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Streaming is More Than a Wave, It's Now the Sea In Which the Music Business Swims
The music industry lost billions of dollars for a full decade before music streaming entered the mix
By John Kohl
(more articles from this author)
2016-04-18
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In the music industry, there are two major - and strangely popular - knocks on streaming services: they pay skimpy royalties to artists and they have cost the industry billions.

Popular knocks, yes, but in my view, completely wrongheaded.

The music industry lost billions of dollars for a full decade before music streaming entered the mix. Those with short memories perhaps can't recall the rapacious era of piracy and music downloads, which up-ended things well before anyone had heard (or heard of) Pandora or Spotify. Apple certainly made a mint, but that's another story entirely.

Industry revenues declined every year between 1999 and 2014. Against that dismal backdrop, music streaming is today the only growth driver in the business. Indeed, after 15 years of woe, streaming is the catalyst for an industry comeback, albeit one that is proceeding more slowly than I'd prefer. But stepping back, the turnaround is actually quite remarkable; streaming has transformed a listing ship into one that floats and even cruises now and then.

Today, streaming is now the #1 form of music consumption, period, and the biggest money-maker for the American music industry. All of the major streaming players - Spotify, Slacker, iHeartRadio, Apple, Pandora and others - are investing heavily to create massive consumer awareness and adoption. Music fans are voting with their wallets as they convert from free streaming services to premium paid subscriptions. Paid subscriptions in streaming music topped $1 billion for the first time in 2015. Now, the entire streaming sector of the music industry brings in some $2.4 billion, half from subscriptions.

The labels aren't leading from behind; in some cases, they're at the head of the pack. The world's largest and second largest music labels are engaged in a cautious but strategic embrace of streaming consumption. Universal Music Group and Sony now both generate 24 percent of their music income from streaming.

Serious money is in play. Spotify just raised $1 billion, with private-equity firm TPG, Dragoneer Investment Group and clients of Goldman Sachs participating in the deal. The company is on a tear, with 30 million paid subscribers - up from 20 million in June 2015 and 10 million in 2014. Apple Music is Spotify's largest competitor, with 11 million paying subs.

For its part, Apple bought beats for $3 billion, Pandora bought Ticketfly for $450 million, Deezer just raised $110 million, and so it goes. The market is ripe for acquisition and consolidation, another wave that is just beginning to crest.

While there's talk of a tech bubble and some signs that venture funding is slowing, music tech didn't get the memo. Nearly $2 billion was invested in 2015, more than double the $947 million the previous year. Heavyweight investors, like Mark Cuban, Len Blavatnik and Li Ka-shing, are doubling down, as are major telecom companies and venture capitalists.

The smart money is investing in music tech because the marketplace is poised to generate tremendous investment returns. Industry data points to explosive growth in music-tech over the next few years. Technology giants like Google, Amazon, Facebook, Apple (again) and Samsung are all creating products based around a core music experience, and are integrating music into their existing product lines.

The best part about streaming is that it will expand the music industry overall, engaging even more music fans (consumers) than ever before. This is tremendous news for artists, at least those artists who understand the inevitable - the future, however we describe it.

It's true that artists need to adapt. Streaming is the automobile to that familiar, and very dated, horse and buggy. Those who embrace the disruption streaming represents and are willing to hold on through the transition – stand to profit, financially and artistically.

Consider the words of Troy Carter, one of the brightest minds in the business. For Carter, music streaming is all about exposure; that's step one. Step two is monetizing that exposure as the surest path to success. Industry experts like Carter believe the overall streaming market will grow tenfold over the next five years, from 100 million users to 1 billion.

That number ought to be music to everyone's ears.


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