Streaming is driving growth that the U.S. music business hasn't seen in two decades. Can it continue?
With sales revenue up 11.4 percent to $7.7 billion in 2016, the U.S. recorded music business finally seems to have turned a corner after more than a decade and a half of decline. The question now is whether this nascent recovery will continue -- and whether an industry dominated by streaming can eventually return to a level close to its 1999 revenue peak of $14.6 billion.
The biggest threat to a continuing recovery is the possibility that Spotify’s presumed IPO doesn’t go well. The Stockholm-based startup, which despite its status as the world's biggest streaming service does not currently have long-term deals with any of the major labels, needs to go public within the next year or so, or else face financial penalties from the investors that hold its debt. If it can’t do so -- or if its stock offering fizzles -- it could destabilize the streaming business and scare off the investors that the sector needs to realize its potential.
The second biggest threat is that Spotify experiences the kind of runaway success that would let it dominate the streaming market -- and develop the kind of leverage that Apple's iTunes Store has in the download business. Spotify added more subscribers than Apple Music in 2016 and competitors like Tidal and SoundCloud seem to be losing steam, while newcomers to the on-demand space like Pandora, iHeartRadio and Amazon's Music Unlimited are all still in their infancy. "There is real concern of the industry developing platform dependency, which would hand Spotify the whip hand in negotiations," says Mark Mulligan, an analyst at Midia Research.