music industry revenue

Where Does Music Industry Revenue Come From These Days?

The music industry has had a gloomy outlook for more than a decade. Years ago MP3 players and iTunes all but destroyed the traditional album, and more recently even permanent digital downloads began to see a dip in sales, down as much as 13% in 2013-2014.

But, in 2016, things are beginning to look up.

digital music revenue

Courtesy of www.statista.com

This rise in the music industry’s revenue is actually thanks to the same digital music phenomenon that contributed to the damage in the first place. Digital sales – such as music streaming services and track downloads – now account for 45% of total global music revenue, compared to 39% for physical sales. This uptick in revenue puts the total industry revenue in 2015 at $15 billion, a 3.2% increase – the highest year-to-year growth in almost 20 years, according to a report out by IFPI.

All of the above is good news for the industry, but what exactly does this mean for the artists? How can an artist profit from the rapidly evolving ways that fans consume music? Below we’ll explain some of the more significant changes the industry has witnessed to help you understand how to navigate the new music landscape and reap the most benefits.

What’s Changed?

So, first things first: where is the money coming from now?

It’s important to understand a few of the most recent changes to the business:

  • As of 2015 digital music accounted for nearly half of all global revenue for the music industry, finally lapping physical revenue (from CDs, vinyl, etc.). Notably, streaming in particular is on the rise, now making up 43% of digital revenue, nearly neck-and-neck with downloads at 45%. More people than ever are opting to stream music on their computers, tablets, and smartphones rather than own it in any alternative format.
  • To that point, streaming is now the fastest growing portion of the market, jumping from just 8 million users in 2010 to 68 million in 2015.
  • Somewhat ironically within the physical market, vinyl – one of the more antiquated forms of recorded music – has seen a huge resurgence in past years. However, the overall effect of this niche market on revenue is negligible – a meager 2% of industry revenues can be attributed to vinyl sales.
  • In addition to digital and physical revenue streams, income from broadcast, online radio, and live performances – collectively called Performance Rights – make up about 14% of the industry’s overall revenue. And a small but meaningful segment of industry profits is generated by synchronization income, meaning the use of music in TV ads, films, and brand partnerships.

sources of music revenue

If things progress in the same manner that they have for the last 10 years, we are poised to see digital, especially streaming, dramatically eclipse physical revenues, while performance rights and synchronization income will grow slowly but steadily.

How Has Streaming Managed to Succeed?

Clearly, from the charts and stats above, permanent forms of music are on the decline, while more and more listeners are turning to streaming as their primary music source. Instead of owning their music, listeners are more attracted to the idea of utilizing the web for its myriad music options that allow them to listen at will. For example, Spotify, which boasts some 35 million songs available for listen, or SoundCloud and YouTube with their abundance of remixes, covers, and unique content, provide listeners an on-demand and sometimes pleasantly unpredictable experience that ones’ own fixed music library cannot.

Having just about any music available at the tap of your finger or the click of your mouse is the new normal for listeners. In part this can be explained by the music industry’s success at adapting to the rapidly changing digital age. With wider availability of smart phones and increased connectivity via the Internet, the industry worldwide has witnessed an influx of high-quality streaming services, like the aforementioned Spotify as well as Apple Music and Jay-Z’s Tidal, to name a few. As more listeners have access to smartphones, tablets, and other devices for listening — and as the technology improves, becomes more desirable, and more widely available globally – streaming, it seems, will continue to be the way forward for the industry.

streaming music subscribers

In the face of these changes, record label executives have redoubled their efforts to protect their artists and utilize whatever means possible to bring music to an expanding audience, proactively licensing music and creatively engaging with streaming and downloading opportunities for musicians.

While streaming has rattled traditional record sales, it still generates revenue through per-stream royalties. Although we’re talking fractions of pennies per stream, with the increased use of such services the revenue from streaming can at the very least displace lost payments from say, the decline of individual song downloads, as one study showed.

music revenue ads

Streaming still has a way to go, however, before it can be credited with rescuing the flailing music industry. Nearly a billion listeners use free ad-supported services like YouTube or Spotify and Pandora’s free versions, generating only about half a billion dollars for industry. That’s compared to the nearly $2 billion contributed by paid subscribers who number around 68 million at present. The challenge for the industry is to figure out innovative ways to harness that revenue stream by converting users to paid subscribers to give the industry a real boost.

Where’s The Live Music?

Live music is the one area of the industry’s revenue that remains reliable as a guaranteed source of cash.

live music revenue 2016

Fans still value the unique experience of seeing their favorite artist in concert enough to pay for it. Global music industry revenues totaled roughly $15 billion in 2015, while the live music equivalent totaled nearly double, at $29 billion.

Taylor Swift is just one artist who famously removed her music from streaming sites because she claimed streaming services were hurting the industry. As this graphic demonstrates, Swift dramatically outclasses other artists (whose music remains available to stream) with the revenue from her 2015 tour alone, demonstrating that nothing seems to attract a fan like the live experience.

most successful tours

The feeling of exclusivity that the live performance gives to the listener remains one of the most sought after of all premium content in the industry. As CareersinMusic.com recently showed, there are a number of unconventional ways an artist can take advantage of the demand for live performances, like using video or Skype to play shows for limited audiences willing to pay top dollar for the intimate and exclusive experience.

Interestingly, the industry doesn’t include live music in its numbers on overall revenue. Instead, revenue generally refers to recorded music and its usages: downloads, streams, CDs, and/or songs played on the radio or in TV ads.

But because live music is ramping up so fast, record labels have devised a way to get a cut of this revenue stream by brokering what are called “360 deals.” With this kind of deal the label profits from live as well as recorded music. The gain from these deals, however, is not reflected in the statistics since the “music industry” generally is not defined to include live shows.

What Now?

So, it appears the music industry is finally seeing a change for the positive. Despite more traditional formats being down, streaming is up and its potential suggests good things for artists as well as the industry as a whole. The on-demand experience of hearing what you want when you want it – for a nominal monthly fee, or even for free! – draws big numbers of listeners which can mean big rewards to artists. But while the methods of consuming music are evolving, one thing that has not changed is a fan’s desire to see her favorite artist perform live. Don’t forget about the revenue potential in live shows, and be sure to utilize technology to its full advantage when conceiving of ways to connect with listeners.

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