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Internet radio outlets like Oakland-based Pandora are in a slightly different category: They broadcast ads but don't charge fees for users and are no less dependent on favorable licensing rates. Asked whether he thinks consumers will really give up the idea of having music collections, Lefsetz chuckles, "Well, the key is not to ask anybody who has a music collection."
Regardless of whether labels want to accept lower fees for their content, Houghton says, they may have little choice. "The music business is competing against free at this point, whether they like it or not," he says. Since users now have the ability to stream or illegally download songs for free, what's key for labels now is to get "some money instead of no money." One revenue possibility is for music subscription services to bundle their product with Internet service providers (ISPs), in much the same way individual cable channels come with your cable TV service.
So Rhapsody, for example, would be part of your Comcast Internet service, offering access to tens of thousands of songs for the (presumably slightly higher) price of your home Internet service. Rhapsody's Smith says that may be one direction his company is headed, and it's hard to imagine the other major subscription services sitting that out.
Aside from having a stadium-size cache of music to listen to at any time, another carrot for consumers is that the new music services are aiming to be more than simple jukeboxes. Pandora creates free radio stations that stream your favorite artists and suggest others they think you will like; MOG and Spotify offer similar "music discovery" tools. MOG even has an intriguing "slider" bar, where users can choose the degree to which they listen solely to one artist or mix it up with suggestions of similar acts. The service, Hyman says, "kind of lives in this world between passive and active," where listeners spin songs they know, or tune into a virtual equivalent of a college radio DJ who knows their tastes.
These benefits could turn out to be the main selling point for cloud-based service consumers, and for artists who want their music introduced to vast numbers of potential fans who probably wouldn't have heard them otherwise. In the end, Internet users have been used to stealing music off the Web. The only way to counter that, Hyman explains, is to offer a service that's better than what people can grab for free.
So don't fret. The cloud may be coming to steal your record collection. But once the dust settles, you might end up with something you like even more.