Streaming services give the music industry a second wind
Posted April 30, 2016
The music industry just hit a milestone that may signal the end of an era for traditional music sales and record stores.
According to the IFPI Global Music Report 2016, for the first time in history, digital music revenues (from downloads and streaming) outpaced physical music revenues (purchases of CDs or vinyl records) in 2015.
The change marks a positive shift for an industry that has been through a long, rough period. Overall music revenues went up by 3.2 percent last year, the first uptick the industry has seen since revenues began a steady decline in 1998. Physical music revenues continue to decline with a 10.8 percent decrease in units sold in 2015.
The first two decades of the digital age have been hard for the recording industry, with peer-to-peer file sharing hurting its profits. But piracy crackdowns and digital innovations may finally be enough to halt the industry's decline.
Music-streaming services have played an essential role in the industry's rebound. Unlike traditional music purchases, streaming services charge customers a monthly flat rate for unlimited access to their music libraries. Some services, like Spotify and Apple Music, allow users to access content for free with ads or limited features.
According to the Recording Industry Association of America, paid streaming subscriptions saw a massive 40 percent increase in 2015 alone. Streaming revenues even surpassed digital downloads, accounting for 34.3 percent of total U.S. music revenues.
Some artists are paying attention to capitalize on a rapidly changing market. Last week, Beyoncé released her new album "Lemonade" exclusively to the music-streaming service Tidal, coming about a year after she released an eponymous album as an iTunes download exclusive.
The problem is that while streaming services' revenues are growing enormously, so are their costs.
Swedish streaming service Spotify was a pioneer in the realm of music streaming services, but now 10 years after its launch it has yet to generate a profit.
Spotify has 30 million paid subscribers — more than any other streaming service, including competitors Apple Music (11 million) and Tidal (3 million) — and according to Statista, it generated over $1 billion in revenue in 2014, but still not enough to offset its costs. Spotify had a net loss of $162 million in 2014.
The present challenge for Spotify and other streaming services is to make their services sustainable while paying artists adequately and keeping subscription prices affordable.
Many artists have complained about how little Spotify pays them. On average, Spotify pays $0.006 per song per listen to the song's "rights holders" (usually record labels), meaning that the artists themselves are paid even less.
One artist was paid only $5,679 for a song that was played on Spotify 178 million times, reports Digital Music News.
"That’s as big a song as a songwriter can have in their career and No. 1 in 78 countries," said Kevin Kadish, a key writer for Meghan Trainor's hit single "All About that Bass."
“But you’re making $5,600. How do you feed your family?”
But with high annual losses, Spotify is not in a position to raise the price of its subscriptions just yet. It is still in the phase of earning new customers through its free ad-supported service and gaining customer loyalty.
Spotify reminds artists that its paid service generates twice as much revenue per customer ($9.99 per month in the U.S.) than the national average monthly music spending (less than $5 per month).
"For every new Spotify user," Spotify says, "we increase the amount of revenue we receive and, in turn, the amount of royalties we pay out to the industry.