… while digital downloads fade and physical music media sales hold steady.
The music industry revenue reports issued annually by the Recording Industry Association of America (RIAA) are always interesting to look at, because they chronicle the big trends in how people are consuming their music.
The 2018 RIAA report is particularly enlightening, as it finds that streaming audio now accounts for three-fourths of all U.S. music industry revenue. With more than 50 million Americans subscribing to at least one streaming service, those revenue stats certainly make sense.
Moreover, the RIAA report states that 2018 revenues from streaming music platforms amounted to nearly $7.5 billion. That compares to just $1.1 billion (~11%) for digital downloads and $1.2 billion (~12%) for physical media sales.
Equally significant, streaming revenues account for nearly all of the revenue growth experienced across the entire industry – and the growth is dramatic. Streaming revenues jumped ~30% between 2017 and 2018, whereas growth in the other segments was essentially flat.
Within the streaming segment, all three major sectors – premium subscriptions, ad-supported on-demand streaming, and streaming radio – experienced revenue growth. But paid subscriptions continue to comprise the biggest chunk of revenue; they make up ~73% of all streaming revenues, or $5.4 million.
Ad-supported on-demand streaming is also proving to be quite popular with users, but while revenues grew by some 15% in 2018 to reach $760 million, it’s pretty clear that ad-supported streaming audio services lag behind in terms of generating revenues. Ad-supported streaming may account for more than one-third of all streaming activity … but only ~8% of streaming revenues.
The third segment — radio streaming services – looks to be a particularly bright spot. These services are evolving nicely, passing the $1 billion mare in revenues in 2018 for the first time.
But the main takeaway is this: Streaming audio now represents the “mainstream” while digital downloads are going the way of the cassette tape in an earlier era. And physical media (CDs, vinyl) have stabilized to a degree that many observers might not have anticipated happening just a few years ago.
I’ve suspected for some time that the rise in popularity of on-demand music services as well as Internet radio are fundamentally changing how consumers consume music.
And now we have quantification showing the extent of those changes.
Marketing research firm NPD Group has just released results from a survey it conducted among American Internet users age 13 and older. It found that half of Internet users have listened to music on Internet radio or an on-demand music service at least once over the past three months.
User activity is split equally between Internet radio services such as Pandora, and on-demand services like Spotify and Rhapsody (about 37% each).
Internet radio appears to be growing in popularity significantly faster than the on-demand music audience. Internet radio audience increased ~27% over the past year, while the on-demand music audience grew by just ~18%.
By contrast, the audience fell in other categories – most dramatically in listening to CDs:
• Digital downloads: ~2% decline • AM/FM radio: ~4% decline • Music CDs: ~16% decline
Since finally breaking into the mainstream about three years ago, the Pandora Internet radio service has really taken a bite out of the conventional ways of listening to music. Moreover, about one-third of all Pandora users are now listening to music via the service in their cars. As a result, since 2009 the percentage of Pandora users who also listen to AM/FM radio has declined by ~10%. Even more dramatic has been the drop in Pandora users also listening to CDs on non-computer devices and/or on portable music players (-21%).
An intriguing finding of the survey is that using Internet radio and on-demand music services has increased audience engagement with new music: More than half of the respondents reported that these services have aided in their discovery of music that is new to them.
Clearly, innovations such as Pandora’s “music genome” have made it easier and more fulfilling for listeners to broaden their musical horizons, branching out from musical styles that are familiar and most pleasing to them.
But an even more interesting finding may be this one: Two-thirds of respondents have used these services to rediscover older music – the music of their youth.
That the venerable Philadelphia Orchestra, 111 years old and one of the best-known, best-loved ensembles in the classical music field, should be facing bankruptcy proceedings comes as a surprise to most people. This orchestra, with its stellar roster of past music directors including Eugene Ormandy, Ricardo Muti, and Leopold Stokowski of Disney’s Fantasia fame, would seem to be nearly immune to financial stresses.
But the fallout from the economic recession has affected private and public funding alike, with corporate donors snapping their wallets shut … and many well-heeled retirees and other donors looking at their financial and real estate portfolios and feeling much poorer.
In the new economic reality, the prognosis for the Philadelphia Orchestra and other professional classical music ensembles is grim unless severe cuts are made to operating expenses. But those steps can also be risky. Just a week before the Philadelphia announcement, the Detroit Symphony, another well-established body whose list of past music directors including Antal Dorati, Paul Paray and Neeme Järvi is almost as impressive as Philadelphia’s, nearly went under after proposing more than a 15% reduction in player salaries, plus other concessions.
Rather than agree to their base pay dropping from ~$104,000 to ~$88,000, the musicians went on strike in the Fall of 2010. It was only when the board of the DSO was ready to pull the plug on the orchestra’s existence that the players agreed to come back to work.
On Saturday, April 9, the DSO performed for the first time in over five months, and the musicians are now committed to completing the current orchestral season. After nearly two years of wrangling, it’s the best outcome anyone could have hoped for.
Looking out across the country, it’s difficult to find much good news in the orchestral field; the Honolulu Symphony was recently liquidated and the Louisville Orchestra has also filed for bankruptcy.
Considering that the Buffalo urban community is much smaller than many other metropolitan markets like Detroit, Chicago, Philadelphia and San Francisco that support professional symphony orchestras, what the BPO has been able to accomplish is nothing short of amazing.
In 2008, the BPO concluded a capital campaign that added more than $32 million to the orchestra’s endowment, and posted a balanced budget in the 2009-10 season. In 2010, it went on tour for the first time in ~20 years. The BPO’s symphony programs are some of the most interesting and inventive being performed by any orchestra in America (I know: I’ve attended several of them). And the orchestra is continuing to release new CDs of fascinating orchestral repertoire on Naxos, the world’s largest classical music label.
Key to the BPO’s success goes beyond public monies, or support from foundations plus a few wealthy individuals. It’s about creating a strong link between the orchestra and the wider community – something easy to talk about, but challenging to accomplish without building strong chemistry and a sense of shared destiny. And in that regard, the attitude, approachability and personality of the music director cannot be overstated.
Richard Morrison, esteemed music critic of The Times of London, writes in the pages of BBC Music Magazine of “the existential crisis that could soon devour orchestras across the world with exemplary management, hard-working musicians, high standards and realistic attitudes.” He can “easily envisage a future in which dozens of ailing cities across Europe and America lose their orchestras forever.”
Not that Morrison is happy about his prognosis: “Some might argue that, in this age of universally-available Internet concerts, the physical presence of an orchestra in any particular region no longer matters. I can’t agree. It would be a tragedy if the opportunity to hear live classical concerts was bestowed only on people living in the wealthiest cities,” he opines.
If the example set by the Buffalo Philharmonic is one that could be replicated in other urban areas, Morrison’s grim prediction could turn out to be wrong. Let’s hope so.
Pandora® Internet radio is one of the more interesting concepts to hit the web. Built on a powerful music recommendation engine known as the Music Genome Project®, it enables a listener to hear streaming music selections chosen on the basis of the musical styles of their favorite bands, performers or songwriters.
If you enjoy the jazz piano style of Marian McPartland, for example, Pandora will stream performances in a similar vein – such as the songs of Beegie Adair and Joe Bushkin. And you can create numerous personalized channels (also called “custom radio stations”) focusing on different styles of music to suit whatever mood or occasion you wish.
… Except with Pandora, you do “kinda-sorta” know what you’re going to get. I’ve been a Pandora listener for over a year now, and I’ve been introduced to musical artists I didn’t know before and probably wouldn’t have stumbled upon otherwise … and I’m the richer for it.
Pandora may be an Internet star today, but it sure didn’t start out that way. The brainchild of Tim Westergren, Pandora labored under difficult circumstances for the better part of a decade. The Music Genome Project took years to build and calibrate, during which time Pandora’s yeomen developers were obliged to work for large stretches at a time without pay.
Also, as with many Internet sites, figuring out an effective business model was challenging — and a barrier to obtaining funding.
Then in 2007, just as Pandora seemed on the verge of breaking out, an action by the Copyright Royalty Board raised Internet radio royalty fees to prohibitive heights, resulting in a court action that was finally settled in July 2009 in a compromise ruling.
Through it all, Pandora managed to survive, and now is close to having 60 million registered users. The Internet site is attracting sufficient advertising dollars to bring in profitable quarters. Revenues topped $50 million in 2009 (~60% goes to paying music royalties), and revenues are on track to double this year.
Always innovating, Pandora is now expanding into TV sets and automobiles as well, although the majority of activity currently comes from computers and a significant minority from mobile phones.
Long-term, Pandora believes the biggest potential rests in automotive. Consider this: Once listeners realize they can simply skip over a song on Pandora they don’t like, it should change forever the way people interact with radio.