlists. The system generates playlists using similarity searches on cultural text data from the web, audio data from tracks, and user behavior.
The Echo Nest API also allows Spotify to build social discovery features so users who share common tastes can discover music from each other.

Pandora’s recommendations, on the other hand, are based on the Music Genome Project, an automated musicological analysis that ignores genres, user connections, and ratings. The idea behind this project is to figure out what you like (not what the market might like) by analyzing the musical structures in the songs you like and then playing other songs that possess similar traits. This approach is definitely interesting, but it does distance users from the tastes of their friends, peers, and critics.

To develop their algorithm, Pandora employs trained experts who tag songs with dozens of pieces of metadata. This metadata include specific tonal qualities, instruments played, rhythmic nuances, and hundreds of other details. Pandora is conducting ongoing experimentation on its vast user base to figure out how best to deliver music to its listeners. You can read more about their intelligence algorithm here.

Thumbs-Up and Thubs-Down feature to improve recommendation system

Music arrangement 

This feature refers to categorizing music in the browse section and letting users make their own playlists. 

Browsing is deeply connected to the search feature. Apart from the standard arrangement of music by artists and genres, you should create specific categories for a particular purpose or mood. There are a great number of categories in Pandora Music and Spotify. For instance, Spotify offers music for traveling, dinner, gaming, parties, and workout. Thanks to the Music Genome Project, Pandora has superior music arrangement. 

Music categories on Spotify and Pandora Music

Also, you can take Mubert, a generative music streaming service that leverages AI to create endless music streams, as an example. Besides the common arrangement of music by genre, Mubert has categories based on actions: Study, Work, Dream, Meditate, etc. In the web app, you can also find categories based on location. Mubert suggests curated music channels for shops, cafes, meetups, and lofts.

In an on-demand music streaming app, users may want to create their own playlists for their favorite songs. Also, don’t forget about shuffling to let users quickly rearrange playlists. 

Features to implement further

We’ve discussed the basic functionality of every music streaming app. This may be an ideal set of features for your MVP. But you should understand that your mobile app will have robust competitors like Apple Music, Pandora Music, and Spotify. That’s why to attract new customers and make them listen to music on your platform you should think about offering additional features. After analyzing the major players in the music streaming industry, we’ve found the following cool features. 

  • Offline access 

The main feature of any streaming app is the ability to listen to music online. But there’s no denying that users want to listen to music whenever and wherever they are regardless of whether they have an internet connection. Just give them this opportunity and in return, you’ll have satisfied users.
Some on-demand streaming applications include offline playback in their paid plans. Music that can be played in offline mode is stored in a device’s cache. All tracks are DRM protected so that users can listen to them only in the app and can’t send cached files to other devices.

  • Keep users informed

Let users stay tuned to all music-related events! You can add push notifications that will be sent to users if an interesting event takes place near them. Pandora goes further and lets users buy tickets to concerts. 

Spotify used to notify users about the release of new tracks from artists they followed. But in 2016, this feature was removed from the app. Since users were often subscribed to many artists, the push notifications were seen as spammy. 

  • Integration with social services

Both app users and app owners can benefit from integration with social networks. Users can share tracks they’ve found. For app owners, integration with social media is a great way to attract new users. Let users collaborate with each other and you’ll get improved engagement and stickiness.

For instance, Pandora Music lets users find friends via Facebook and then listen to their stations. Spotify allows users to create collaborative playlists, send music recommendations, and see the activity of friends. Both applications allow users to share their favorite songs via Messages, Facebook, and Twitter. For instance. here's our concept of a music app that allows users to see their friends' playlists. You can see the animated version of this shot in our Dribbble profile. 

Music app concept by Yalantis

  • Let users upload their own tracks

One of the main reasons for SoundCloud’s popularity is that it provides undiscovered but talented musicians with an ability to upload their tracks to the platform. For instance, rappers Lil Pump and XXXTentacion first became popular on SoundCloud.

But if you want to let users upload their own tracks, it’s important to provide content curation. SoundCloud has curation specialists to get rid of low-quality content on the platform. 

Pre-save feature

Tidal and Spotify have a pre-save option that allows music fans to get the newest albums right after release. If an album appears on these services before release, users can see the release date and tracklist but can’t listen. But with pre-save feature, an album will be automatically added to the user’s library as soon as it’s available on the service.

This feature allows users not to miss the newest albums of their favorite artists. Users can also set notifications so they receive email or push notifications when an album is released. For app owners, this is a great way to attract new users by providing them with exclusive and brand-new content. 

Lyrics 

Some users may want not only to listen to a song but also to sing along or finally puzzle out what it’s about. Historically, music lovers have needed to install a standalone app like Musixmatch to see lyrics without leaving an audio streaming app. In October 2018, Apple Music unveiled a new feature that shows lyrics in just a tap. 

You can also allow your users to view a song’s lyrics without leaving your app. To do so, you can use either the Musixmatch API or the Genius API

Possible sources of revenue

From the statistics we showed earlier, you can see that a music streaming app may be rather profitable. Now that we’ve discussed the features for your app, let’s find out what monetization models can be applied to it. Most apps of this type rely on a mix of the following business models.

Charging listeners

This is the most profitable and hence the most popular way to monetize a music streaming app.

1. Subscriptions

There are two possible ways to handle subscriptions.

First, you can provide users with basic features and charge them if they want additional functionality. For instance, Spotify Premium lets users listen to saved tracks offline, skip an unlimited number of tracks, and play any track in high quality. For this, users pay $9.99 per month. There’s also a Spotify Premium Family plan that lets up to five family members at the same address use their personal Premium accounts for only $14.99 per month.

Pandora offers Plus and Premium plans. With Pandora Plus, which costs $4.99 per month, users get unlimited replays and skips and the ability to listen to offline stations and create personalized stations. Pandora Premium includes all the features of Pandora Plus and also lets users download tracks to their devices, create playlists, and search through Pandora’s great music library.

Second, you can provide access only to users who purchase a subscription. Tidal only has paid plans, but provides users with high-definition music curated by experts. Tidal Premium costs $9.99 per month, while Tidal Hi-Fi with master-quality audio costs $19.99 per month.
In all these applications, users are able to start with a free trial. Before starting a trial, however, users need to enter their card information. After the end of the trial, they’re automatically charged.

In case users don’t want to subscribe to the paid version of an application right away, many music streaming services integrate an additional business model for deriving revenue: advertisements.

2. Ads

We won’t talk much about this business model, since it’s a traditional way to monetize a freemium app. While listening to free music streams, users may be exposed to small banner ads on their screens or audio ads between tracks. If users don’t want to see and hear ads, they may upgrade to paid accounts. Below, you can see the revenue that Spotify and Pandora get from advertisements and subscriptions. 

Revenue for Spotify and Pandora from advertisements and subscriptions

3. Additional sources of revenue

Last year, Pandora received $76 million from its ticketing service Ticketfly. Enabling users to buy concert tickets in the app may be profitable for both users and app owners. According to Pandora, its Ticketfly platform, which sells tickets to live events, is forecasted to exceed $300 billion in revenue by the end of 2020.

Tencent Music Entertainment (TME) is Chinese music streaming company. Taking into consideration the cultural background of their target audience, the company came up with a brand-new revenue stream. 

Chinese people are great fans of karaoke, and many spend their leisure time in karaoke bars. The QQ Music app, owned by TME, allows users to sing karaoke and live stream it. In this app, users can buy and send coins or gifts to their favorite singers during live streams. These social activities bring TME around 70% of its revenue

In Google Play Music and Apple Music, if an unsubscribed user wants to listen to a particular song, or album, they should purchase it. In this way, these services get additional revenue by selling particular songs and albums instead of selling unlimited access to all songs in the catalog.

Charging artists

Besides paying artists for songs, some streaming services also charge them for additional services. 

1. Monetizing songs

SoundCloud is often considered as the best place for new artists to promote their songs. This service also known for its paid artists profiles that provide singers and managers with additional capabilities. It has three Artist profiles  - SoundCloud Basic, SoundCloud Pro, and SoundCloud Pro Unlimited. First one is free and enable newbie singers to view songs statistics and upload tracks with total duration of three and more hours. 

With the second plan, artists are able to monetize their tracks, turn off comments, upload music with summary duration of six hours, and view advanced statistics of their tracks. It costs €7 per month. SoundCloud Pro Unlimited is an enhanced version of the Pro plan which allows artists to schedule their track releases, and has an unlimited upload time. Its price is €11 per month.

2. Promotion

Spotify helps artists promote their albums and songs. Spotify Ad Studio is a convenient service for creating and managing ad campaign for a price which depends on the targeting selection.

As you can see, digital streaming services are a profitable distribution channel for record labels and publishers, but the streaming market isn’t the easiest to enter. To develop a music app for this market you need to have both a thoughtful business strategy and advanced technology.  If you want to develop an app that will be loved by users like Mike, write us. We’ll help you turn your ideas into reality and answer all your questions starting from ‘How much does it cost to outsource app development’ to ‘What audio format to use for an app?".

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