The US music industry recorded a small increase in revenue in 2015, driven by growth from sales of digital music. The music industry is now a digital business, deriving more than 70% of its revenues from digital formats, according to Recording Industry Association of America (RIAA) chairman and CEO Cary Sherman. But taking a close look at the numbers reveals that when it comes to digital services not all categories are poised for equal growth.
The big reveal from RIAA’s data is that the music industry made more money from streaming than from CDs or digital downloads for the first time last year: Streaming accounted for 34.3% of all US music industry revenue in 2015, while digital downloads contributed 34% and physical disc sales, 28.8%.
Total music-industry retail sales for the year reached $7.02 billion, up slightly from $6.95 billion in 2014, according to RIAA data cited by Billboard. Overall digital revenue reached $4.8 billion. However, with streaming revenues removed, digital revenues fell 10% to $2.32 billion. Such figures prove that streaming, not downloads, is the top driver of music revenue growth.
Digging even further, we can see that not all growth within the streaming category is equal. It’s paid subscription services — such as Apple Music and Spotify’s paid service — that jumped the highest. Paid streaming brought in around $1.2 billion in 2015, up more than 50% from the previous year. Meanwhile, ad-supported on-demand streaming — such as YouTube and Spotify’s free service — accounted for about $385 million, up about 30% from 2014.
Despite the fact that free streaming generates only about a third as much revenue as paid streaming, free streaming is considerably more popular in terms of number of users; there are over 10 times as many ad-supported streamers in the US as paid music subscribers, according to Variety‘s analysis. However, for ad-supported streaming to generate as much revenue as paid streaming, it would have to have to triple its number of users, a total that would amount to more than the entire US adult population.
It’s safe to assume, then, that music-industry growth will come from getting more consumers to pay for digital subscription services rather than encouraging them to use free, ad-supported streaming services.
Industry Impact: As sales of downloaded songs continue to decline, music companies may benefit from increasing the marketing and promotion of paid subscription streaming services.
Amy Schein is an Industry Specialist at First Research, where she covers various aspects of the media industry. She earned her BS and MA in media studies at the University of Texas at Austin. Follow Amy on Twitter.