Music Industry’s Success in Streaming Hampers Download Income

spotify-Streaming Killing MP3 downloads
Chuck Kerr for Variety

Streaming has been the music industry’s savior over the past couple of years, helping it return to growth after a period of stagnation. However, whereas streaming once provided incremental revenue, it’s now eating into download income at a dramatic rate, which threatens to undermine industry growth.

Streaming revenue continues to grow rapidly as a percentage of overall recorded-music revenue and especially as a component of digital revenue for the three major music labels. It represents 30%-40% of recorded-music revenue, up from 20% two years ago. And during that same period it went from being a minority portion of digital income to the large majority.

That rise in streaming revenue has coincided with the strongest period of growth the major music labels have seen in years, with annual revenues increasing from $13.3 billion to $15.4 billion from 2014 to 2016. Even though the labels have complained about the small payouts they receive from ad-supported platforms like YouTube and the free tier of Spotify, that streaming revenue has been key to growth.

sources: Company Reporting, jackdaw research Analysis

But income from the early years of the streaming boom was somewhat incremental, coming at least in part from those who hadn’t paid for music previously and were now generating some revenue through advertising on websites.

Moreover, streaming growth had driven overall digital revenue to the extent that it significantly offset declines in physical sales. But now, for two of the three labels, download revenue is shrinking so fast that overall digital revenue is growing at a far slower rate.

Warner is seeing slightly better trends overall, partly helped by a strong year in physical sales, and also a slightly slower decline in downloads. But at Sony and Universal, such declines are accelerating — so much so that overall revenue growth for the industry has slowed quite a bit, and margins dipped at the end of 2016.

sources: Company Reporting, jackdaw research Analysis

The big question is whether streaming can outstrip the declines it’s causing in download revenues, which are now falling at a faster percentage rate than physical revenue at all three labels. In fact, due to a particularly poor fourth quarter for Sony relative to a year earlier, we saw declines in physical and download revenue outweigh the growth in streaming income for the three labels combined in the quarter.

This may be an isolated occurrence — but it’s possible that it will become something more like the new normal in the near future, if downloads continue to fall off a cliff while physical sales continue their steady decline.

Streaming may therefore no longer be the boon it once was, and may only be enough to temper another decline in the industry’s fortunes, at least until it gets downloads out of its system.

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

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  1. One, it’s been a quiet year in music since Adele and Taylor Swift have cycled through their albums from 2 or 3 years ago.

    Two, VEVO on YouTube keeps getting all the views for all music released, so people don’t need to download if they’re not streaming.

    And three, all these factors I’ve pointed out with the problems streaming caused are reason why we didn’t have a song of the summer last year.

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