Spotify may hurt paid music downloads, Pandora doesn’t

Bad news for ad-supported on-demand music sites like Spotify: One analyst says they lead to a decrease in paid music downloads.

Those sites, which let you stream any song you want while showing advertisements, result in a 13 percent drop in paid downloads, said NPD analyst Russ Crupnick, CNet reports. His research, presented to tech and music industry executives, is sure to be unsettling as Big Music tries to recover from free-falling CD sales.

Spotify may hurt paid music downloads, Pandora doesn't

On the bright side, Crupnick said that streaming Internet radio lead to 41 percent more paid downloads. So expect to see the industry throw more support behind services like Pandora, Last.fm and Slacker Radio, which don’t let you choose individual tracks but allow the creation of personalized stations focused on artists or genres.

One caveat: NPD’s research applies only to the United States, where Spotify has yet to launch. The data probably came from sites like Yahoo Music and MySpace Music, which let you play individual streaming tracks from lots of artists and create playlists. There’s also Lala, a paid streaming service that allows one free play of every track, and Google Music, which does the same. There’s nothing quite like Spotify’s comprehensive music player in the United States, but I imagine that such a service would decrease the need for downloads even further.

My hope is that the music industry doesn’t view this information as a reason to squash on-demand music streaming. That’s what they did to MP3s in their early years, and it got them nowhere.

Yes, in their nascent stages, sites like Spotify don’t reap the same profits as paid MP3 downloads, but new business models could make them more lucrative (see the unique approach of start-up Guvera), and there’s always a chance people could transition to a paid version of streaming if given good incentives. Streaming could be the next big thing in music consumption, in which case it needs to be nurtured.