Matthew C Klein, Columnist

Can Dr. Dre Beat Spotify?

Music-streaming services are theoretically attractive but haven't yet made any money. Can the team that convinced millions of people to pay premium prices for headphones succeed where others have failed?

January 13, 2014 at 8:39 PM UTC

By Matthew C Klein

Matthew C. Klein writes for Bloomberg View about the economy and financial markets. He previously wrote for the Economist magazine and its economics blog, Free Exchange. Before that, Klein was a research associate at the Council on Foreign Relations, where he spent more than two years studying the history of the Federal Reserve and the intellectual history of monetary economics for an upcoming book by Sebastian Mallaby. He also worked at Bridgewater Associates, where he studied the economies of Central and Eastern Europe and advised institutional investors on asset-liability management. Klein has a bachelor's degree in history from Yale University. Originally from Chicago, he lives in New York.

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Buying music is passe; nowadays it's all about renting. Billboard reports that sales of "album plus track equivalent albums" fell by 7.6 percent in 2013. (Among subcategories of both digital and physical media, only vinyl sales increased last year.) The new hot trends are monthly subscription services that let people rent unlimited music from large catalogs hosted in the cloud, as well as personalized radio services that make money by selling ads.

Both types of services seem to have a tough time making any money. Pandora has had negative net income for years. Spotify, the industry leader, has more than 6 million paying subscribers. But it has lost more than $200 million since 2008, according an October estimate from PrivCo, a research firm that studies non-public firms, and the size of those losses has been ballooning. This dubious track record isn't stopping rap star and music producer Dr. Dre and Jimmy Iovine, the co-founder of Interscope Records. The duo has already created a company worth at least $1 billion by selling high-end headphones and speakers to the masses. On Jan. 21 they plan to launch a new streaming service known as Beats Music.