What does streaming music do to download sales? It's a question that gets to the heart of the future music industry.

Today, downloads are the dominant source of digital revenue, but far more revenue will come from webcasting and on-demand music services down the road. In the meantime, labels will worry that free, on-demand streaming and non-interactive webcasts have cannibalizing effects on the purchases of digital downloads. Some cannibalization is natural, but the displacement of high value behavior for a lower value one is problematic. Rather than encourage sales (and more revenue), streaming may sometimes be just free listening.

Streaming's impact on consumer behavior has been discussed -- and doubted by some -- since NPD Group's Russ Crupnick gave a presentation at last weeks' Digital Music Forum in New York. As has been reported, Crupnick said free, on-demand music services result in 13% fewer digital download purchases, while non-interactive services result in 41% more digital download purchases. (Billboard has not yet received a clarification on the wording of Crupnick's statements and assumes they were accurately reported.)

If we use Crupnick's numbers, we see the changes in downloading from on-demand and webcasting are almost a wash. If we assume non-interactive webcasts caused listeners to purchase 41% more downloads, and on-demand services caused users to purchase 10% fewer downloads, there was a 4.9% increase in download sales 2009, based on estimates from Nielsen's @Plan.





Assuming changes in downloading similar to those mentioned by Crupnick, the trade value of 2009 downloads is $1.461 billion. (That was roughly the actual trade value of downloads last year.) If there were no changes in purchases due to on-demand and interactive streaming, the value would have been $1.390 billion. Billboard used Nielsen's @Plan to estimate the relative impacts of the two opposing forces on 2009 digital download sales.

What if both on-demand and non-interactive resulted in a 10% increase in purchases? Download revenue would have been $1.429 billion, slightly less than actual trade revenue. At -10% for both, revenue would have dropped to $1.351 billion. A 20% increase due to non-interactive matched with a -20% drop for on-demand results in $1.311 billion.

A few notes:
- According to @Plan, only about one-fourth to one-fifth of online adults who use MySpace Music (in this example the proxy for free, on-demand services) and online radio have actually bought a digital download in the last six months.

- The vast majority of download buyers are therefore assumed not to be affected by on-demand or non-interactive services. Digital service providers may dispute these numbers based on customer surveys or internal data, and are welcome to share their opinions. Obviously, if more webcast listeners are assumed to buy digital downloads, the overall change would be much greater than is presented here.

- The estimated trade value of digital downloads purchased in the United States in 2009 was $1.461 billion. That figure was assumed to be the result of the two changes in consumer behavior described by Crupnick. No other reasons for changes in behavior were taken into account in this example.

- Billboard assumes users of on-demand services and non-interactive services are exclusive to one another and buy digital downloads at the same rate.

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