2019 was a very successful year for music streaming services. The US industry grew by around 20%, and it brought the entire music industry along with it – vinyl and CD sales both rose, with vinyl having its best year in over three decades. Globally, the music streaming services industry is expected to grow by over $5 billion between 2020 and 2023, with an expected growth rate of 20% for 2020.
Music streaming services are taking over
Music streaming is currently dominating the global music industry. In the US, it accounts for roughly 80% of the market, and in the UK it has a market share of over 60%. The Recording Industry Association of America reports that in 2019, music streaming services pulled in more revenue than the entire recorded music industry made just two years before. Both paid and ad-supported services are on the rise, with paid subscriptions having the highest growth. The success of paid services is a good sign for the music streaming industry, as ad-supported services contribute a relatively small portion of the music industry’s revenue despite their healthy growth.
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Given that music streaming services have had such a substantial impact of the market, one might expect musicians and other artists to be seeing record levels of success themselves. However, for all but the most successful artists, the success of music streaming isn’t translating into better profits.
How do streaming services distribute payments?
All of the biggest music streaming platforms, such as Spotify, Apple Music, and Amazon Prime Music distribute payments to artists according to a pro rata model, meaning that artists receive a percentage of total revenue based on how many times their music was streamed on the service as a whole. This essentially means that if a song is popular enough to account for 5% of all music played on the streaming service, then 5% of every user’s subscription fee (after the streaming service takes its cut) would go towards the creators of that song even if some users never listened to the song at all.
Some people are therefore arguing for a user-centric payment model, wherein money from each user’s subscription fee is distributed proportionately to all the artists that user listened to. If 50% of the songs a user listened to were by one artist, that artist gets 50% of that user’s subscription fee. Spotify argues that it wouldn’t be economical to distribute payments this way, as it would be expensive to monitor individual accounts in a way that would facilitate a user-centric model. However, it could be very beneficial to the majority of artists whose music is available on streaming services.
Currently, the top 0.4% of artists on Spotify receive nearly 10% of the service’s payments. Under a user-centric model, that would lower to about 5.6%, distributing more money among the other 99.6% of artists. While some smaller music streaming sites have adopted this model, none of the key players are currently using it.
How much do artists actually make?
Another obstacle for all but the biggest names in the music industry is that streaming doesn’t translate into very much money. Music streaming services take a significant cut of the revenue (about 30%, in Spotify’s case), and record labels, producers, and other players take their cut before anything reaches the artists themselves. With streaming services paying only a fraction of a cent per song, an artist who’s signed with a label may need a million streams of their music just to earn minimum wage. Independent artists who don’t have to share their revenue with a label still need well over 150,000 streams.
Streaming is also making it harder for artists to earn revenue from other sources: while vinyl and CD sales have risen, digital downloads have fallen by 15%-20%, dropping below $1 billion in the US for the first time since 2006. Users treat music streaming services as an alternative to purchasing digital songs and albums, products which generate higher profit margins for artists. While the success of streaming services may be a boon for the music industry as a whole, it’s become a mixed blessing for artists themselves.
How can music streaming services diversify?
Some industry experts also suggest that even though music streaming services have been so successful, they’re leaving money on the table. All the major industry players have similar models and offerings, and aren’t exploiting niche markets that could bring in more revenue. For example, older music fans such as baby boomers spend less time on streaming services than other demographics do. Offering a curated experience made to appeal to their tastes and needs could bring in users that have so far ignored music streaming in favor of alternatives such as radio. Other pricing options targeted at different groups or offering different selections of music could also attract more customers.
There’s no doubt that consumers love music streaming services, and there are a wealth of companies taking advantage of the market. However, if streaming is unsustainable for the artists themselves, the market may need to adjust in order to find a model that serves both consumers and creators.
Learn more about the global music streaming services industry with Technavio’s market research report:
- CAGR of the market during the forecast period 2019-2023
- Detailed information on factors that will drive the growth of the music streaming service during the next five years
- Precise estimation of the global music streaming service market size and its contribution to the parent market
- Accurate predictions on upcoming trends and changes in consumer behavior
- The growth of the music streaming service industry across APAC, Europe, MEA, North America, and South America
- A thorough analysis of the market’s competitive landscape and detailed information on several vendors
- Comprehensive details of factors that will challenge the growth of music streaming service companies
