digital-music-report-UBJ*280In the great streaming royalty debate, the focus has been on tiny royalty rates per stream. Artists are up in arms, many are opting out of streaming services, and the noise and debate has been growing louder. Lost in that noise is a voice that is seldom heard: that of the record companies. There’s good reason for that: they’re making more money from streaming and the future looks extremely bright for them.

Buried in the Christmas Eve edition of the Wall Street Journal (which is itself a day to bury news) is a short column by esteemed writer Ethan Smith. And buried in HIS column (not the lead paragraph, but 8th paragraph) is the vital important nugget that shapes the future music business:

Data reviewed by The Wall Street Journal showed that one major record company makes more per year, on average, from paying customers of streaming services like Spotify or Rdio than it does from the average customer who buys downloads, CDs or both.

OK…let’s quickly digest this. On a per-consumer basis, a major record label makes more money from streaming services than any other format. This might be a figure to look at skeptically if these services barely reached a million people, but worldwide streaming services generated $1.25 billion dollars this year and Spotify alone has over 24 million active users (which jumped massively in the last week with app installs up 4x over the previous week). But how much more is being earned?

The average “premium” subscription customer in the U.S. was worth about $16 a year to this company, while the average buyer of digital downloads or physical music was worth about $14.

Let’s take a look at that. Year over year, the premium subscriber was worth nearly 15% more than the person who bought music either digitally or physically. So, if there’s more money to be made in the streaming hills, why are so many artists unhappy? Because the artist has to rethink the business on multiple levels.

As Ethan points out, it took an “indie pop/rock group” 34 months to make more money from streaming than they did from sales. Some artists will do it in less time, and others in more time. Either way, the artist has to take the long view. It’s certainly easier and much better to run a music business with the money coming in quickly with an up-front sale. However, if you believe in your music and have patience, the long run pays off. In this way, the recorded music business will quickly resemble its partners in publishing. In another way, with many artists being financially irresponsible, is it so bad for them to get their money slowly over a prolonged period?

A person buying $14 worth of CDs a year has the money going to 3 artists at the most (3 CDs x under $5). A person buying $14 worth of downloads a year has the money going to maybe 18 artists at the most (18 downloads x $.79). However, $16 worth of streaming revenue conceivably goes to as many as 3,200 tracks (3,200 streams x $.005). Even if you take an assumption that a person does 100 listens of one artist in a year, that’s still spread out over 32 artists in a year, or nearly double the max average for download sales. As I’ve reiterated before, the real issue facing artists with streaming is that the very access that allows them to make money means the pie gets sliced thinner. There’s more money, but it just goes to more artists.

Disposability of a song only works if you work it extra hard while it’s hot. If an artist/song takes 34 months to make more money, then the song needs to be relevant for those 34 months. No longer can you stiff a consumer who buys something and only listens to it a couple of times. Now, those listens need to reoccur and do so over a prolonged period. This also means continually marketing content to ensure it stays relevant.

Longtime readers of my book Futurehit.DNA have already been making music that plays into these trends. I’ve been predicting for years that music revenues will be based more on repeatability, and that is now taking firm root. Those who embrace these new realities are more likely than others to rise above the mass volume of music released and are poised to thrive in this new age of the music business.

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  1. Glenn January 7, 2014 at 7:57 am # Reply

    Jay, don’t you think the label was cautiously selective in the data it chose to share with Ethan? It seems clear that top-level, aggregate data was not shared.Only selective data that puts subscription royalties in a positive light were shared. It’s impossible to draw broad conclusions based on selective data.

    A few other things to keep in mind:

    — Streaming activity is definitely more widely distributed than download or radio activity. In other words, the most popular tracks get a smaller share of streams than downloads. So it’s important to get people to listen to the rest of an album and dig into your catalog.

    — The subscription buyer and the music purchaser aren’t always two different people. Some subscription buyers also buy downloads, CDs and LPs. From what I’m told, labels know how much a person spends at iTunes but can’t match that person, identified by a unique number, to subscription service spending.

    — It’s difficult to draw a conclusion from the fact that subscribers are worth more than purchasers (on average). We know there are far more purchasers than subscribers. We know subscription revenue is a fraction of purchasing revenue. We also know the typical person is most likely to listen to radio rather than buy anything. These facts suggest two things: (1) subscription prices and products are not attractive to the mainstream and (2) subscription prices and products need to drastically change in order to attract the mainstream. If/when the price drops, the average subscription customer will be worth less than he/she is today.

    — A dollar today is worth more than a dollar next year. Thus, artists should try to sell downloads now and also encourage people to stream their music over the long term. If they had to take one or the other, they should take the certainty of download money over the uncertainty of long-term streaming revenue.

    • Jay Frank January 7, 2014 at 8:46 am # Reply

      It is certainly possible that the data is selective, especially considering that the details of the data provided in the article aren’t much. What I presume, though, is that by defining “streaming”, they are combining revenues from YouTube, Spotify, Pandora and more. I’m not convinced one way or another on what aggregate data was shared. What I do feel is that Ethan is very smart and wouldn’t report data figures he didn’t have confidence in.

      Streaming activity, as I point out, is more dollars per person but less per artist. So yes, an artist needs to occupy more of the listening experience. Whether that’s by catalog or repeated and/or widespread use of a single, the artist needs to achieve this.

      You are correct that, especially at this early stage, the subscription buyer can likely be a music purchaser as well (count me in that pool). Since the companies are all different, it’s certainly very hard to connect them together. Much like Topspin’s average value per fan figure is incomplete as it can only consider purchases on Topspin. But from the way I’ve looked at this for awhile now, it correlates with what I’ve theorized. Which is over a lifetime, a hit record makes more from streaming while a dud will make less.

      In regards to drawing conclusions, this is still evolving quickly enough that I’m positive this data will be outdated within months. It’s entirely possible that if technology gets us to a mass scale that streaming may be less per person per year, but may get to a worldwide pool far greater than ever existed with music purchasers. But part of the incomplete data set is that “premium” streaming revenue may actually also include SiriusXM revenue as well. This is a system that (mostly) requires unique hardware and still boasts 25 million subscribers. Personally, I think subscription has mostly been marketed poorly. I’m not sure the price or product is really the hurdle, though a lower price would certainly help.

      As for pushing for a sale vs a stream…an artist should push for people to like the song and consume it in the way the fan most desires it. In my opinion, if an artist has made a song that focuses on “certain” download revenue today because they may not get a stream tomorrow, then they may have to consider that they haven’t made a song that’s good enough. But that’s just me. Either way, an artist should keep doors fully open to multiple formats and revenue sources in order to create the overall revenue story for their music.

  2. Jamey October 22, 2014 at 6:27 am # Reply

    Sorry, but these figures are nonsense. I wrote a song last year and while not being a runaway hit, the download figures for over 2,000 streams came in at 0.92 ukp! Whereas the downloads from Amazon, Itunes and so on clocked in at just over £53!! This mirrors the kind of figures that my friends have also been recieving from their music. No one, not a soul has made more from streaming that they have downloads and the suggestion angers me It’s becoming quite clear that the people benefitting from this trend are the people at the top of the industry cause it’s made no difference at all to our lives. In fact I would go as far as to say that streaming music is irresponsible. If you want to support the artist then buy their damn cds or download their music properly, because they are making nothing worthwhile. Take it from me that’s a fact and anyone who says otherwise is either a top industry proffessional or working at spotify!

    • Jay Frank October 31, 2014 at 1:58 pm # Reply

      I certainly appreciate your perspective and experience. However, to say “not a soul” has made more from streaming than downloads is untrue because I work with several artists that this is the case. Also, you have to take a different perspective in that sales revenue happens once and does not reoccur whereas streaming revenue can reoccur ad infinitum. When this happens with the right song, more money will come in over the long haul. You’re free to disagree this point, but if you embraced the streaming world and developed fans within it, you would likely make far more than your current download revenue.

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