Streaming Music Is Top Music Industry Revenue Generator

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Just over half (51.4%) of the music industry’s 2016 $7.7 billion in revenues were generated by streaming services like Spotify and Apple Inc.’s (NASDAQ: AAPL) Apple Music, and by streaming radio services like Sirius XM Holdings Inc. (NASDAQ: SIRI). Streaming revenues rose 68% year over year to a total of $3.9 billion.

Offsetting the increase in streaming revenues, sales of digital downloads fell by 22% year over year to about $1.8 billion and sales of physical products — CDs and vinyl albums — dropped 16% to $1.7 billion.

The data were reported Thursday by the Recording Industry Association of America (RIAA), which represents the country’s largest players in the recorded music business.

The RIAA report noted:

Although our 2016 revenue report catalogues substantial overall improvement for the industry, revenues are still only about half what they were in 1999, and revenues from more traditional unit-based sales (physical products and digital downloads) continued to decline significantly.

Since 2011, industry revenues from streaming have risen from 9% to 51%, with the largest year-over-year jump occurring between 2015 and 2016 when the percentage increase rose by 17%. The number of paid streaming subscribers has risen from 3.4 million in 2012 to 22.6 million last year, and year-over-year growth in paid subscribers was more than 100%.

RIAA Chairman and CEO Cary Sherman noted that it remains to be seen if streaming revenues will be able to offset losses in downloads and sales of physical products. He took special aim at Alphabet Inc.’s (NASDAQ: GOOGL) YouTube:

The unfortunate reality is that we have achieved this modest success in spite of our current music licensing and copyright laws, not because of them. That’s not the way it should be. For example, it makes no sense that it takes a thousand on-demand streams of a song for creators to earn $1 on YouTube, while services like Apple and Spotify pay creators $7 or more for those same streams. Why does this happen? Because a platform like YouTube wrongly exploits legal loopholes to pay creators at rates well below the true value of music while other digital services — including many new and small innovators — cannot. It may be the same song requested by the user, on the same device, but the payouts differ enormously because of an unfair and out-of-date legal regime.

The RIAA has its sights set on revamping the Digital Millennium Copyright Act (DCMA) to level the playing field. Ironically, Sherman also pats the RIAA on its back for “years of patiently nurturing a nascent streaming marketplace” that is finally beginning to pay off. The industry has only come around to streaming in the past couple of years, after fighting it for years. Funny how money changes everything.