"More Americans buy music online, fewer buy CDs," was the AFP headline that caught my eye. In related news: Sugar is sweet, the tax deadline is coming, and you should use sunscreen. Film at 11, presented by Captain Obvious.
The real news
All kidding aside, it pays to keep an eye on exactly how quickly music consumers are moving into cyberspace. Don't you wish you had known how Apple (Nasdaq: AAPL ) would dominate digital music when iTunes was new and unproven? If you had bought a few shares on a gut feeling when iTunes was introduced, you'd be sitting on nearly 12 times the investment today.
The good news this time is that there's another revolution underway that may render iTunes obsolete in a few years. According to the NPD Group's 2008 Digital Music Study, streaming is starting to replace downloads.
Downloading vs. streaming
The difference, for the uninitiated, is that download stores like iTunes and Amazon's (Nasdaq: AMZN ) MP3 store have you pay for single tracks or whole albums, and then you download your digital bounty. Transfer to an iPod, your cell phone, or perhaps a Microsoft (Nasdaq: MSFT ) Zune, and you're good to go. Easy enough.
But streaming takes that convenience to a whole new level. Set up a play list or pick an online radio station, fire up your favorite way to access that service (including cell phone applications, set-top boxes like that trusty TiVo (Nasdaq: TIVO ) , or simple web sites), and kick back with a cold beverage. It's legal, supremely accessible, and you have your pick of streaming services. It's kind of like the Netflix (Nasdaq: NFLX ) online video feeds, only without the moving pictures.
Privately held Pandora helps you find new music based on what you already like. Yahoo! (Nasdaq: YHOO ) Music contracts out its streams to RealNetworks (Nasdaq: RNWK ) and its Rhapsody service. Some services ask you to fill up your portable player with content before you can start listening, whereas others -- like Pandora -- stream directly to your iPhone or BlackBerry through the 3G airwaves.
The investing takeaway
NPD says that 18% of Internet users know about Pandora today, compared to 9% last year. 19% of American consumers get music from social networks like MySpace or Facebook, a 27% increase year-over-year. If Pandora ever goes public, I'd be first in line to buy shares. Today, RealNetworks is your best bet for investing in the streaming music revolution. I'd be happy with just a fraction of Apple's success, but this trend might make iTunes altogether obsolete.
Watch your back, Apple: The streamers are coming. Adapt or die.
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