Subscription Music Services Have Killed US Music Video Streaming Growth

This past week, I came across some data from a service called BuzzAngle, which provides something of a unique perspective on the US music market. The service reports total numbers for physical and digital song and album sales and on-demand audio and video streaming. I was struck by a couple of the numbers in its latest report, covering the first half of 2017, and decided to dig a little deeper and chart some of the longer-term trends, which I’m going to share here today.

Subscription Streaming Far Outweighs Ad-Based Streaming Usage

If you follow the music industry at all, you likely know that both in the US and globally, there are far more listeners to ad-based free music streaming services than paid subscribers to those services. But you also know that the subscription part of the market contributes the vast majority of revenue from streaming, because the revenue per user is far higher ($7-10 per month) for paid streaming than for free streaming (usually just a few dollars per year).

However, what struck me in this report is that total consumption from paid services in the US now far outweighs consumption of free services, even with the total number of users skewing massively the other way. BuzzAngle reports that in the first half of 2017, subscription services accounted for 79% of total on-demand audio plays, with ad-based services accounting for just 21%. It’s worth noting that the denominator here is audio streams only, so it excludes video streaming of music (e.g. on YouTube), which still accounts for quite a bit of streaming music activity, as we’ll see below. That proportion has grown significantly over the past couple of years, as has the share of total streaming including video:

That’s striking, because it suggests that the much larger number of people who use free streaming services actually listen to far less music on them than those who pay for it. On the other hand, that’s not surprising if you put it a little differently: the heaviest users of music tend to be those who pay for streaming rather than using ad-based services. That makes sense, given the economics of streaming versus buying multiple songs or albums per month, which heavy listeners are more likely to have done in the past, and also given that the annoyances of ads will add up much more quickly for heavy users. But it’s still a stark contrast.

The Impact of Apple Music

One thing you’ll see in the chart above is a fairly abrupt change in the trajectory in Q3 2015. What could have caused that? Well, the obvious answer is that Apple Music launched right at the end of June 2015, and so the first quarter which included significant listening was Q3 2015. Indeed, there are a number of lines which appear to have changed trajectory around that time. To my mind, this is the most notable change:

Though there’s little history there before the launch of Apple Music, you can still see an abrupt steepening of the subscription music line, while the ad-based audio line remains relatively flat for most of the next 18 months. But you’ll also note that the video line – in yellow – seems to go from growing strongly to being relatively flat and even seeing a slight decline dip in Q3 last year. It looks like Apple Music not only catalyzed subscription music streaming, but it also helped stall growth in both ad-based music listening and video music streaming.

Video Growth Seems to Have Shrunk Dramatically

Though I couldn’t find a report with a quarterly breakdown for 2014, I did find annual numbers for total audio streams and video streams in 2014, and putting that picture together with the 2015 and 2016 numbers shows an even starker picture with regard to video (sadly, audio isn’t broken out into subscription and ad-based during that period):

The impact on video of the rapid increase in adoption of subscription streaming appears to be significant: while video streaming plays roughly doubled from 2014 to 2015, they grew very little from 2015 to 2016 – only about 7%, and video plays grew by only 6% year on year in the first half of 2017. Meanwhile, subscription music plays grew by 69% and ad-based audio plays by 28% during the same period.

I think it’s important to note that, though the launch of Apple Music was clearly a trigger for the change in dynamics in the US music industry, it’s certainly not the only contributor. Arguably, the launch of Apple Music validated a market which had hitherto been somewhat marginal, giving market leader Spotify a big boost as well, and allowing it to maintain its lead both in the US and internationally. And of course Spotify uses its free tier as a sales funnel for its paid service, so it continues to grow its free usage even as its paid subscriptions grow strongly.

Last quarter – Q2 2017 – saw another significant milestone, as subscription audio plays eclipsed the combined total of ad-based audio and music video streams for the first time, accounting for 51% of total streaming music plays across both media in the quarter. That’s up from just 22% of total plays for subscription streaming in Q1 2015, at which time total video music streams still outweighed all on-demand audio music streams.

In summary, subscription music streaming in the US not only accounts for the vast majority of streaming music revenue, but now also accounts for a majority of total streaming music listening, and is likely to grow as a percentage of total listening over the coming years as video music streaming continues to grow much more slowly. It’s worth remembering that the US is a unique market, and these trends aren’t yet being repeated in every other market in the world. But the same broad trends, if not the same proportions, are going to take hold in other markets too, and drive the same shift of both monetization and usage away from ad-based services and video and towards subscription streaming.