Digital music platforms like Spotify and Pandora are hugely popular, but are losing billions of dollars in revenue every year. Why can't anyone figure out how to make money off music anymore?

Digital music platforms like Spotify and Pandora are hugely popular, but are losing billions of dollars in revenue every year. Why can't anyone figure out how to make money off music anymore?

The day that Shawn Fanning unleashed Napster onto a music-hungry society in 2001, and provided millions of people to access to free music from a computer in his dorm room, was the day that music ceased to be a profitable artistic venture.

When labels were slow to respond to sites like Napster, sales plummeted across the music industry, and businesses and artists like had to struggle to adapt to the new model of music consumption.

It helped a little when Steve Jobs introduced the iTunes Music Store as the first place where people could buy licensed downloads easily.  Music sales started to recover a little — to the point where iTunes overtook Walmart and Target as the No. 1 place where consumers bought music, but that didn't last long.

In today's post-2004 Apple boom, iTunes' reign of power is over thanks to streaming services like Spotify and Pandora. These little slices of consumer heaven allow you to listen for free, or at least pay a nominally small monthly fee to listen to whatever you want. No bullshit-y $0.99 cent per-song charge, no maddeningly slow download times. I

And while this is the best thing since lubricated condoms for the listener, it's shit for the artist. Musicians make laughable royalties in the digital music arena, where online success can be a mixed bag. From songwriters and performers, to music services like Pandora and Spotify that had hoped to make the transition from physical to digital music with a robust music economy, no one's making shit.

Take Pandora, the nation's most popular free music-streaming service. Given their massive popularity, you'd think they'd be richer than god. But nope; although it continues to gain more listeners each year, it continually loses money each quarter as it hemorrhages out royalty payment charges. In its fourth fiscal quarter, Pandora reported a net loss of $30.4 million despite a 44% jump in revenue of $920.8 million. Still, a recored 81.5 million people listen to it.

But the company isn't the only one losing money from the relationship. Here's rapper/songwriter Aloe Blacc's experience with Pandora, which he wrote about in an op-ed in Wired.

Consider the fact that it takes roughly one million spins on Pandora for a songwriter to earn just $90. Avicii’s release “Wake Me Up!” that I co-wrote and sing, for example, was the most streamed song in Spotify history and the 13th most played song on Pandora since its release in 2013, with more than 168 million streams in the US.  And yet, that yielded only $12,359 in Pandora domestic royalties— which were then split among three songwriters and our publishers. In return for co-writing a major hit song, I’ve earned less than $4,000 domestically from the largest digital music service.

And then there's Spotify, the world's most popular paid music service.  With 15 million subscribers, it outdoes a slew of similar services like Rdio, Rhapsody and Beats Music. Still, Spotify lost $80 million on revenues of about $1 billion in its most recent filing, for 2013. Did that have anything to do with Taylor Swift yanking her jock jams from the site in response to a royalty dispute? Uh … yeah.

To make legitimate money on Spotify, you have to have millions … and we mean millions … of song plays. Artist royalties on Spotify range from $0.0006 to $0.0084 per stream, which can bring annual revenues of over $100K, but that's only if you're a Katy Perry or an Eminem. For most artists, those royalties don't even pay the rent of their 300 sq. foot renovated Williamsburg lofts.

However, Beats could soon challenge Spotify and Pandora in terms of popularity, but it's unclear at what cost to artists.  After being purchased by Apple for $3 billion last year, it's about to be released as a new streaming service run and regulated by Apple themselves. 

Google's digital music subscription service could also change the landscape. YouTube just launched a beta version of MusicKey, which is huge because YouTube is by far the No.1 place where most young people discover and listen to music.  If Google decided to push MusicKey hard, it could have a dominant player on its hands.

But still, while everything on YouTube is free as air for the listener … YouTube still has to dole out per-play royalties. And although they won't reveal how much, a "source" told Rolling Stone it's between 60 cents and $2 for every 1,000 plays. That's a lot of loot to be giving out when you're both free and the primary place people go to find new music.

So, what' the moral of the story? Follow your disapproving Dad's advice and don't be a musician unless you're going to be a Rihanna or an Ed Sheeran, because even music industry giants aren't making money right now. That, or get comfy with Top Ramen because that MSG-covered food garbage is what's gonna keep you alive and able to deal with your triangle player's diva requests throughout your third LP.