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Streaming Has Led Music’s Rebound, But How Many Potential Subscribers Are Left?

Recorded-music executives have good reason to feel bullish about their industry's comeback, but hold the champagne.

Recorded-music executives have good reason to feel bullish about their industry’s comeback. Revenue in the United States is up by double digits for a third straight year, to $9.8 billion in 2018, according to the RIAA’s year-end report, driven by a 30.1 percent rise in streaming revenue that more than made up for significant declines in CD and download sales. Annual sales are the highest they have been since 2007 — impressive, considering that just four years ago they had fallen to $6.7 billion, the lowest point since 1989.

But hold the champagne: Accounting for inflation, revenue is still less than half of the industry’s 1999 peak of $14.6 billion. In inflation-adjusted terms, the business is closer to its size in 1983, the first full year of the CD, when cassettes and vinyl each accounted for roughly half of $3.8 billion in revenue. 

The several-billion-dollar question is how much subscription streaming — and the overall industry — can grow. Much of the revenue increase of the last few years comes from subscriptions to full-catalog, on-demand streaming services like Spotify and Apple Music, which collectively count over 50 million subscribers in the United States. “There’s a lot of room for optimism,” says RIAA chairman/CEO Mitch Glazier.


But there are only so many more potential subscribers to go around. Based solely on streaming, at current pricing, the U.S. music industry would need 174 million paid subscribers to match 1999’s peak profits. Accounting for inflation, paid subscriptions would need to grow to more than 255 million to help the recorded music industry match that revenue level.

“Music is never going to get to the point where it was before,” says analyst and MIDiA managing director Mark Mulligan, citing a far more competitive market for entertainment than what existed 20 years ago. But, he notes, “the No. 1 trend is, this isn’t recorded-music growth, it’s streaming growth.”

That shows no signs of slowing. “We believe the strong growth will continue for a number of years,” says Kobalt founder/CEO Willard Ahdritz. He points out that the U.S. recovery is just part of the story: The company anticipates the global recorded-music market to reach $30 billion by 2025, passing the industry’s 1999 peak of $25.2 billion ($38 billion today).

Streaming Has Led Music’s Rebound, But How Many Potential Subscribers Are Left? | Billboard

The United States isn’t at “peak streaming” — but it could be getting closer. For comparison, Netflix ended 2018 with roughly 60 million U.S. subscribers and has stated it aims to eventually reach 90 million — albeit in a different, more crowded field. In January, Amazon announced that its Prime subscription service passed 100 million accounts, roughly matching cable TV’s 2009 peak. SiriusXM has 34 million subscribers. In 2018, the U.S. Census Bureau reported the country had about 127.59 million households, which consist of all the people who occupy a housing unit.

Mulligan predicts that the pace of streaming growth will gradually start to decrease for the first time by the second half of 2019. But attorney Bobby Rosenbloum, vice chairman of Greenberg Traurig’s global entertainment and media practice, disagrees. He says streaming will keep growing, because as new fans sign up, current users won’t cancel their accounts the way they stopped buying physical music once they owned their favorite albums. “Even if your music tastes stay the same, you don’t own anything,” says Rosenbloum. “As new consumers come online, you’re going to have new people every day becoming new purchasers when they can afford to be, and you’re not going to have people cycling out the way they used to.”


Another important question is what services labels will develop to supplement a business dominated by streaming. Amazon debuted Alexa at the end of 2014, and an estimated 65 million people in the United States own a smart speaker, according to Edison Research. An Adobe Analytics poll showed 74 percent use it for music. The next frontier of streaming is cars.

There’s also potential in licensing music as part of web experiences, a business that could take off as consumers spend more time online. In fitness, apps such as Peloton’s video-workout classes have signed deals to freely curate their own playlists, paying royalties on streams rather than flat synch fees. “There are so many new opportunities to tap into subscription models where music is a key part of it,” says Rosenbloum. “Now that we’re realizing if you create a compelling subscription business people will pay for it, we’re at the beginning, not the end.”

In China, the music market has embraced shared social online experiences, a business dominated by Tencent. Subscriptions to the tech giant’s WeSing, KuGou, KuWo and QQ Music apps offer a variety of ways to reward fans and artists, such as sending virtual gifts or tipping. “Fundamentally, it has framed these as social experiences that have music as a soundtrack rather than the other way, which is the way most Western music services are,” says Mulligan, citing TikTok and Facebook’s music offerings as exceptions.


There is another risk factor, too. Mulligan says music streaming as a format is now nearly 15 years old, but its cycle of replacing CDs has been historically slow. “We have a market dominated by an aging format,” he says, “with no successor in sight.”

This isn’t lost on labels, which are staffing up with that challenge in mind. On March 6, for example, Warner Music Group named Scott Cohen to the newly created role of chief innovation officer, tasked with finding growth opportunities in music, tech and culture. “It’s no longer enough for entertainment companies to merely embrace change,” said Cohen in a statement about his new role. “They need to create the future themselves.”

Additional reporting by Melinda Newman, Gail Mitchell and Ed Christman.

This article originally appeared in the March 9 issue of Billboard.

UPDATE: At 7:10 p.m. EST on March 8, this article was updated to include U.S. Census Bureau data.