IT was an eventful summer in the business of streaming music.
Taylor Swift and other artists attacked YouTube over rampant free streaming. Frank Ocean and Katy Perry cut exclusive deals with Apple Music, to the dismay of executives at Spotify, a Swedish rival. Behind the scenes Pandora, a radio-like service, and Amazon, the e-commerce giant, stepped up their efforts to take on Apple and Spotify. Then in September Spotify began talks to buy Soundcloud, another streaming firm.
All this drama obscures two emerging realities. The first is that subscription streaming is now the future of the music business. The industry suffered a catastrophic collapse in sales after 1999 before beginning to recover last year. Selling music to own, whether via iTunes downloads or via CDs, still is a declining business globally.
Nonetheless, American record labels and music publishers are on track for a second consecutive year of growth. Recent reports on sales of music from Europe, where some countries are experiencing double-digit increases in revenues, suggest that the recovery also will continue in other parts of the world.
Most of that rebound is due to growth in subscription-streaming revenues. In the first half of 2016, subscription streaming in America reached a retail value of $1 billion, up by more than $500 million in only one year, putting it on a par with digital downloads. Retail revenues from radio-like services such as Pandora, and from ad-supported, on-demand streaming such as YouTube and Spotify’s free service, are faring much less well—they grew in America by less than a tenth, to $600 million.
The second reality is that, since Spotify and Apple have close to two-thirds of the world’s nearly 90 million paying subscribers to streaming services, they are the ones shaping the future.
If Spotify acquires Soundcloud, a mostly free service that claims to have 175 million monthly listeners, its position would be stronger still. Last month Daniel Ek, the co-founder and chief executive of Spotify, tweeted that his company had surpassed 40 million subscribers—adding 20 million since June 2015, as many as it had acquired in its first seven years in operation.
Spotify reached this milestone despite intense competition from Apple Music, which has won 17 million subscribers since its start in 2015. The smaller company hands over close to 70 percent of its revenues to the music business in royalties, an industry executive said.
Peel back the figures and the industry’s reliance on Spotify and Apple’s paid services becomes even clearer. The number of subscribers to all others combined shrank slightly—from 31 million to 30.5 million—in the year after Apple launched its service, according to Midia Research, a London-based consultancy. Artist-backed services such as Tidal, which is co-owned by Jay Z and other performers, and which claims 4.2 million subscribers, aren’t getting anywhere.
The change in attitude is striking. Once the bête noir of the industry for not paying recording labels enough in royalties, Spotify is fast becoming their most reliable moneymaker. The company recently disclosed that it has paid $5 billion to the music industry to date. Apple, once vilified for decimating album sales with iTunes, is the second-biggest earner.
If the music industry is singing a new and catchier tune, it has some erstwhile enemies to thank.
© 2016 Economist Newspaper Ltd., London (October 8). All rights reserved. Reprinted with permission.
Image credits: Damon Winter/The New York Times, Doug Mills/The New York Times