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Music Industry Breaks Out Of $7 Billion Rut As Streaming Takes Over, Yet YouTube Concerns Remain – Forbes
The RIAA released its annual U.S. recorded music sales figures for 2016 this past Thursday. Industry revenue had been flat at around $7 billion since 2010, but the good news is that it’s finally broken out of that rut: total revenues are now $7.65 billion, up 11% from 2015 and beating my estimates from last September. (Of course, that’s still far below the industry’s peak of almost $15 billion in 1999.) The number one source of growth by far: on-demand streaming from services like YouTube, Spotify, Apple Music, and Rhapsody.
2016 represented yet another in a series of milestones in the music industry’s transition to digital. Digital revenues overtook revenues from physical products (mainly CDs) in 2011, but streaming accounted for only 18% of digital revenues. Download sales exceeded CD sales in 2012. By 2015, streaming had drawn even with downloads and together accounted for more than two-thirds of total industry revenue.
Last year, streaming by itself became the biggest source of recorded music revenue, accounting for just over half (51%) of total industry revenues. Most of that growth came from on-demand streaming, whose revenues almost doubled from 2015, while digital radio-type services (such as Pandora, Sirius XM satellite radio, and iHeartRadio) kept pace with overall industry growth.
Meanwhile, digital downloads went into free-fall, declining 22% from 2015. On the physical product side, CDs also accelerated their decline and now account for only 15% of industry revenues. The resurgence of vinyl slowed, with only 3% growth in that area; vinyl (mostly LPs) seems to be topping out at 6% of total industry revenues.
On-demand streaming services have done a remarkable job in building paid subscribership. Spotify in particular has gotten its “conversion funnel” down to a science, with paying subscribers now numbering 50 million and accounting for an astounding 40% of overall registered users (worldwide). That’s more than triple the percentage from just after Spotify launched in the U.S. in 2011, and it exceeds some of the optimistic predictions of that time. Apple Music’s all-paid subscribership has exceeded 20 million.
The RIAA has added two categories to its revenue tallies. One is “Limited Tier Paid Subscription,” which covers paid-subscription services with features and/or music catalogs that are more limited than the full on-demand services. These include Pandora Plus (personalized digital radio with no ads, unlimited skips, and repeats), Slacker Plus (similar), and Amazon Prime Music (the limited-catalog on-demand service that Amazon offered before launching the full on-demand Amazon Music service last October).