The State of the US Music Industry

The Recording Industry Association of America (RIAA) recently put out its report on the US music industry in the first half of 2015. Since the RIAA reports every year on this, we have some good historical data to compare. Altogether, this data provides a good sense of the state of the industry and especially the transition from physical to digital media and from digital downloads to streaming.

Stabilizing revenues

The first thing to note is, even though the total number of “units” – singles and albums – sold continues to decline rapidly, revenues are starting to stabilize. As you can see in the chart below, units dropped from 788 million in H1 2014 to 695 million in H1 2015 but revenues remained at just under $3.2 billion during that same period.

Total industry units and value

Streaming an increasing contributor to revenues

The first phase of digital revenue growth was driven entirely by digital sales, as this breakdown of shipments by medium shows – digital downloads now account for over three quarters of shipments, with traditional physical media falling under a quarter for the first time this year (although, intriguingly, vinyl singles now outsell CD singles):

Shipments by medium

However, if you focus on revenue, you begin to understand the growing contribution made by streaming to the total amount made in the US music industry.

Revenues by source

Digital download revenues passed physical revenues several years ago and remain the largest single source of revenue. But this quarter, streaming revenues passed physical revenues for the first time and they’re starting to get close to digital downloads. Physical revenue continues to decline rapidly and digital download revenue actually shrank slightly year on year as well, but streaming revenue grew by almost $200 million in this period.

Paid streaming is the major source of revenues

Of course, we all know streaming usage is dominated by free services, including YouTube, the ad-supported version of Spotify, and many others. Paid music subscribers are a small minority of total users globally for streaming music services. But ad-supported streaming generates far less revenue for the same usage and paid streaming continues to provide far higher revenue than free streaming. The third major category is SoundExchange Distributions, also a large category, representing revenue from services such as Pandora and SiriusXM, which pay royalties on a basis managed by the SoundExchange rights organization.

Streaming revenue by source

Why this matters

All this matters because this is the context in which new music services like Tidal and Apple Music are launching. Streaming is well on its way to becoming the dominant form of music consumption in the US and, despite the popularity of free, ad-supported music services, it’s becoming increasingly clear to all participants in the industry it is paid streaming that’s going to foot the bills. This is why both artists and labels are so keen to support new paid music services and why they’re insisting on getting paid even during free trial periods. The biggest remaining question is whether these paid services can win over enough subscribers to continue to offset the decline in digital downloads. Apple Music is one of the services with the greatest potential to change that, though the subscriber numbers reported so far have been relatively modest.

Published by

Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.

One thought on “The State of the US Music Industry”

  1. You’re so awesome! I don’t believe I have read a single thing like that before. So great to find someone with some original thoughts on this topic. Really..

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