America has a new favorite way to pay for music.
For the first time ever, retail revenue from streaming services eclipsed revenue for digital downloads in 2015, according to the Recording Industry Association of America. Music fans are opening their wallets to pay for music subscription services, or listening to songs on free ad-supported platforms.
Streaming comprised 34.3 percent of industry revenue for the year, bringing in $2.4 billion. Digital album and track downloads, which have been in decline for years, came in just behind with a 34 percent share of the market, followed by physical formats. In total, revenue was up about 1 percent, to $7 billion for the year.
Streaming services have been around for more than a decade. One of the first, ironically, tried to leverage the brand of Napster, the file-sharing service that introduced music piracy to the masses. But the two companies most responsible for streaming’s success are Spotify (SPOTIFY), the first subscription service to find a large audience, and YouTube, which is the most popular method for listening to music online.
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The RIAA has one big problem with both these platforms: they let people listen to music on demand for free. These ad-supported listening experiences brought in less than $400 million in revenue in 2015, compared to $1.2 billion from paid subscription services. Vinyl records were actually more lucrative for the music industry than YouTube streams, bringing in $416 million in revenue.
This disconnect between massive increases in music consumption and paltry gains in revenue is one reason artists like Taylor Swift and Adele have been withholding their albums from streaming services. But those efforts by certain superstar artists aren’t stopping people from choosing to stream songs instead of buying individual albums.
The pressure to tighten the reins on free music will likely increase. YouTube introduced a subscription service last fall, and Spotify, which has always had the same music on its free and paid tiers, has been mulling keeping some content exclusive to paying customers. Expect access to music to get more expensive, not less, as artists and labels try to regain more of the revenue lost since the CD era.