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The music industry is on the rebound thanks to paid streaming

The music industry is on the rebound thanks to paid streaming


But at what cost?

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The music industry is growing once again thanks to paid streaming services. This year, the industry is on target to bring in the most revenue since the mid-2000s. If the numbers hold, 2016 will be the first time the music industry has seen its revenue increase year over year since the late '90s.

In the first half of 2016, the industry pulled in over $1 billion from paid streaming subscriptions. That’s basically already matching the $1.2 billion in revenue the industry collected from paid streaming in all of 2015, according to a midyear report released by the Recording Industry Association of America (RIAA).

Paid subscriptions have grown to 18.3 million in the first half of 2016, doubling the total from this time last year, and up from 13 million in December. That growth has helped offset the continued decline of physical media — including vinyl, which was an industry favorite last year but is down 9 percent — and is just shy of closing the fiscal gap with digital downloads, with single and album sales topping paid streaming revenue by some $60,000.

RIAA 2016 mid-year report

It’s clear that paid streaming subscriptions are rapidly becoming the future of the music industry, and the segment's rapid growth is exceeding what many in the industry have expected. But how exactly is the music industry getting people to convert from free streaming services to paid ones? Micah Singleton and Ben Popper sat down to discuss the shift.

Ben Popper: To me this feels like the music industry is succeeding despite itself. They have not stopped demonizing services like YouTube and Spotify in the press, and yet those same companies are the ones fueling the one bright spot in an otherwise shrinking business. They also had a big boost from Apple, which has the cash to subsidize record labels, both by paying artists for exclusives and by moving away from free, ad-supported streaming. I don’t think either of those trends are good for consumers, who have less choice when it comes to what they can listen to and how they pay for it.

Micah Singleton: I’d argue that Apple has been the one leading the charge for paid streaming, given the huge marketing push the company has put behind Apple Music and the artists who have done exclusive deals with the service, like Drake and Chance The Rapper. And yes, the lineup of exclusives from Apple Music and Tidal haven’t been great for consumers who just want to pay someone $10 a month to listen to everything, but I don’t think this is the permanent future of the music industry. It seems like Apple and Tidal to a lesser extent are just using these exclusives to hopefully attain some sort of positive revenue flow. Once that happens they will taper off, but that time frame is still unclear.

I would prefer Apple and Tidal succeed on the strength of their software

As for Spotify, it seems that the ad-supported services have been a great launching pad to move users up to the paid tier. Spotify touts a 25 percent conversion rate. (YouTube hasn’t shared subscriber totals for its premium Red service as of yet.) Spotify is still the biggest music subscription service in the world with 40 million paying subscribers. Has the heated competition with Apple, and to a lesser extent Tidal, pushed all of the services to work a bit harder on getting people to pay for music? And is that necessarily a bad thing for consumers? Music can’t stay free forever.

Ben: I would be more comfortable with music moving away from the ad-supported model if there was more flexibility around the pricing. Back in the go-go '90s when the industry was at its peak, the average consumer spent something like $50 a year on albums. So why do we expect today’s listener to shell out $120 over 12 months for streaming? Free streaming is the gateway to paying customers, as Spotify has shown. Tiered service pricing would only increase that trend.

It’s great to have competition in the market, but I would prefer Apple and Tidal succeed on the strength of their software — the product and experience they deliver — and not on exclusives that keep certain artists or albums only on one platform for weeks or even months at a time. Spotify has been leveraging artificial intelligence and machine learning to offer users personalized playlists, and the results were so good, products like Discover Weekly are now the centerpiece of their advertising campaign.

RIAA 2016 mid-year report

As for streaming services signing up artists themselves, and cutting out the label as a middleman, I want to say amen. The less fat there is between the artist and the consumer, the more money flowing into the pockets of the people making the music, right? That is, at least until artists start to see Spotify and Apple as the new gatekeepers and rent-seekers.

Of course, Apple signing artists isn’t going to make the RIAA’s members very happy, is it?

Micah: Yeah they aren’t happy about that, from what I’ve been told. It has always been the music label’s biggest fear that artists could skip out entirely on the label structure and head straight to the distribution point to deliver their music. To be clear, most artists can’t do this successfully, but the ones that can — the superstars — are the artists who bring in the majority of revenue for the labels, which puts them in a precarious situation.

I don’t think the labels are going anywhere just yet

Sure, the labels could and will get mad at Apple for working directly with artists, like they did with Frank Ocean on his last album Blonde. (The release deeply angered Ocean’s former label Universal Music Group and caused them to ban exclusives for the foreseeable future.) But there’s no getting around Apple given the amount of money they’re spending to secure artists and marketing. Not to mention iTunes is still a thing the music industry needs to exist.

But I don’t think the labels are going anywhere just yet. It doesn’t seem like Apple wants to do anything to develop artists — it is far more interested in established artists that it can push to the next level with a strong marketing plan, while simultaneously using them to grab more paying subscribers. The question is, can the labels survive without their superstars if they decide to go directly to the fans? I don’t think they want to find out the answer.