Just How Well Is Streaming Really Doing?

All of the three major record labels announced strong streaming music revenue growth in the 2nd quarter of 2016. On the surface it is a clear cut success story, but as is so often the case with music industry statistics, all is not quite how it seems.

The Global Streaming Market

First of all, let’s look at the global picture. According to the IFPI’s Recording Industry in Numbers (RIN) 2016 edition record label streaming revenue grew by 45% in 2015 reaching $2.9 billion, up from $1.9 billion in 2014. But even that number requires a little due diligence. The IFPI restates its historical numbers every year to reflect the current year’s exchange rates, which can, and does, overstate things. Indeed, a quick look at the 2015 edition of RIN shows that streaming revenue was reported as $2.2 billion for 2014. So on a non-adjusted basis (i.e. without restating the numbers) streaming revenue actually grew by 31%.

Spotify’s Contribution

31% is still impressive growth but the plot thickens when we factor in Spotify’s contribution to those label revenues. Spotify’s total royalty payments were $1.9 billion in 2015, of which around $1.4bn were label payments, and of those around $1.1 billion were royalty payments (i.e. minus advance payments such as Minimum Revenue Guarantees (MRGs) paid in anticipation of future growth). That $1.1 billion was up 85% from $610 million in 2014. As the IFPI numbers only represent payments in respect of actual royalties (i.e. minus advance payments) the Spotify label royalty payments can be considered as a share of that global total. That share was 39% of all label streaming revenue in 2015, up from 28% in 2014.

This results in 2 interesting points:

  1. Spotify’s share of the global music subscriber total was 35% in 2014 and 37% in 2015. So the label royalty payments over indexed in 2014 and under indexed in 2015. The fact that 2015 was a big year for heavily discounted promotional offers such as $1 for 3 months most probably plays a key role here.
  2. If we remove the Spotify label royalty payments from the equation, label payments from other streaming services grew by just 10% from $1.6 billion in 2014 to $1.8 billion in 2015. Not exactly the most robust of pictures for the wider streaming market place.

major label streaming

So much for 2015, let’s look at where we are now. All three major labels reported strong streaming growth in Q2 2016. Together they reported $918 million, up 51% from $607 in Q2 2015. That growth generated $311 million of new digital revenue. At the same time, and as a direct consequence, download revenue fell by 24% from $925 in Q2 2015 to $705 million. So streaming is now nearly as big as downloads were 12 months ago. The net increase in combined digital music revenue was $91 million, or a combined digital growth rate of 6%. Solid growth, but not far from treading water. This is a transition process, not a transformative growth process.

Universal Is The Big Streaming Winner

Each of the 3 majors had differing streaming experiences. Universal was the big winner, growing its share of major label streaming revenue from 38% in Q2 2015 to 42% in Q2 2016 (boosted more than other majors by ‘embedded’ independent label revenue). UMG’s streaming revenue grew by more than 60% while Sony and Warner grew by an average of 42%. However, it is important to note that UMG’s reported streaming numbers may be skewed more by currency restating than the other majors, so this share increase might be slightly on the high side.

Sony Music meanwhile lost share from 35% to 33% while Warner Music, which was most coy about its streaming revenue in its reporting, also saw a fall from 26% to 25%. Warner’s and Sony’s loss was Universal’s gain. An interesting side note: Sony was the only major that saw growth in physical music sales over the period. Yet more evidence of the Adele effect?

The Role Of Advanced Payments

But perhaps the most important element of the majors’ streaming reports is the difference between royalty payments (i.e. money earned for music streamed) and total streaming revenue (i.e. including advanced payments such as MRGs). Spotify states rights payments are 70% of its revenue though its 2015 accounts show royalty payments as 82% of revenue due in large part to advanced payments. Using this benchmark advanced payments represent around 16% of all label payments. Applying this to the label reported numbers we can extrapolate that $145 million of all major label streaming revenue is advanced payments.

Why does this matter? Because this is the major record label’s streaming reality distortion field. They get streaming revenue regardless of how well the marketplace actually performs. If a streaming service pays an MRG of $30 million but only earns $10 million the label still gets $30 million. So in that scenario the label’s view of that part of the streaming music market is 3 times better than it actually is. If the music service wins, the label wins, if the music service loses, the label still wins. This disconnect between how the market performs and how the label performs is one of the festering wounds of the streaming music market. And its revenue impact is massive. In fact, advanced label streaming payments were 158% of the $91 million that digital music revenue grew by in Q2 2016. Yes, that’s right, advanced streaming payments accounted for all of the digital music growth, and more.

Streaming Will Continue To Grow, But Haunted By Advanced Payments

So where does all this leave us? The streaming market is without doubt entering a phase of accelerating growth and is doing enough to counter the resulting decline in downloads to contribute to a combined total recorded music revenue growth of 4% for major labels in Q2 2016. But growth is not quite as stellar as the headline numbers would suggest, with the single most important factor being the impact of advanced payments distorting the bigger picture and crippling cash flow for streaming music services. Expect more impressive growth throughout the remainder of 2016 but also expect streaming music economics to continue to be fractured.

12 thoughts on “Just How Well Is Streaming Really Doing?

  1. Pingback: Just How Well Is Streaming Really Doing? – printzblog

  2. Pingback: A Journal of Musical ThingsSo How Well is Streaming Doing Really? - A Journal of Musical Things

  3. Streaming is one of the best methods of music delivery and will only grow.
    In the meantime ALL INCLUSIVE streaming, unless subscription will cost $49.99/ month is a MAIN KILLER of $200B in music goodwill.
    Current broadcast and streaming numbers can give us 200 to $300B music industry by 2025 at just 49 cents per addition to PERSONAL PLAYLIST.

    We can convert 100,000 Radio stations and all fashionable streamers to subscription and advertising free music stores. Labels must start to work on this new game board or UMG induced music business suicide will continue.

  4. Reblogged this on Dance Hall and commented:
    As we settle into the Digital Information Age where music consumption and revenue streams have been significantly transformed, I continue to pay attention to the phenomenon of streaming. Here’s an interesting update on just how well streaming is doing. The question is – who is making the money and, where are markets such as the Caribbean in that mix.

  5. Most people don’t care how well the record companies are doing other than their employees and the RIAA. What people care about is how much flows through to artists, which can vary considerably by label. I am an artist business manager and would like to talk to you about this, but would prefer a phone conversation. You can reach me directly in New York at 212-708-8426.

    Best,
    Perry Resnick

  6. Pingback: – Just How Well Is Streaming Really Doing? – – Wanda-full Artistik Concret'

  7. Thank you for the valuable insight, Mark… Music-streaming’s growth is still impressive, though, and I think that its growth rate, historically, far surpasses the digital downloads’ growth rate. Also, by the end of 2016 and in 2017, we should see the Apple Music effect on these numbers as well which will make things far more interesting.

  8. Pingback: Liv Buli’s Weekend Reading List: Obama’s SXSW, Pandora ❤ Hip Hop and Nickelback is Cool Say What? It’s Just Another Week in Music and More – South Carolina Music Guide

  9. Pingback: Liv Buli’s Reading List: Obama’s SXSW, Pandora ❤ Hip Hop and Nickelback is Cool Say What? It’s Just Another Week in Music and More – South Carolina Music Guide

  10. Pingback: Are Streaming Music Services Competing With Record Labels? – hypebot.com – Sarkem Online

  11. Pingback: Are Streaming Music Services Competing With Record Labels? – South Carolina Music Guide

  12. Streaming is doing well because no one is really willing to pay for singles, albums when they hear for free and just put it on a loop on their computer. The good news is that singers can promote their other businesses and ventures via streaming.

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