How Paid Subscriptions Are Saving The Music Labels

September 21, 2016

By David Bolton

Musicians may grumble about royalty rates, but music streaming services and paid subscriptions are the prime source of revenue in the music industry.

A report published by the Recording Industry Association of America (RIAA) said music streaming revenues for the first half of 2016 reached $1.6 billion—a year-on-year increase of 57%. According to the 2016 Mid-Year RIAA Shipment and Revenue Statistics report, revenues from subscription streaming services more than made up for a continued decline in physical product, with streaming accounting for 47% of all music industry revenue for the year to date.

Paid subscriptions to services such as Spotify, Apple Music and Google Play Music have cumulatively doubled in the last year, RIAA said.

Around 18.3 million people have signed up for a subscription-based plan from music streaming services—a year-on-year increase of 101%. Subscriptions were responsible for 30% of all music industry revenues in the first six months of the year, with revenues from a permanent digital download falling by 17%, the report said.

“These first half 2016 results illustrate the emergence of paid subscriptions as a primary revenue driver for the United States music industry,” said RIAA. “For the first time, paid subscriptions were virtually on-par with paid downloads as the biggest single format revenue source. Streaming became the overall largest revenue contributor by a wide margin.”

Music Fans Opt For The Digital Experience
Over the last six years, the music industry has had to reinvent itself, RIAA said. The majority of change has come in the way that people now listen to or access music. RIAA chairman and CEO Cary Sherman cited data from Nielsen that said there were around 209 billion on-demand music streams to date in 2016, which is a dramatic change for an industry that was primarily physical for decades.

Digital Music News reported that over 100 million people now pay for streamed music services, with Spotify the clear leader in the sector. Spotify’s founder and CEO Daniel Ek recently tweeted that the company now had 40 million paid subscribers, with Apple Music claiming around 17 million subscriptions in just over a year.

All three music-streaming formats—subscription services, streaming radio services and ad-supported non-subscription services such as YouTube—had revenue growth in the first half of the year, said RIAA.

SoundExchange distributions such as Pandora, SiriusXM and Internet radio showed year-on-year growth of 4% and revenue of $403 million—an all-time record for the first six months of a year, RIAA said. Revenue for on-demand ad-supported music streaming hit $195 million—a year-on-year increase of 24%.

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And read How Prince and Bowie Started Streaming Music Services