RIAA Stats Mean Music Industry Must Focus on Subscriptions

Streaming Music Apple Music

The Recording Industry Association of America released its annual report on the state of the U.S. music industry on Tuesday, and the headline was that streaming music generated more revenue for the industry than music downloads for the first time last year. However, digging into the streaming music numbers in more detail shows that it’s paid streaming that’s really driving the industry, and that’s where the labels should be putting more of their attention.

The RIAA reports three categories of streaming revenue – SoundExchange distributions (which is mostly royalty payments from Pandora, SiriusXM and other similar services); paid subscriptions like Apple Music, Tidal and paid Spotify; and ad-supported streaming like free Spotify and YouTube. If you break down the revenue from these services, it becomes obvious that it’s paid streaming that’s driving the overall revenue growth for the industry – the chart below shows the percentage of total streaming revenue from each of these three categories:

In fact, paid streaming made up just over half of total streaming revenues for the first time in 2015, at 51%, while SoundExchange distribution revenue dropped to just a third of total streaming revenue. It’s very likely that the launch of Apple Music in the second half of 2015 as well as the continued growth of Spotify’s paid subscriber base were the major contributors to the rapid growth in 2015.

The other thing that’s worth considering is the amount of money generated per user. Based on subscriber and revenue numbers in the RIAA report, revenue per paid music subscriber has bounced around between $100 and $120 annually per subscriber over the last four years, reflecting the typical $10 per month subscription price of these services.


Streaming Music

Streaming Overtakes Downloads, CDs As Top Music Revenue Driver

The report doesn’t provide an equivalent number for the ad-supported music streaming services, but based on other data, a little over 100 million people streamed music online on a regular basis in 2015. That equates to an annual revenue per subscriber of just $4 for ad-supported streaming. As a result, even though there are over 10 times as many ad-supported streamers in the U.S. as paid music subscribers, ad-supported streaming generates only around a third as much revenue. For ad-supported streaming to generate as much revenue as paid streaming does today, it would have to have three times as many users, which would be more than the entire adult population of the U.S. For all the attention paid to YouTube, Vevo, the free version of Spotify, and all the rest, the music industry generated almost twice as much revenue from ringtones and other mobile music sales in 2009 than it did from ad-supported streaming in 2015.

As such, it’s clear that either royalty rates from ad-supported streaming need to rise dramatically (which seems very unlikely), or the industry needs to focus on getting people to pay to stream music if it’s to continue this growth in streaming over the next few years as downloads continue to decline.

Jan Dawson is the founder and chief analyst at Jackdaw Research, an advisory firm which covers the consumer technology market.

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    1. Dan says:

      Dont Gouge consumers for subscriptions…have different levels…IE: one subscription only for computer listening…………..another subscription for music player download and computer listening………at reasonable price not 25 dollars for a CD for one song…..if you dont look at the options you know it will go underground and sharing will continue………

      • Alex Rivers says:

        So what you’re saying is that unlimited amounts of music listenable isn’t worth 25 dollars to you? Cause that’s pretty much bull. Songs typically go for 99 cents a piece when you download them, so that means you’re getting waaaaay more then what you paid for.

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