Jay-Z And Samsung Mull Music Streaming Service, But Is The Market Too Crowded?

Jay-Z: He's so streamy. But he'll have competition.

Jay-Z and Samsung are close to creating a music streaming service, according to reports that surfaced earlier this week. As usual, it appears that the rapper will be well-compensated for his efforts: the venture would be part of a deal worth as much as $20 million.

Any service the two parties create would likely serve in part as a vehicle for promoting acts signed to Jay-Z’s Roc Nation, not to mention his own music. Samsung already has a subscription-based streaming service, Music Hub, and may be looking to retool or expand it, or launch something completely new and different with Jay-Z.

If so, they’d be entering an extremely crowded marketplace. They’d have to compete with established players like Pandora, Spotify, Rdio, Slacker and iHeartRadio, upstarts such as Songza and Grooveshark, and pending offerings from both Apple AAPL -0.39% and the founders of Beats by Dr. Dre. And there’s still that thing called terrestrial radio.

So is the streaming field already full? It’s an interesting question regardless of Jay-Z and Samsung’s plans, and the answer depends on whom you ask.

“The proliferation of today’s various streaming services, all with slightly differing ways to use them and vastly differing payment schemes, is like last generation’s home video format battle on steroids,” says entertainment attorney Bernie Resnick. “Eventually, one or two formats should become the industry standard, but determining which of the dozens currently available will ultimately succeed is as difficult as choosing a winning horse.”

Resnick believes the eventual winner will have more than just a slick front page or ad campaign. Much as Apple’s iTunes won the digital download war thanks to its clean design and intuitive user experience (at least in the early days), he emphasizes that victorious streaming services will need to be user-friendly and portable. And of course, they’ll need to avoid running afoul of the Digital Millennium Copyright Act.

The among of competition is not necessarily a bad thing for Jay-Z and Samsung, should they indeed attempt to launch a service of their own.

“I think consumers are bewildered at this point,” says Don Gorder, chair of the MusicBusiness/Management department at Berklee College of Music. “If they’re looking for that service that gives them the experience they want, they haven’t found it yet. Maybe that’s what Jay-Z is thinking.”

The ability to create a profitable, enjoyable service in many ways hinges on a company’s ability to negotiate licenses with record labels and music publishers that enable them to allow users to have a more interactive listening experience. That means selecting, skipping and repeating an unlimited number of songs—activities which aren’t allowed under the type of license that, say, Pandora uses.

One company with enough power to get something better: Apple.

“I think all bets are off until Apple comes out with its iRadio,” says Gorder. “They have the ecosystem, the critical mass of listeners which bumps up their ad rates, and they could actually be profitable … they have the financial means to negotiate licenses that give them more flexibility than the other services.”

In the meantime, the music streaming field continues to grow. It’ll be even easier for new services to launch thanks to developments like the platform announced yesterday by 7digital, which already powers Turntable.fm and others. The offering will allow partners to launch DMCA-compliant streaming services with access to 7digital’s catalog of over 23 million songs.

“The party has just begun,” says Vickie Naumann, president of 7digital North America. “We are really in the early days of digital service sustainability, so there is a lot of time and room for more innovation.”

“The market is far from saturated,” adds attorney Lori Landew of Fox Rothschild. “The more successful services will find ways to draw audiences in and to keep them with their service by delivering content [that's] easily understood, appealing and user-friendly.”

Indeed, some relatively new services have been able to establish a foothold by adding a tweak to the typical streaming experience. Songza, helmed by a quartet of Forbes 30 Under 30 list members, created an interface that simply asks users if they’d like to hear music for a particular occasion. Some options: “Working (No Lyrics),” “Boosting Your Energy” and “Hosting A Sexy Pool Party.”

That offers some hope for Jay-Z and Samsung—particularly given the rapper’s history.

“Jay-Z has demonstrated a particularly good ability to identify what audiences want or to create a demand for something that they didn’t even know they wanted,” says Landew. “And it seems likely that he will be able to use these instincts in designing a streaming service that will appeal to a variety of audiences.”

And even if Jay-Z’s Samsung venture proves to be a flop, $20 million would be a nice consolation prize.