How Streaming Will Impact Music Sales

With 2013 now behind us we are beginning to see the first full year sales numbers come if for 2013 and the long anticipated ability to assess the impact of streaming on the market.  Until the IFPI annual revenue numbers come out we are mainly constrained to volume data which only paints half of the picture.  This is especially true for streaming given the massive difference in revenue per stream for free versus paid, YouTube versus Spotify etc.  But even within these constraints we have enough to start establishing a view, one that indicates the headline story may be more about transition than it is growth.

Nielsen’s numbers for the US show that digital track sales were down 5.7% and that digital albums were down 0.1% while albums as a whole were down 8.4%. In the UK the BPI reported that digital track sales were down 4.2% though digital albums were up 6.8%.  Nielsen also reported a 103% rise in audio streams.  Let’s assume that a significant portion of those increased streams will be coming from free users and that the impact on streaming revenue growth will therefore be around the 65% mark. That would translate into total US music market revenue growth of just under 1%, though if free usage is a bigger part of the picture then growth could be negative.

It is important to understand the appropriate context for the shift to streaming: it is fundamentally a transition of spending.  Just as the download was a transition from the CD so streaming subscriptions are a transition from the download.  This is because the majority of subscribers were already digital music buyers before becoming subscribers and the majority of those were iTunes customers.  50% of subscribers buy album downloads every month and 26% buy CDs every month (see figure).  On the one hand this can be interpreted as the fantastic capacity of streaming to drive discovery and music purchasing.  There is some truth in this, but it is an inherently temporary state of affairs.  If streaming services do their job well enough there should be little or no reason for a subscriber to additionally buy music.  They do so because consumers transition behaviour gradually not suddenly.  The fact that a third of download buyers still buy CDs illustrates the point.

subscriptions download overlap

In this respect streaming services are strongly competitive with music sales in a way that streaming radio services are not. However what is crucially different from the CD transition is that while downloads drove a decrease in ARPU with consumers cherry picking single tracks from albums, subscriptions drive ARPU upwards. So there is more of an opportunity for subscriptions to drive longer term revenue growth than downloads.  The two key questions that arise are:

  1. What download market will be left once/if subscriptions have reached scale?
  2. What will the net impact on digital music spending be?

1 – Impact on downloads: The answer to the first question is probably the most straight forward.  Looking at markets like Sweden and Denmark we have strong evidence that streaming subscriptions grew at the direct expense of downloads, but in doing so they transformed the total music markets.  In the US, where the download sector is much more entrenched, streaming has resulted in a worst of both worlds, with streaming eating into downloads but not having enough headway to transform the market Sweden style.  The outlook for downloads in big markets such as the US, UK, France and Germany will be one of subscriptions absorbing the spending of the most valuable download customers.  Downloads as a global sector though will remain strong because they are the natural transition technology from download and will thus have strong long term opportunity in emerging digital markets of scale such as Turkey, Brazil and Mexico.  Downloads will also remain the best tool for monetizing mid tier digital music consumers who like to buy a few singles and the occasional album but do not spend 9.99 a month on music.

2 – Net impact on music spending: This one is a tougher call to make.  If subscriptions only reach scale by converting the most engaged music consumers then there is a risk of reducing ARPU among some of them, changing their spending patterns from buying a few albums a month to spending the equivalent of just one.  This effect will be felt more strongly as the dual-consumption behavior of subscribing and buying naturally fades.  The net positive opportunity lies in converting large swathes of the ‘upper middle’ tier of music buyers with more competitive pricing and also with bundles. Though this will likely come at the expense of further erosion of downloads.

As the RIAA rightly highlighted, even in the US streaming is becoming a really important part of the music market, and there is no doubt that access based models of shapes and sizes are the future.  The next few years though will see some growing pains as we transition away from the old guard in some of the world’s biggest music markets.

19 thoughts on “How Streaming Will Impact Music Sales

  1. Good piece. though I would add to the ‘Net impact on music spending’ by pointing to the potential of low cost access models (such as Bloom or Psonar in the UK – with rental and Pay As You Go models respectively) to reach consumers who have previously accessed free or pirated sources of music and get them into the habit of paying.

  2. Yes totally agree, which is what I was alluding to with the ‘more competitive pricing’ element. I’m a big believer in subscription pricing innovation and PAYG models like yours, Bloom’s and MusicQubed’s. 9.99 only has so much audience growth potential.

  3. Ad and subscription supported streaming will deliver at the best 40 billion dollar global industry by 2025. This will equal just 40% of 1999, so we are on totally wrong path!

    Streaming as a delivery method is the best way to go and there is no alternative.
    Money both for artists and the streamers has to come from monetization at discovery moment. We can virtually choke piracy and create 100B industry by 2020.

  4. Pingback: A Journal of Musical ThingsHow Streaming Will Impact Music Sales » A Journal of Musical Things

  5. Michael “Duane Cali” Willis is a 21 year old recording artist born on May 21st 1992 in Los Angeles California. He has been singing and rapping since he was 6 years old. His music is a way of therapy for him and has been his main focus and passion since he had his first encounter with the Mic in 1998 and has been blessing ears of many since then. Duane Cali has been familiar with music as well as the industry since birth, growing up around his mother who is a Femcee by the name of Shylise “Shay-Nutt” Simpson. Today she is an Activist for females in the industry and the CEO of Undergroundgirlsofhiphop.com.
    Duane Cali has encountered many struggles within his life’s past which causes his music to contain a passionate essence. Dealing with being a foster youth for a portion of his life as well as many other personal and biological struggles have not made things easy for Duane. He finds that his emotions hinder him from moving froward and going places in life, though he says, “Even though Life wasn’t easy for me I wouldn’t change anything it make my days difficult but my music better.” Just recently Duane Cali released a song by the name of “Man In The Black Jacket” which he voices just a few of those struggles and how the devil, which whom he refers to as “The Man In The Black Jacket” will play with his mind, thought process, and emotions causing him to believe and do things that he shouldn’t which effects most of his relationships. He has gotten great reviews and feedback on the song thus far but it is just one of many to come from his new mixtape “D.A.D.D.I GEMINI” coming on 2/22/2014.
    The mixtape is called “D.A.D.D.I GEMINI” but the word DADDI does not have the same meaning for him as it used on a daily basis though it is pronounced the same. “D.A.D.D.I” is actually an acronym for ( Deranged Artistic Discerning Defiant Individual ). It’s spelled a lil differently but most people find it to be clever being that he calls himself “DADDI DUANE CALI” on occasion. Many Misinterpret the use of the word when first hearing it. The Mix Tape is a re introduction of Duane Cali and he speaks mostly of life issues he says, “A lot of singers and rappers talk about sex money and cars but I don’t want to be that type of artist I wanna touch on all aspects of life and make it enjoyable to listen to,” and that he does. So please on 2/22/2014 go out get and or download Duane Cali’s new mixtape “D.A.D.D.I GEMINI” and if you can’t wait for that go and get a lil preview on youtube and listen to Duane Cali – Man In The Black Jacket which also be available for download soon.

  6. “more competitive pricing and also with bundles” what are these in the subscription market specifically? Unfortunately, I see subscriptions as making small room for creativity in offerings i.e. no deluxe packages, video albums, etc.

  7. MDH – I’m talking about things like MusicQubed/O2 Tracks’ £1 a week for a selecti0on of curated music including the Top 40, like Bloom.Fm’s £1 a week for a select number of tracks to ‘borrow’, like Psonar’s PAYG penny a stream offering. All offer a much narrower selection than a AYCE 9.99 service for a much lower price. This is the sort of pricing innovation that the market needs more of if subscriptions are to get beyond the current high spending aficionado beachhead.

  8. Pingback: El streaming impacta en las ventas musicales | Blog MUWOM

  9. Hello all

    I just looking this site. That is interesting and important site for a music company. Different music company can sell there music different way. Here I saw the sell report of a music sell company. This present is so excellent. If you want a music company visit here.
    http://www.musiciansatlas.com

  10. Pingback: Which kinds of music are encouraged by streaming vs. downloads?

  11. Pingback: Why Radio is Stuck in the Middle of a Streaming Pincer Movement

  12. Pingback: A Journal of Musical ThingsIs Radio Caught in a Streaming Music Service Pinch? » A Journal of Musical Things

  13. Pingback: Universal Music International

  14. Pingback: A Journal of Musical ThingsThe Reason Reason Music Download Sales Are Tanking (Hint: iTunes is Losing Steam) » A Journal of Musical Things

  15. Pingback: The Reason Reason Music Download Sales Are Tanking (Hint: iTunes is Losing Steam) | Geeks and Beats Podcast

  16. Pingback: What Is Really Cannibalising Download Sales | {}{}{}{} CREATIVE MUSIC SERVICES BOUTIQUE {}{}{}{}

  17. Pingback: Sales Analysis – 2013 | Music for stowaways

  18. Pingback: What Is Really Cannibalising Download Sales | Sync Originals

  19. Pingback: Streaming and Music Sales | Level 3 Media

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s