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Being a Music Streaming Service Is No Big Deal -- Nor an Easy Win

NEW YORK ( TheStreet) -- Before investors start humming a happy streaming-music tune for Pandora (P), Spotify and music subscriptions services coming soon from Apple (AAPL), Google (GOOG) and even Beats by Dre, they may want to take a long, hard listen to Ben Drury.

"Online music is an exciting business," Drury explained to me over the phone from London. "But it's also a hard, low-margin business."

Investors should realize that Drury is not some Web music wannabe. He's co-founder and CEO of 7digital, one of the world's largest open-source music software providers. His 110-person shop, which he says has revenues in the "low tens of millions," provides so-called white-label streaming, download and other music services to Fortune 1,000 companies around the globe, including Samsung, BlackBerry (RIMM) and dozens of others.

"If Samsung wants a music service on their devices, for example," he said, "We help them manage the licensing and technical infrastructure."

What makes Drury a music investor rock star is his blessed candor about the hard-knuckle realities of getting paid in today's crowded and competitive online music world.

Drury points out that the days of artists having little control over their content, in the face of 90's-era sharing services such as Napster, are long over. Today's Digital Age musician is savvy, legally armed and keen to make up for lost royalties and publishing fees in the face of collapsing compact disc sales.

"Rights holders have monopolies on their catalogs and they work very hard to control the market," he said. He dramatically paints the firsthand picture of how effectively artists can maximize return by exploiting a newly dynamic online music business.

"iTunes used to be the dominant digital player," he said. Now Pandora, Spotify, Deezer, SiriusXM (SIRI) and many other companies each do music, although in subtly different ways that creates leverage for content creators.

"That makes the market very tricky, challenging and expensive," he said. He estimates that a $30 million bankroll is needed merely to cover the licensing fees for even a basic online music service.

"And for that you haven't even solved one technical problem," he said.
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