The Music Biz Goes All In On Streaming
Last week the Recording Industry Association of America (RIAA) released its revenue report card on the first half of 2019. The US music industry generated $5.4B during 1H’19, which is up 18% YoY. An amazing 80% of this rev was generated by streaming. Remember when it was a big deal that streaming surpassed 50% in 2016? Now just three years later the music biz is almost exclusively dependent on streaming royalties for its livelihood.
Beyond the initial headline, it’s interesting to see how streaming pays the music industry by listening method. In the graphs below you’ll see three categories of streaming revenue; Digital & Customized (think Pandora), Ad-Supported On-Demand (aka YouTube), and Paid Subscription (Apple, Spotify and Amazon). Subscription rev now makes up 62% of total music industry revenue, at $3.3B during 1H’19, thanks to 61M listeners who subscribe to some sort of music streaming service in the US.
The high number of streaming subscribers creates an interesting paradox for digital audio ad sales. On one hand digital audio as an ad platform is hotter than ever. But since music subscriptions are ad-free, there are 60M+ streaming listeners who can’t be reached through on-platform advertising. This limits supply and funnels advertiser demand for digital audio into the ad-supported side, which drives up rates and increases sellouts.
As you digest these numbers keep in mind one important fact. Most music streaming services continue to operate at a loss because of these skyrocketing royalty payments. So while the music industry is rolling in the green thanks to the streamers, we still haven’t seen a sustainable, long-term business model for the sector. So will we see higher monthly subscription costs? Or maybe we’ll get more ads served on the addressable side? My guess is probably a little of both.