The State Of Music: Streaming Becomes The New Standard

Spotify co-founder and CEO Daniel Ek is having a record year.

Many of you are familiar with streaming services such as Spotify, Apple Music, and TIDAL but do you know the impact they’ve had on the music industry since their introduction? In this helpful article we’ll:

  1. Provide relevant data to help explain the impact of streaming on the music business.
  2. The history being created.
  3. The future of music streaming.

The Data:

The average American spends over four hours a day listening to music. Increasingly, many users are listening to their music solely on digital streaming services like Spotify and TIDAL. According to Nielsen, on-demand audio streaming has now grown to 38% of total audio consumption, making streaming the most dominant way users get their music. Regarding units, digital continues to be the leading sales platform, but digital sales on platforms like iTunes are declining much more rapidly than physical sales as tech-savvy consumers move onto streaming platforms. Users are downloading music and purchasing physical copies much less than they are streaming, and this represents a significant shift in the music business. In 2016, the industry noted a 76% increase in streaming compared to the year prior, marking a turning point. Streaming resulted in over 250 billion plays last year, and streaming accounted for 51% of the U.S. music industry’s total revenue, helping the industry experience the most growth they’ve seen since 1998. Compared to the year before, total revenues from streaming platforms shot up 68% to $3.9 billion. This increase has led to some declaring that streaming is simply too big to fail.

Chart of music streaming revenue in the United States.

Kanye West created history in 2016 with his album, The Life Of Pablo.

The History:

It’s not a shock that users prefer to have access to music on-demand and on any platform, and many of the largest artists have used this to their advantage. Kanye West recently made music history by becoming the first artist to go platinum from streams alone, when his album The Life of Pablo was streamed over 3 billion times since its release. 2016 was also a year for streaming history thanks to Chance The Rapper. Chance’s critically-acclaimed album, Coloring Book, was the first ever streaming-only album to receive a GRAMMY nomination, another indication of the dominance streaming has in the industry. With most of the audience on streaming platforms, artists don’t have a choice as to whether they should put their music on these platforms. While it can seem confusing, artists are embracing the plethora of streaming services in the market. Many are choosing to upload their catalogs on all platforms, while others are choosing to focus on being exclusive to one platform. JAY Z recently took most of his catalog off Spotify, to drive users to TIDAL, the music streaming service he owns. The competition remains fierce for the streaming platforms, as they duel over new subscribers. Streaming platforms live and die by their subscriber numbers, and will employ a broad range of incentives to entice users. Some offer the lure of exclusive titles only on their platform, like Beyonce’s last album, Lemonade, which streamed exclusively on TIDAL, while others depend on the strength of their catalogs to win users over.

The Future:

Streaming has become the most popular way users get their music, and even Universal Music Group, one of the world’s largest record labels, is making concessions to streaming companies, which made up 43% of their revenue ($1.6bn) in 2016. After two years of tough negotiation, UMG signed a landmark, multi-year licensing deal with Spotify, lowering the amount of revenue share UMG receives, in return for Spotify agreeing to let Universal set subscriber growth targets in exchange for reduced payment. Spotify always had a policy where both free and premium subscribers could listen to new albums when they released. Spotify will adopt a new policy called “Windowing,” placing certain music releases exclusively on its premium-only tier, shutting out the free users. Artists like Taylor Swift and Adele have made noise about Spotify, deciding to not let their new albums stream on the service due to their free tier. This new deal will undoubtedly make the bigger artists happy, and also Spotify as well. Streaming is here to stay, and the new normal is digital. With the ball squarely in their court, Spotify is looking to capitalize off of their recent success by taking the company public. Worth over $8.5 billion, this initial public offering could be one of the largest of 2017. To understand the future of music, we will have to keep our eyes trained not only on the major labels but the streaming services which support them.