These gains seemed to have eased the anxieties that streaming services initially caused in the music industry over the last five or so years -- there was a noticeable change in tenor at SXSW last week. People communicated more comfort and complained less; there was less focus on royalty rates -- although industry participants have hardly resigned themselves on the topic -- and more attention on workable business models, growth opportunities and the value in fixing metadata problems.
New numbers, released today by the RIAA, help explain the industry's attitude adjustment.
Subscription service revenue increased 52 percent, to $1.22 billion, according to the RIAA's figures. Even more impressive was the $429 million difference between last year's revenue and 2014's. The average number of subscribers rose to 10.8 million from 7.7 million, a far better improvement than 2014’s 1.5 million gain in subscribers.
Maybe it should be called “the Apple effect.” Sources at subscription services have told Billboard their businesses recently have seen an uptick that’s due, at least in part, to the arrival of Apple Music and the resulting increase in consumer awareness. It has long been said that the subscription model’s greatest hurdles are awareness and education. It appears Apple has lowered those hurdles a bit.
Although it would be difficult to quantify Apple Music’s contribution, research has shown consumer awareness in many streaming brands increased in the last year. In early 2015, Beats Music, the predecessor to Apple Music, had only 27 percent brand awareness, according to Edison Research. A year later, Apple Music -- Beats Music’s new name -- claimed 67 percent awareness. Other streaming brands also saw noticeable improvement: Pandora rose to 82 percent from 75 percent; Spotify jumped to 52 percent from 41 percent; Amazon Music climbed to 51 percent from 41 percent.
Usage of subscription services has also increased. The percent of people surveyed who had listened to Spotify in the previous month rose to 13 percent early this year, from 11 percent in 2015 and 8 percent in 2014. The service is especially popular with the youngest consumers -- nearly one in three people in the 12-to-24 age group said they had used Spotify in the last month.
All of these improvements don’t even include two new sources of revenue. One is Dubset’s partnership with Apple Music that will provide previously unlicensed remixes and DJ mixes to the service. Dubset’s technology identifies recordings with these mixes, distributes to Apple Music and distributes royalties to all rights holders, both labels and publishers, according to the usage of their works in a particular mix. This technology will eventually expand to other digital services and should generate significant royalties from mixes that already exist but weren’t being monetized. The other new source is SoundCloud, a popular streaming service that is currently underutilized. Licensing deals with the three majors has cleared the way for a subscription service that, like Dubset, will create revenue where none existed previously.
In the early days of subscription services -- roughly 2006 to 2010 -- people proposed different business models that would return the industry to growth. Some of these models attempted to capitalize on piracy. There was an attempt to monetize peer-to-peer traffic which failed, mainly due to a lack of metadata. Many people proposed the imposition of a tax on broadband subscriptions that would compensate rights holders while allowing people to acquire music however they chose. There have been attempts to bundle music with telecom subscriptions (more successful) and consumer electronics (less successful).
The current scheme of things is different than these proposals. Labels have made consumers pay for premium streaming services and -- by law -- allow them to stream music for free but with restrictions. There are problems but there’s been progress. Making money with YouTube and other video services is still a work in progress, but has definitely progressed. And people still buy downloads. The industry might not be making money from every Internet connection, but it is earning a stable, and respectable amount.