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Music streaming’s moment of truth

The next few months could prove to be a pivotal period for the long-term future of the music streaming business.

To date, no one has been able to make much money offering streaming music to consumers, whether by subscription or financed by advertising., a fact  streaming service providers generally blame on excessively high licensing fees and/or statutory royalties they must pay to the record labels for streaming rights. Pandora, the leading ad-supported service in the U.S., has even gone to Congress to try to get the statutory royalty on internet radio services reduced. And according to a new report on The Verge, Spotify, the leading subscription streaming service, has begun pressing the labels for significant roll backs in its licensing fees as it seeks to renew its rights deals (as an on-demand service Spotify must negotiate for rights directly from the labels rather than relying on the compulsory license that covers internet radio services like Pandora).

For their part, the labels have watched sales of recorded music erode continuously for the better part of a decade and view the exploitation of streaming rights as critical to their future — not to be bargained away cheaply.

Those competing agendas may be about to get a lot more complicated, however. According to a report in the Financial Times, Google has begun discussions with the labels about launching a music streaming service later this year that would have both a paid and an ad-supported tier. That report comes as Apple appears to be taking steps toward launching its own streaming service sometime this year.

While there’s no guarantee that Apple and Google will be able to make money where Spotify and Pandora have not they certainly would have more monetization options given all the other assets they could bring to bear on their music streaming services, which could make them willing (and able) to pay more for those rights.

The deals struck over the next few months could go a long way toward determining which streaming service providers succeed and which don’t, as well as the long-term value of those rights to the labels.