Is Streaming the Future of Music?

03/25/2014

It’s becoming clear that the future of the music industry depends, in part, on streaming. Music streaming now represents $1 billion worldwide, and is growing steadily. However, this only represents 28 million paid subscribers; most of the money is coming from ads, and none of these music streaming services is profitable. Streaming represents only 6.7% of the total recorded music market, but is growing, just as the overall marked is decreasing, to around $15 billion.

The music industry is still reeling from the drop in its sales. It’s hard to remember, but there was a golden period for records, with a peak of $40 billion in 1999. Then along came the internet. (Though the internet is not the only cause of the drop; lower prices have a huge effect on the bottom line.)

Forbes has an interesting article on the math of the music industry. The $40 was spent by roughly 600 million people who each spent $64 a year. (This doesn’t include those who bought one or two CDs a year.) Currently, iTunes users spend, on average, $48 a year, or 25% less; adjust that for inflation, and the current expenditure is roughly half what it was in 1999 (a rough calculation suggests that the $64 in 1999 is worth about $90 today).

But today’s streaming services generally charge a round $10 a month (or €10, or £10), which is a lot more than what music fans were spending in 1999. Personally, at those prices, I prefer buying CDs and not spending the £120 a year it would cost for a streaming service. I get to own the music, contribute to artists, and manage my music collection.

The Forbes article discusses a talk at this year’s Midem conference (a music industry conference held in France), where Marc Geiger, the global head of music for William Morris Endeavor, discussed how streaming services could help the recording industry print money. He imagined the following situation:

Geiger envisioned a future in which 1 billion people pay $15 per month for streaming subscription, yielding a whopping $180 billion in revenues for the music industry. (About 25-30% would go to distributors like Spotify, but even at the $135 billion figure Geiger used, streaming alone would be more than 4x larger than the entire industry was for the labels back in 1999.) On top of that, he thinks that ad-based services like YouTube will generate another $50 billion, of which the labels will get 50%.

But, as the Forbes article says, $10 a month is simply too much. If the average iTunes user spends $48, maybe that’s the price point to aim for. It’s true that $4 a month is a pittance, but is it fair to charge “a pittance” for music? Does that devalue music overall? iTunes Radio only costs $25 a year (as part of the broader iTunes Match), but that’s not an on-demand streaming service.

Right now, not enough listeners see any need to pay for streaming; this won’t change with current streaming services. As long as people are willing to put up with ads, they’ll keep listening to free streaming, or just listen to music from other sources. But if streaming were done right, perhaps more people would make the shift. And I think Apple can do streaming the right way. Read Here’s How an Apple Music Streaming Service Should Work to find out how.