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What's at Stake For the Future of Music Streaming

With Apple Music and Spotify at the front of the pack, is it really just a two-horse race?
Image: A woman listens to music
A woman listens to music.A. and I. Kruk / Shutterstock

The way we consume music has evolved drastically over the past decade, from buying CDs to downloading songs to paying a monthly subscription for online streaming services.

Last year, for the first time ever, the majority of the music industry's revenue was generated by streaming services, according to the Recording Industry Association of America, showing just how vital streaming has become to the industry.

"As excited as we are about our growth in 2016, our recovery is fragile and fraught with risk," wrote Cary Sherman, chairman and CEO of the RIAA in a March Medium post. "The marketplace is still evolving, and we’ve experienced unexpected turns too many times before."

Earlier this month — and a few months after Sherman's post — the industry received a fresh reminder of how the digital marketplace is still evolving.

Berlin-based SoundCloud axed a reported 40 percent of its workforce earlier this month, and is facing reports the company may be running out of money or heading toward an acquisition.

A SoundCloud spokesperson told NBC News in an email that the company is "fully funded into the fourth quarter."

Calling itself the "world's leading social sound platform," SoundCloud has distinguished itself by allowing users to not only listen — but to create and share their own music.

"We continue to be confident the changes made last week put us on our path to profitability and ensure SoundCloud’s long-term viability," the spokesperson said.

Related: Music and the Internet: It's Complicated

Chris Carey, founder and CEO of Media Insight Consulting, told NBC News that despite the layoffs, he believes SoundCloud can remain a "serious player" in the future.

"I think they are probably trying to change their margins rather than battening the hatches," Carey said. "I think SoundCloud is a viable proposition if they can get the economics right."

Two-Horse Race?

Meanwhile, the two giants snatching most of the market share — Apple Music and Spotify — continue to move forward in a position of strength.

Spotify reported more than 140 million active users as of June 2017, with 50 million of those as paid subscribers. Apple Music reported 27 million paid subscribers as of June.

Carey said he expects both services will continue to boom, especially as they lure new users with various free options.

"Apple is, 'try it and if you want it, pay,'" Carey said, referring to an offer letting first time users try the service free of charge for three months before having to pay for a $9.99 monthly membership.

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"Spotify's view is more long run," explained Carey. "If you like it and engage with it [the free, ad-supported product] for a meaningful length of time, you are more likely to subscribe and pay," he said. Spotify has also been known to run promotional deals for first-time users, including 30 days for free or 99 cents/month for the first three months.

"It is not a bad option to have," he said. "From Spotify's perspective, it builds their pipeline [of potential new subscribers]."

Record Growth

Streaming subscriptions as a whole doubled last year, bringing in $7.7 billion in revenue — an 11.4 percent gain from 2015 — marking its biggest growth spurt since 1998, according to RIAA data.

Even still, revenue from 2016 was just half of what it was in 1999, according to RIAA, accounting for the collapse of the CD market and the shift away from downloads.

With 22.6 million estimated subscribers in the United States last year, that leaves plenty of room for Apple Music, Spotify, Tidal, Pandora and Amazon Music to go after new subscribers.