Music Streaming & Ad Revenue: Downloads, Battles, Growth & More


Last month, the Recording Industry Association of America (RIAA) announced that streaming music had finally overcome digital downloads in revenue production. Streaming services like Spotify, Pandora and Apple Music now represent over $2 billion in income for record labels and artists, a number that has been steadily growing for the last five years.

Even so, there are loud grumblings coming from various corners of the music industry, especially targeted at streaming services that are partially or entirely supported by ad revenue. This includes the industry’s biggest streaming service, Spotify.

Streaming’s Aggressive Growth

As more people jump on the streaming bandwagon, a few really great things are happening for recording artists.

First, fewer people are electing to pirate music and instead are choosing to listen to short advertisements in exchange for completely unlimited access to music libraries. Subscription numbers are way up – in fact, a Spotify press release from mid-2015 declared that the company had added another 10 million paid subscribers year over year, and had reached a total of 75 million active users. That’s a 35 million user increase year over year.

The second thing that streaming is doing for recording artists is providing them with an entirely new platform and new revenue sources. Although some of the currently available outlets are still paying a pittance per play, music streaming services are pumping major money into the music industry. According to the RIAA, streaming music accounted for $2.407 billion in revenue, an increase of $539 million year over year. As sales of physical formats continue to shrink, down another 10 percent year over year at the end of 2015, streaming services are growing by leaps and bounds.

The Battle of Streaming Revenues

All of this sounds pretty great in general – musicians are reaching a bigger audience that’s paying in one form or the other (either by subscription or by listening to advertisements) and listeners have unlimited access to all the music they could ever want. Unfortunately, the RIAA doesn’t think that’s enough, which is why you might notice that a few albums you really want to hear aren’t available via streaming.

According to music industry analyst Next Big Sound, the first six months of 2015 saw 1.032 trillion individual streaming plays from over 13.965 billion fans across platforms. Although each of those streams returned some amount of revenue for the RIAA, the organization says it wants better compensation. The RIAA insists that free, ad-supported music isn’t generating enough income because those services are currently treated like radio stations.

Despite the fact that ad-supported streaming sources generated $385 million in revenue last year, Cary Sherman, Chairman and CEO of the RIAA, writes, “Some companies take advantage of outdated, market-distorting government rules and regulations to either pay below fair-market rates, or avoid paying for that music altogether.”

Wait, Is Streaming Actually Saving The Music Industry?

However, according to Bloomberg, streaming is actually saving the music industry — this is the first year since 2011 the segment has seen any growth.

Streaming services like Spotify aren’t trying to use their positions to bully the music industry, they very clearly spell out how they pay royalties. According to its own website, the streaming music company only retains 30 percent of total revenue, paying the other 70 percent to various music industry professionals. Although the average per song stream may seem low at much less than one cent per play, with a couple trillion streams going each year, those fractions of a penny add up quickly.

Spotify released the actual figures on how much they had paid artists in different segments of the music industry in July 2013 alone — before their user base exploded. A single niche Indie album earned itself $3,300 from streaming; a Spotify Top 10 album earned $145,000; and a global hit album earned $425,000. It’s anyone’s guess what these albums are going to pay in July 2016, considering the monumental growth of Spotify’s listener base.

What’s Next In This Debate?

At the end of the day, the great debate over the value of ad revenue-driven music streams is hugely overblown.

The record industry is being fairly compensated for the music that listeners choose to consume, if they aren’t consuming particular artists or albums, maybe that’s due to a quality issue. The RIAA should be focusing its efforts on encouraging better, brighter talent rather than on wasting money attacking the industry that’s keeping them afloat.

The Internet Age changed a lot of things very quickly, including how we consume music. Instead of losing revenue to music pirates, the RIAA has a huge opportunity to recapture that income from marketers eager to advertise to the massive audience that free streaming music has created.


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The Spotify Blog

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