US music industry sees ongoing consumption growth in 2018, driven almost entirely by streaming
Importantly, for artists and businesses alike, paid streaming is on the rise
- Music industry tracker BuzzAngle has released its 2018 year-end report with insights into the US market
- Album consumption (sales & streams) was up 16% YoY, surpassing the previous year’s 13% YoY growth. Song consumption was up 27% YoY
- Unsurprisingly, digital streaming brought about the lion’s share of consumption growth (+42% YoY) . This was tempered by continuing declines in sales for both albums (-18% YoY) and songs (-29% YoY)
- Paid streaming was responsible for most of the growth, rising 50% in Q4 alone compared to last year, while ad-supported streaming grew 18%
- Hip Hop continues to assert its dominance, representing 22% of total album consumption and 25% of total song consumption, followed by Pop and Rock
It might be hard to imagine, but just five years ago, the music industry was suffering from an ongoing downward spiral (see below).
This was due to a plethora of reasons, including the growing plague of music piracy via peer-to-peer (P2P) sharing applications like Napster, Kazaa and Limewire. While most music companies continued to bash digital channels and hold on to whatever remaining bastions of traditional music that they could, Spotify’s founder Daniel Ek began to think of ways to reinvent music consumption.
In this excellent podcast with LinkedIn co-founder Reid Hoffman, Ek walks through his challenge of convincing people to pay for music through a service, rather than pirating it for free. I’ll let you listen in to the details but, obviously, he succeeded. Spotify, along with a host of other streaming services, have begun to renew a dwindling industry, as seen in the growing light-blue bar in the chart above.
One of the these services’ biggest challenges has been aligning with the gatekeepers (traditional record labels). If you’re unfamiliar, an extremely simplified way to look at how the music industry operates is as follows:
- Artist X independently creates demo music, develops a bit of a public following and hopefully creates a moderate hit record in a small market
- Record labels’ A&Rs (ie. talent scouts) get wind of Artist X’s success and compete to provide them a record deal
- Upon signing the deal, Artist X gets access to the label’s resources but suffers some tradeoffs (see below)
4. Now the label “owns” Artist X’s music and has the freedom to do whatever they want with it (eg. use it in car commercials) and get the majority of the associated revenue (see below)
5. Artist X will need to begin to seek alternative revenue sources to develop a sustainable income (eg. touring, merchandise, other investments)
So now let’s look at the evolving dynamics between streaming services and record labels. Labels once hated digital services, lumping them together with pirated content platforms. But streaming services needed access to record labels’ music catalogues with all of their hits because, otherwise, they’d have no music to provide to users. So the services needed to come up with new, enticing ways to recruit the labels.
After a few years of back and forth, what we now see is that labels have begun to soften their disdain for streaming services because they get some healthy licencing revenue to offset declining album sales, as well as a stake in the services themselves! This has allowed the concentration of power to remain somewhat in the labels’ court while giving the user access to a convenient and robust service, and allowing streaming companies to grow.
Of course, many companies and artists are pursuing alternative, and more equitable, strategies. Independent artists choose to not align with major labels and use the internet to develop a following on their own. There have also been rumours of companies like Spotify and Apple working directly with artists to cut out the middlemen. Who knows if 1) they have the resources to help an artist scale like a record label and 2) if this will cannibalize existing label relationships.
But, for now, streaming services and labels are cooperating.
Streaming business models tend to fall under the following categories:
- Free, ad-supported with minimal features (eg. YouTube, Spotify’s free tier)
- Paid subscriptions (eg. Tidal, Spotify Premium, Apple Music)
While the first option has prevailed for quite some time (people love free stuff), it’s been a beacon of hope that BuzzAngle’s report is now showing healthy growth in the premium, paid tier. This is largely what will drive the resurgence in the industry, for now.
While this translates nicely for companies, artists are getting an even shorter end of the stick. The latter didn’t make much on albums to begin with, and now they will make far less through streaming (see below).
This concept of the artist value gap is something that’s been facing widespread backlash for quite some time. While many artists, like Taylor Swift and Jay-Z, have led the race to giving artists more control and financial sustainability, it’s likely going to take some more time for this to materialize. Naturally, big companies will first work to revitalize their revenue streams in today’s music industry 2.0 and, hopefully as this trajectory pans out, artists will see the same.