Newsflash: music consumption is still in flux. In 2014, though, RIAA claims that “industry revenue composition was more balanced between physical, digital download, and streaming sources… than ever before.” The trends paint a slightly different picture: revenue from streaming is up while revenue from digital downloads reached a peak in 2012 and is now in decline. Physical sales, of course, have been on the decline for a long time, with vinyl record sales being the unusual exception.
Now, while these trends are nothing new, it still seems that the industry hasn’t figured streaming out yet. Or rather, it hasn’t figured out a business model that will keep all four parties, artists, labels, distributors, and customers, happy. When I say “happy” I mean that the record companies would like to go back to revenues of above $18B annually (peak in 1999, see below) and consumers would like to “spend somewhere around $45–$65 per year on music.” Distributors, at this point, just want to be profitable and artists would like to see more than fractions of a cent per stream (labels see about $0.005 per stream from Spotify, artists get a part of that.)
So let’s take a look at some interesting stats from this week to see if and how trends are changing:
- Spotify, the leading streaming service in 2014 worldwide, is still not profitable. From a report released last week it turns out that Spotify had “15 million paying users and 45 million free users at the end of 2014.” Also for 2014, “Spotify reported $1.3 billion in revenue, up 45 percent from the previous year. At the same time, the company reported net losses of $197 million, up from a loss of about $68 million in 2013.” Ouch. Also “subscriptions make up 91 percent of the company’s revenue, with the rest coming from ads.”
- Spotify and streaming services are growing. Fast. In numbers released this week for the first quarter of 2015 “Spotify claims to have represented one out of every ten dollars record labels earned.” Since “all subscription services accounted for 10.2 percent of U.S. recorded music revenue in 2014. If Spotify had a 10-percent share in the first quarter, it’s safe to say the overall subscription share is well above the 10.2 percent registered last year.”
- Rdio announced a new service yesterday called Rdio Select, which will include two components. The first is streaming radio stations, that offer a choice of genre and style but not specific songs, without ads, and with the ability to skip ahead. The second is daily access to 25 songs that users can choose and replace some, or all, every day. Says Anthony Bay, Rdio’s CEO, “25 songs…is more than most users download in a day, so we feel it’s enough.” He added that the limited number “allows us to license the product in a way that we can keep the price at $4 a month” without losing money” [emphasis mine.]
What can we say when looking at these new numbers:
- Consumers like streaming and streaming services are growing.
- Consumers have not found their happy spot in terms of paying for music. Most services cost $120 per year which is around double what they’d like to spend. Tidal, at $240 per year is trying to move a mountain.
- Based on the above two points, I really think that Rdio is on to something with a $48 per year service. The “all you can listen to” model has never worked in music and I don’t understand why labels and streaming services expect it to work in the current environment. Maybe 25 songs a day is a good number, maybe not. Maybe the mix of “on-demand” songs and the ad-less radio stations are the best of both worlds for consumers, maybe not. But at least Rdio is experimenting with a new product mix for music, and that’s always welcome.