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Streaming Music Will Make Your Ears and Pockets Rich

Rick Aristotle Munarriz
June 18, 2012

This article is part of our Innovation in America series, in which Foolish writers highlight examples of innovation going on today and what they see coming in the future.

Why did Apple (Nasdaq: AAPL  ) iPod sales peak two years ago?

Why have music sales stalled to the point where Warner Music Group posted an 8% decline in revenue in its latest quarter -- as the slowing growth of digital sales aren't enough to offset the incessant plunge in CD popularity?

Why is Pandora Media (NYSE: P  ) growing so quickly?

The answer to all three questions is the same: Music streaming is booming.

California streaming
The introduction of the iPod in 2001 revolutionized the music industry. There would be no more fumbling for CDs or cassette tapes. A music connoisseur's entire song library could now fit in the palm of his hand.

Digital piracy was rampant at the time. Labels cringed over the peer-to-peer file-sharing networks where young music fans could download tracks as MP3s in mere seconds, only to be vilified when they moved to protect their content.

Apple's iTunes Music Store launched in 2003, making it acceptable to purchase legal downloads.

However, even Apple seems out of touch these days. Just as rentals are replacing ownership when it comes to homesteads, consumers would much rather be streaming a wide array of tunes than buying select tracks and albums.

Something borrowed, something blues
There are now 51.9 million active users of Pandora.

The music-discovery website will take a suggested track or artist and weave a playlist of similar tracks. Roughly two dozen car manufacturers have teamed up with Pandora to make sure that the streaming service works seamlessly in their newer cars if drivers have Bluetooth-enabled smartphones.

Getting freeloaders to upgrade from the ad-supported service to premium ad-free streams hasn't been easy, but Pandora's a real company making real money. Revenue climbed 58% in its latest quarter to $80.8 million. Profitability has been spotty, but good things will happen if it can keep growing.

When you compare Pandora to traditional radio s