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Online music: Recording industry embraces streaming

Once treated like kryptonite by the music industry, digital distribution is now seen by musicians—and investors—as a welcome opportunity to reach millions of listeners.

Global digital music is now a $5.8 billion market, up almost 10 percent in 2012. The music subscription services sector gained 62 percent in value in 2013 from the previous year, according to a report from IFPI, a recording industry trade organization.

"I believe in on-demand streaming," said Armin van Buuren, recently voted the world's top DJ by DJMag. "Why is the business model so brilliant? With Spotify and a lot of other streaming media, every time you play a track, the artist gets paid for it."

(Read more: Radiohead's Yorke: Spotify a music industry creep)

Companies like SoundCloud, Spotify and Songza are capitalizing on the digital phenomenon. SoundCloud alone reaches more than 200 million unique listeners a month and has 40 million registered users, an reach that lends itself well to advertisers.

DJ Armin van Buuren
Source: Rukes.com
DJ Armin van Buuren

SoundCloud Founder and Chief Technology Officer Eric Wahflorss told CNBC that it's not just the digital era and technology that have allowed for the lucrative landscape, but also the social literacy of the general public.

"The fact that everyone now has a smart phone in their pocket is huge. The fact that there are a billion people on Facebook now and everybody can kind of start taking some of those things for granted...it helps a lot because the literacy of the general public is there."

(Read more: Pandora to fend off Apple, Google: Mark Mahaney)

Songza Founder and CEO Elias Roman said the key is recognizing that music is no longer the product. Songza reaches 4.8 monthly active users that spend about 70 million minutes each day listening to music on the application

"Recorded music is not actually a product; it's a driver of something, [that is] the premise that Songza and other music services are based on," he said. "I think the irony of the future of the music industry is it will be better once we as an industry realize that music is not a product."

—By CNBC's Valerie Patriarca. Follow her on Twitter: @PatriarcaCNBC

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