After a long and sharp decline in revenues over the 2000’s, the music industry has finally begun to rebound thanks to the introduction of streaming. Led by paid subscription music services such as Spotify and Apple Music, the music industry has seen an 11.4% growth to $7.7 billion dollars over the past year. Streaming revenue has grown from capturing only 9% of music revenue in 2011, to over 50% of revenue in 2016.
Within the larger category of streaming services, paid subscription programs have grown 114% over the last year, and now account for ⅓ of music market revenue. Other digital music platforms such as radio streaming services (e.g Sirius XM) and on-demand streaming services (e.g Youtube), while overshadowed by the growth of subscription services, have still exhibited growth. Still, because of the popularity of Spotify, online radio services such as Pandora have scrambled to introduce their own subscription services as to attract demand.
What does the growth of streaming mean for other music platforms? Digital download revenue from sites such as the iTunes have dropped by 22% this year. Physical CD revenue is also down 22%, but surprisingly vinyl sales are up 4% (I guess they are trendy).
There are reasons, however, to be wary of the growth of streaming. Streaming is a very low cost model of music production, and because of the larger profit margins within the industry, artists have felt entitled to larger royalties. While some major music labels have increased their royalty payments to artists, artists still only see 19% of label revenue. This poor ratio may jeopardize artist-producer relations and deter artists from giving subscription services access to their music in the future. In addition, Spotify has begun to show signs of ditching their “freemium” model. Many of Spotify’s original 50 million paid subscribers began listening to Spotify for free (“ad-supported”). Recently Spotify has restricted the release of new albums to paid subscribers. It is yet to be known if this shift from freemium may deter future subscribers.
It is also important to remember that music revenue is still half of what it was in the late 1990’s. The development of streaming has improved music industry revenue by large amounts; will streaming be able to return the music industry back to its old strength, or is it just a phase? Will there be future technological improvements that continue to attract consumers and increase demand for music?